Litronic to Hold IPO as Part of Acquisition Plan

Litronic Inc., an Internet security company that helps ensure the privacy and authenticity of online communications, plans to sell a 33% stake to new investors in an initial stock offering, according to regulatory documents.

The Irvine-based company plans to sell 3 million shares for $9 to $11 each in conjunction with its proposed acquisition of Pulsar Data Systems Inc. in a moved to help Litronic expand its customer base.

Pulsar, a consulting company and reseller of information technology products, had $61.5 million in revenue in the nine months ended Sept. 30, almost 13 times the revenue of Litronic in the same period.

The combined entities would have had operating losses of $8.1 million in the year ended Dec. 31, 1997, on revenue of $161.7 million if the merger had occurred on Jan. 1, 1997. The combined companies would have depended on sales to the U.S. government for 61% of their 1997 revenue.

Litronic, for example, derived 45% of its 1997 revenue from sales to the U.S. Army Corps of Engineers and 20% of its revenue from sales to Lockheed Martin Corp. Pulsar derived 22% of its revenue in the nine months ended Sept. 30, 1998, from sales to the U.S. Immigration and Naturalization Service.

If Litronic’s shares sell for a median $10 each, that would give Litronic an implied market value of $90.4 million, based on 9.04 million shares to be outstanding after the stock sale. The company expects to raise $25.7 million after expenses, according to documents filed with the Securities and Exchange Commission.

Litronic specializes in public key infrastructure technology used to verify the identity of people involved in online communications and to prevent unauthorized access to data sent across the Internet. Litronic technology is compatible with Internet browsers offered by Microsoft Corp. and Netscape Communications Corp. Companies can integrate the Litronic technology into their own Internet communications networks.

The worldwide market for information security products is forecast to increase to $7 billion by 2001 from $1.6 billion in 1997, according to data provided in the Litronic filing. Public key infrastructure technology is the fastest-growing part of the market, estimated to reach $1.9 billion by 2001 from $75 million in 1997, according to the filing.

Litronic said it would use $12 million of the proceeds from the stock sale to reduce debt and $6 million for sales and marketing. The company said it would use $5 million of the IPO proceeds for product development and the remaining $2.7 million for working capital and general corporate purposes.

Litronic’s chief executive is Kris Shah, 59, who will hold a 35.6% stake after the IPO. Shah has been chief executive since he founded Litronic in 1970.

Bluestone Capital Partners LP will underwrite the stock sale. Litronic has applied to trade on the Nasdaq Stock Market under the symbol LTNX.