SSP Solutions Inc · DEFM14A · On 7/24/01

Filed On 7/24/01 8:52pm ET   ·   SEC File 0-26227   ·   Accession Number 1095811-1-503350

Definitive Proxy Solicitation Material -- Merger or Acquisition   ·   Schedule 14A
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Document/Exhibit                   Description                      Pages   Size 

 1: DEFM14A     Definitive Proxy Statement Relating to Merger        269  1,230K 

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SCHEDULE 14A INFORMATION

 PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934

Filed by the Registrant [X]                                                     
Filed by a Party other than the Registrant [ ]                                  

Check the appropriate box:                                                      

[ ]     Preliminary Proxy Statement                                             

[ ]     Confidential, for Use of the Commission Only (as permitted by Rule      
14a-6(e)(2))                                                    

[X]     Definitive Proxy Statement                                              

[ ]     Definitive Additional Materials                                         

[ ]     Soliciting Material Pursuant to Section 240.14a-12                      

 LITRONIC INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

Payment of Filing Fee (Check the appropriate box):                              

[ ]     No fee required.                                                        

[ ]     Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

      (1)    Title of each class of securities to which transaction applies:

               -----------------------------------------------------------------

   (2)    Aggregate number of securities to which transaction applies:

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       (3)    Per unit price or other underlying value of transaction computed
               pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
            the filing fee is calculated and state how it was determined):

               -----------------------------------------------------------------

(4)    Proposed maximum aggregate value of transaction:         
               -----------------------------------------------------------------

(5)    Total fee paid:                                          
               -----------------------------------------------------------------

[X]     Fee paid previously with preliminary materials:                         
$5,764                                                          

[ ]     Check box if any part of the fee is offset as provided by Exchange Act  
        Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
       paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.     

(1)    Amount Previously Paid:                                  
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(2)    Form, Schedule or Registration Statement No.:            
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(3)    Filing Party:                                            
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(4)    Date Filed:                                              
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 Litronic Inc.
 17861 Cartwright Road
Irvine, CA 92614

Dear Stockholders:                                                              

     You are cordially invited to attend the 2001 Annual Meeting of Stockholders
of Litronic Inc. that will be held on August 23, 2001 at 2:00 p.m., local time, 
at the Irvine Marriott Hotel, 18000 Von Karman Avenue, Irvine, California 92612.

At the meeting you will be asked to consider and vote upon the matters
described in the accompanying notice and proxy statement.                       

   Whether or not you plan to attend the Annual Meeting please sign and date
the enclosed proxy card and return it promptly in the enclosed postage prepaid  
envelope.                                                                       

Sincerely,

   /s/ KRIS SHAH
                           -------------------------------------

Kris Shah,
             Chief Executive Officer

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 LITRONIC INC.
 17861 CARTWRIGHT ROAD
IRVINE, CA 92614
--------------------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 TO BE HELD ON AUGUST 23, 2001
--------------------------

    NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of Litronic
Inc. will be held at the Irvine Marriott Hotel, 18000 Von Karman Avenue, Irvine,
California, on August 23, 2001 at 2:00 p.m., local time, for the following      
purposes:                                                                       

     (1) To consider and vote on the proposed merger of Litronic Merger Corp., a
wholly-owned subsidiary of Litronic Inc., with and into BIZ Interactive Zone,   
Inc., as contemplated by the Agreement and Plan of Reorganization dated as of   
July 3, 2001, among Litronic, Litronic Merger Corp. and BIZ. In the merger,     
Litronic will issue 0.4751248 shares of common stock in exchange for each       
outstanding share of BIZ's common stock and 0.8564122 shares of common stock in 
exchange for each outstanding share of BIZ's Series B Preferred Stock. Upon     
consummation of the merger, BIZ will become a wholly-owned subsidiary of        
Litronic. The adoption of the Agreement and Plan of Reorganization will also    
constitute approval of the merger and the other transactions contemplated by the
Agreement and Plan of Reorganization.                                           

(2) To approve our Amended and Restated 1999 Stock Option Plan;       

(3) To elect four members to our board of directors;                  

(4) To approve amendments to our amended and restated certificate of  
incorporation to increase the authorized number of shares of our common stock   
and to change the name of the corporation to SSP Solutions, Inc;                

   (5) To ratify the appointment of KPMG LLP as our independent auditors for
fiscal 2001;                                                                    

     (6) To approve the issuance of securities in future financing transactions;

(7) To approve our 2001 Employee Stock Purchase Plan; and             

     (8) To transact such other business as may properly come before the meeting
or any adjournments and postponements thereof.                                  

    The board of directors has fixed the close of business on June 29, 2001 as
the record date for the determination of stockholders entitled to notice of and 
to vote at the meeting. Only holders of our common stock at the close of        
business on the record date are entitled to vote at the meeting. A list of      
stockholders entitled to vote at the meeting will be available for inspection at
our executive offices. Stockholders attending the meeting whose shares are held 
in the name of a broker or other nominee should bring with them a proxy or      
letter from that firm confirming their ownership of shares.                     

    The approval of Proposals 1 and 4 will require the affirmative vote of the
holders of a majority of our outstanding shares as of the record date. The      
approval of Proposals 2, 5, 6 and 7 will require the affirmative vote of the    
holders of a majority of the shares of our common stock present in person or    
represented by proxy and entitled to vote at the meeting. For Proposal 3, the   
election of the members of our board of directors, the four nominees of our     
seven member board receiving the highest vote totals will be elected. The terms 
of two of our current directors, Kris Shah and Frank Cilluffo, have not yet     
expired, so Messrs. Shah and Cilluffo will remain on our board but are not      
nominees for election at this meeting.                                          

   Accompanying this notice are a proxy and proxy statement. IF YOU WILL NOT
BE ABLE TO ATTEND THE MEETING TO VOTE IN PERSON, PLEASE SIGN AND DATE THE       
ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. The proxy   
may be revoked at any time prior to its exercise at the meeting.                

                                             By Order of the Board of Directors,

                       /s/ Kris Shah
                                            ----------------------------------
                              Kris Shah, Secretary

Irvine, California                                                              

July 24, 2001                                                                   

YOUR VOTE IS IMPORTANT

  YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. HOWEVER, EVEN IF
YOU DO PLAN TO ATTEND, PLEASE PROMPTLY COMPLETE, SIGN, DATE AND MAIL THE        
ENCLOSED PROXY IN THE ENVELOPE PROVIDED. RETURNING A SIGNED PROXY WILL NOT      
PREVENT YOU FROM VOTING IN PERSON AT THE ANNUAL MEETING, IF YOU SO DESIRE, BUT  
WILL HELP US TO SECURE A QUORUM AND REDUCE THE EXPENSE OF ADDITIONAL PROXY      
SOLICITATION.                                                                   

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 TABLE OF CONTENTS

                                                        [Enlarge/Download Table]

                                                                                                PAGE
                                                                                                ----
                                                                                                    
Available Information..........................................................................   2 
Summary .......................................................................................   3 
Risk Factors...................................................................................  15 
The Annual Meeting.............................................................................  23 
Proposal 1 -- Approval of the Reorganization Agreement.........................................  25 
         The Merger............................................................................  25 
         The Reorganization Agreement..........................................................  36 
Proposal 2 -- Approval of our Amended and Restated 1999 Stock Option Plan......................  43 
Proposal 3 -- Election of Directors............................................................  48 
Proposal 4 -- Approval of Amendments to our Certificate of Incorporation.......................  59 
Proposal 5 - Ratification of Selection of Independent Auditors.................................  60 
Proposal 6 - Approval of the Issuance of Securities in Future Financing Transactions...........  61 
Proposal 7 - Approval of our 2001 Employee Stock Purchase Plan.................................  62 
Our Management's Discussion and Analysis of Financial Condition and Results of Operations......  65 
Security Ownership of Certain Beneficial Owners and Management.................................  74 
Description of BIZ's Business..................................................................  76 
Management's Discussion and Analysis of Financial Condition and Results of Operations of BIZ...  86 
Market Price of and Dividends of BIZ's Common Equity and Related Stockholder Matters...........  91 
Unaudited Pro Forma Combined Financial Data of Litronic and BIZ................................  92 
Annual Report to Stockholders..................................................................  98 
Annual Report on Form 10-K/A...................................................................  98 
Stockholder Proposals..........................................................................  98 
Other Matters..................................................................................  98 

Appendix A -- Agreement and Plan of Reorganization............................................. A-1 
Appendix B -- Fairness Opinion................................................................. B-1 
Appendix C -- Consolidated Financial Statements of Litronic.................................... C-1 
Appendix D -- Consolidated Financial Statements of BIZ......................................... D-1 
Appendix E -- Litronic Inc. Amended and Restated 1999 Stock Option Plan........................ E-1 
Appendix F -- Audit Committee Charter.......................................................... F-1 
Appendix G -- Voting Agreement................................................................. G-1 
Appendix H -- 2001 Employee Stock Purchase Plan................................................ H-1 


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 CERTAIN DEFINITIONS

   As used in this proxy statement, "Litronic," "we," "our," "ours" and "us"
refer to Litronic Inc. and its subsidiaries. References in this proxy statement 
to "the merger" are references to the merger of Litronic Merger Corp., a        
wholly-owned subsidiary of Litronic, into BIZ Interactive Zone, Inc., or BIZ,   
with BIZ surviving as a wholly-owned subsidiary of Litronic.                    

 NOTE REGARDING FORWARD-LOOKING STATEMENTS

   This proxy statement contains statements that constitute "forward-looking
statements" within the safe harbor provisions of the Private Securities         
Litigation Reform Act. "Forward-looking statements" are those statements that   
describe management's beliefs and expectations about the future. Words such as  
"anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates"  
and similar expressions generally identify forward-looking statements. These    
forward-looking statements are not guarantees of future performance and are     
subject to certain risks and uncertainties that could cause actual results to   
differ materially from the results contemplated by the forward-looking          
statements. These risks and uncertainties include, but are not limited to, the  
following:                                                                      

 -  we may not achieve the benefits we expect from the merger, which may
  have a material adverse effect on the combined company's business,
    financial condition and operating results and/or could result in the
loss of key personnel;                                          

-  the merger could adversely affect our combined financial results;  

-  the market price of our common stock may decline as a result of the
merger;                                                         

   -  certain officers and directors may have conflicts of interest that may
influence them to support or approve the merger; and            

    -  failure to complete the merger could negatively impact our stock price,
future business and operations.                                 

   In evaluating the merger, you should carefully consider the discussion of
these and other factors in the section entitled "Risk Factors" beginning on page
15.                                                                             

   Should one or more of these risks or uncertainties affect our business or
should underlying assumptions prove incorrect, actual results, performance or   
achievements in 2001 and beyond could differ materially from those expressed in,
or implied by, such forward-looking statements.                                 

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 LITRONIC INC.
 17861 CARTWRIGHT ROAD
IRVINE, CALIFORNIA 92614
 -----------------------

 PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS
 AUGUST 23, 2001
 -----------------------

INTRODUCTION

This proxy statement is being furnished to holders of common stock of 
Litronic Inc., a Delaware corporation, or Litronic, in connection with the      
solicitation of proxies by our board of directors for use at the annual meeting 
of our stockholders to be held on August 23, 2001, or any adjournment or        
postponement thereof. This proxy statement and accompanying form of proxy are   
being mailed to our stockholders on or about July 26, 2001.                     

     At our annual stockholders' meeting, you will be asked to consider and vote
upon proposals to:                                                              

  (1) consider and vote on an Agreement and Plan of Reorganization, or the
Reorganization Agreement, dated as of July 3, 2001, between Litronic, Litronic  
Merger Corp. and BIZ Interactive Zone, Inc., a Delaware corporation, or BIZ.    
Upon consummation of the merger, each share of BIZ common stock, $0.001 par     
value per share, except for any Dissenting Shares (as described in this proxy   
statement), issued and outstanding immediately prior to the filing of an        
Agreement of Merger with the Secretary of State of the State of Delaware, or the
Effective Time of the merger, will be converted into 0.4751248 shares (referred 
to in this proxy statement as the Exchange Ratio) of our common stock, $.01 par 
value per share; and each issued and outstanding share of BIZ Series B Preferred
Stock, $.001 par value per share, or Series B Stock, will be converted into     
0.8564122 shares of our common stock (referred to in this proxy statement as the
Series B Exchange Ratio), (2) approve our Amended and Restated 1999 Stock Option
Plan, (3) elect four members to our board of directors, (4) approve amendments  
to our amended and restated certificate of incorporation to increase the        
authorized number of shares of our common stock and to change our name to SSP   
Solutions, Inc., (5) ratify the appointment of KPMG LLP as our independent      
auditors for the fiscal year ending December 31, 2001, (6) approve the issuance 
of common stock or other securities, which, when exercised or converted into    
common stock, will constitute more than 20% of our outstanding common stock in  
future financing transactions, and (7) approve our 2001 Employee Stock Purchase 
Plan. These proposals are sometimes collectively referred to in this proxy      
statement as the Proposals.                                                     

  A form of proxy is enclosed for your use. The shares represented by each
properly executed, unrevoked proxy will be voted as directed by the stockholder 
with respect to the matters described in the proxy. If no direction is made, the
shares represented by each properly executed, unrevoked proxy will be voted FOR 
the Proposals.                                                                  

    Any proxy given may be revoked at any time prior to its exercise by filing
with our secretary an instrument revoking the proxy or by filing a duly executed
proxy bearing a later date. Any stockholder present at the meeting who has given
a proxy may withdraw it and vote his shares in person if he so desires.         

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   We contemplate that the solicitation of proxies will be made primarily by
mail. We will make arrangements with brokerage houses and other custodians,     
nominees and fiduciaries to send proxies and proxy material to the beneficial   
owners of the shares and will reimburse them for their expenses in so doing.    

    We have one class of securities outstanding, common stock. Only holders of
record of our common stock at the close of business on June 29, 2001, or the    
Record Date, are entitled to notice of and to vote at the annual meeting. As of 
the Record Date, we had issued and outstanding, 9,747,526 shares of common      
stock. Each share of our common stock issued and outstanding on the Record Date 
is entitled to one vote at the annual meeting.                                  

  Kris Shah, our chief executive officer, chairman of the board, president
and secretary and certain of his family members and affiliates collectively own 
5,368,358 shares, or 55% of our issued and outstanding common stock. Under the  
terms of a voting agreement, Mr. Shah, certain of his family members and        
affiliates and Marvin Winkler, the chief executive officer of BIZ, and his      
affiliates, as well as the holders of Series B Stock, have agreed to vote in    
favor of the merger.                                                            

THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT. THE
PROPOSED REORGANIZATION IS A COMPLEX TRANSACTION AND INVOLVES SIGNIFICANT RISKS.
YOU ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS PROXY STATEMENT IN   
ITS ENTIRETY, PARTICULARLY THE MATTERS REFERRED TO UNDER THE HEADING "RISK      
FACTORS" BEGINNING ON PAGE 15.                                                  

 AVAILABLE INFORMATION

     We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, or the Exchange Act, and in accordance therewith, we   
file reports, proxy statements and other information with the Securities and    
Exchange Commission, or the Commission. These materials can be inspected and    
copied at the public reference facilities maintained by the Commission at 450   
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional    
offices located at Northwest Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of these materials can also be obtained from the Commission at    
prescribed rates by writing to the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549. Our common stock has been traded
on The Nasdaq National Market, under the symbol "LTNX" since it began trading   
publicly on June 9, 1999.                                                       

     We have supplied all information contained in this proxy statement relating
to us and BIZ has supplied all information relating to BIZ. L.H. Friend,        
Weinress, Frankson & Presson, LLC, or Friend, has supplied the information      
regarding its fairness opinion.                                                 

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 SUMMARY

     The following is a brief summary of certain information contained elsewhere
in this proxy statement. The summary is not intended to be complete and is      
qualified in its entirety by reference to the full text of this proxy statement 
and the attached Appendices. You are urged to read carefully this proxy         
statement and the attached Appendices in their entirety. See "Risk Factors" for 
certain information that you should consider.                                   

     This summary contains forward-looking statements regarding future events or
the future financial performance of Litronic and BIZ. Actual events and the     
actual results of Litronic and BIZ may differ materially from those anticipated 
in or by any forward-looking statement due to certain risks and uncertainties   
including the risks described under the heading "Risk Factors" and elsewhere in 
this proxy statement. See "Note Regarding Forward-Looking Statements."          

THE COMPANIES                                                                   

Litronic. We provide professional Internet data security services and 
develop and market software and microprocessor-based products that serve to     
secure electronic commerce and communications over the Internet and other       
communications networks based on Internet protocols. Our principal executive    
offices are located at 17861 Cartwright Road, Irvine, California 92614 and our  
telephone number is (949) 851-1085.                                             

  BIZ. BIZ is a development stage enterprise devoting substantially all of
its efforts to develop a complete line of hardware, software and firmware to    
support secure, private, trusted transactions under the SSP(TM) (Secure Service 
Provider(TM)) trade name. BIZ's principal executive offices are located at 2030 
Main Street, Suite 1250, Irvine, California 92614 and its telephone number is   
(949) 655-4500. See "Description of BIZ's Business."                            

THE ANNUAL MEETING                                                              

Our annual meeting of stockholders will be held at the Irvine Marriott
Hotel, 18000 Von Karman Avenue, Irvine, California 92612 on August 23, 2001,    
starting at 2:00 p.m., local time. See "The Annual Meeting" at page 23 of this  
proxy statement. At our annual meeting, you will be asked to consider, approve  
and adopt the Proposals.                                                        

Holders of record of our common stock at the close of business on the 
Record Date have the right to receive notice of and to vote at the annual       
meeting. As of the close of business on the Record Date, there were 9,747,526   
shares of our common stock outstanding and entitled to vote at the annual       
meeting. Each share of our common stock is entitled to one vote on each matter  
that is properly presented to stockholders for a vote at the annual meeting. The
approval of Proposals 1 and 4 will require the affirmative vote of the holders  
of a majority of our outstanding shares as of the Record Date. The approval of  
Proposals 2, 5, 6 and 7 will require the affirmative vote of the holders of a   
majority of the shares of our common stock present in person or represented by  
proxy and entitled to vote at the annual meeting. For Proposal 3, the election  
of the members of our board of directors, the four nominees receiving the       
highest vote totals will be elected.                                            

PROPOSAL 1 - THE REORGANIZATION AGREEMENT                                       

General                                                               

   The Reorganization Agreement provides, among other things, for the merger
of Litronic Merger Corp. with and into BIZ,                                     

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which will result in BIZ, as the surviving corporation of the merger, becoming  
our wholly-owned subsidiary.                                                    

Conversion of BIZ Stock                                               

     Upon consummation of the merger, each share of BIZ common stock, except for
any Dissenting Shares, issued and outstanding immediately prior to the Effective
Time, will be converted into 0.4751248 shares of our common stock, and each     
share of Series B Stock, except for any Dissenting Shares, issued and           
outstanding immediately prior to the Effective time, will be converted into     
0.8564122 shares of our common stock. See "The Reorganization                   
Agreement--Conversion of BIZ Stock." Throughout this proxy statement, Dissenting
Shares means the shares of BIZ common stock and Series B Stock with respect to  
which the holder has perfected his demand for dissenter's rights in accordance  
with applicable provisions of the California General Corporation Law, and has   
not effectively withdrawn or lost these rights. After the conversion of the BIZ 
shares in the merger, the current BIZ stockholders (other than Kris Shah) will  
own approximately 49.5% of our outstanding common stock. Our chief executive    
officer, chairman of the board, president and secretary, Kris Shah, is a        
minority stockholder of BIZ. His BIZ shares will convert into 655,174 shares of 
our common stock at the Effective Time.                                         

   No fractional shares of our common stock will be issued in the merger. In
lieu of the issuance of any fractional shares, each former BIZ stockholder who  
would otherwise be entitled to receive a fraction of a share of our common stock
will receive cash equal to the product of that fraction, and the average of the 
closing prices of one share of our common stock as quoted on The Nasdaq National
Market for the five trading day period ending on the trading day immediately    
preceding the Effective Time.                                                   

    When used herein, the Closing Date means a date and a time mutually agreed
upon by us and BIZ, not later than the fifth business day after all conditions  
precedent to our obligations and BIZ's obligations to consummate the merger set 
forth in the Reorganization Agreement have been satisfied or waived.            

Conditions to the Merger                                              

     Our obligation and BIZ's obligation to consummate the merger are subject to
the fulfillment of various conditions, including:                               

-  the absence of any order, decree, ruling or threat by any court or 
 governmental agency, or any other fact or circumstance that would
prohibit or render illegal the transactions contemplated by the 
Reorganization Agreement;                                       

-  the approval of our stockholders and BIZ's stockholders;           

-  the receipt of all consents, permits or authorizations required by 
governmental authorities;                                       

-  BIZ shall not have received demands for the exercise of dissenters'
     rights from holders of shares representing more than 5% of its issued
and outstanding shares of capital stock;                        

 -  our receipt of a fairness opinion of Friend, dated as of the Closing
Date;                                                           

-  the termination of the amended and restated stockholders' agreement
among BIZ and certain of its stockholders;                      

-  our receipt of an opinion of BIZ's counsel and BIZ's receipt of an 
    opinion of our counsel, each dated as of the Closing Date, regarding
certain matters set forth in the Reorganization Agreement;      

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-  the election of the directors nominated and set forth in this proxy
statement at our annual meeting of stockholders;                

     -  the authorization by Nasdaq of the listing on The Nasdaq National Market
 of our shares of common stock to be issued in connection with the
merger; and                                                     

   -  the approval of the change of our Nasdaq trading symbol to "SSPX." See
 "The Reorganization Agreement--Conditions to the Reorganization."

Termination of the Reorganization Agreement                           

     The Reorganization Agreement is subject to termination at any time prior to
the Effective Time, whether before or after approval of the merger by our       
stockholders or BIZ's stockholders, by:                                         

-  written agreement of BIZ and us;                                   

  -  BIZ, if we breach any representation, warranty, covenant or agreement
       set forth in the Reorganization Agreement, and that breach would result
  in the conditions precedent to BIZ's obligations to consummate the
   merger not being satisfied and which is not curable by us within 45
days;                                                           

    -  us, if BIZ breaches any representation, warranty, covenant or agreement
       set forth in the Reorganization Agreement, and that breach would result
       in the conditions precedent to our obligations to consummate the merger
   not being satisfied and which is not curable by BIZ within 45 days;

-  either party, if requisite stockholder approval is not obtained;   

 -  either party, if the merger has not occurred on or before August 31,
2001 (other than as a result of a breach by the party seeking to
terminate the Reorganization Agreement); and                    

     -  either party, if a permanent injunction or other order by any federal or
      state court which would make illegal or otherwise restrain or prohibit
       the consummation of the merger has been issued and has become final and
    nonappealable. See "The Reorganization Agreement--Termination of the
Reorganization Agreement."                                      

THE MERGER                                                                      

Our Reasons for the Merger                                            

   Our board of directors, by unanimous vote, has determined that the merger
is in the best interests of the holders of our common stock and recommends that 
the holders of our common stock vote in favor of Proposal 1. The decision of our
board of directors to enter into the Reorganization Agreement and to recommend  
that our stockholders vote in favor of Proposal 1 is based upon its evaluation  
of a number of factors, including, among others, the written opinion dated July 
2, 2001, which will be confirmed in writing as of the Closing Date, of Friend   
that, based upon and subject to the matters set forth in the written opinion, as
of these dates, the merger is fair from a financial point of view to our company
and to our stockholders. See "The Merger--Our Reasons for the Merger," and      
"--Fairness Opinion."                                                           

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Interests of Certain Persons in the Merger                            

There is a member of our management and our board of directors who has
interests in the merger that are different from, or in addition to, the         
interests of our stockholders generally, resulting in a potential conflict of   
interest. See "The Merger--Interests of Certain Persons in the Reorganization." 

Accounting Treatment                                                  

   We anticipate that we will account for the merger as a purchase of BIZ by
Litronic. See "The Merger--Accounting Treatment."                               

Material Federal Income Tax Consequences of the Merger                

    For federal income tax purposes, we intend that the merger will qualify as
a reorganization within the meaning of Section 368 of the Internal Revenue Code 
of 1986, as amended, or the Code, and that none of Litronic, Litronic Merger    
Corp., BIZ or any of their stockholders will recognize any gain or loss for     
federal or state income tax purposes as a result of the merger.                 

Opinion of Investment Banker                                          

On July 2, 2001, Friend delivered its written opinion to our board of 
directors stating that, as of that date, the merger was fair to our company and 
to our stockholders from a financial point of view. The full text of the opinion
of Friend dated July 2, 2001, which will be confirmed in writing as of the      
Closing Date, which sets forth the assumptions made, matters considered and     
limitations on the review undertaken by Friend, is attached as Appendix B to    
this proxy statement. Our stockholders are urged to read the entire opinion     
carefully. See "The Merger--Fairness Opinion."                                  

Assumption of BIZ Options and BIZ Warrants                            

     At the Effective Time, we will assume BIZ's Stock Option Plan and each then
outstanding option (each referred to herein as a BIZ Option and collectively, as
the BIZ Options) and each outstanding warrant (each referred to herein as a BIZ 
Warrant and collectively, as the BIZ Warrants) to purchase BIZ common stock and 
convert each BIZ Option or BIZ Warrant into an option or warrant to acquire the 
number of shares of our common stock determined by multiplying the number of    
shares of BIZ common stock subject to the BIZ Option or BIZ Warrant at the      
Effective Time by the Exchange Ratio, at an exercise price per share of our     
common stock equal to the exercise price per share of the BIZ Option or BIZ     
Warrant immediately prior to the Effective Time, divided by the Exchange Ratio  
and rounded up to the nearest whole cent. To avoid fractional shares, the number
of shares of our common stock subject to an assumed BIZ Option or BIZ Warrant   
will be rounded to the nearest whole number of shares (rounded down in the cases
of BIZ Options that are incentive stock options, or ISOs.) The other terms of   
the BIZ Options and BIZ Warrants, including vesting schedules, will remain      
unchanged. We will file a registration statement on Form S-8 with the Commission
with respect to the issuance of shares of our common stock upon exercise of the 
assumed BIZ Options which are eligible to be registered on Form S-8 as soon as  
practicable after the Closing Date. As of July 19, 2001, BIZ Options to acquire 
an aggregate of 1,756,500 shares of BIZ common stock were outstanding and BIZ   
Warrants to purchase an aggregate of 450,000 shares of BIZ common stock were    
outstanding. Of these, we hold a warrant to purchase 400,000 shares of BIZ      
common stock. This warrant will be cancelled upon consummation of the merger.   

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Appraisal Rights of Stockholders                                      

Our stockholders will not have rights of appraisal under the Delaware 
General Corporation Law, or DGCL, with respect to the merger because our common 
stock is traded on The Nasdaq National Market.                                  

Voting Agreements                                                     

    Kris Shah and his affiliates and family members, who collectively held, as
of the Record Date, approximately 55% of our outstanding common stock, have     
agreed to vote in favor of the merger and the transactions contemplated by the  
Agreement of Merger, including the election of the nominees for director named  
in this proxy statement. Marvin Winkler, the chief executive officer of BIZ and 
his affiliates and the holders of Series B Stock, who collectively held,        
together with Kris Shah, as of the Record Date, 100% of BIZ's outstanding stock,
are also parties to this voting agreement and have likewise agreed to vote in   
favor of the merger and the transactions contemplated by the Agreement of       
Merger, including the election of the nominees for director named in this proxy 
statement. Therefore, absent an extraordinary event, management believes that   
the approval of the Proposals described in this proxy statement is assured. A   
copy of the voting agreement, which contains provisions regarding the voting of 
those shares, is attached as Appendix G to this proxy statement. You should     
carefully read the entire voting agreement.                                     

Ability to Sell Our Stock After the Merger                            

    All shares of our common stock that holders of BIZ common stock and Series
B Stock will receive in connection with the merger will be "restricted          
securities" as that term is defined in the Securities Act of 1933, as amended,  
or the Securities Act, and as a result, may be sold only pursuant to a          
registration statement or an exemption from registration.                       

Regulatory Approvals                                                  

 We will file the Agreement of Merger with the Secretary of State of the
State of Delaware. Once the Delaware Secretary of State accepts the Agreement of
Merger, the merger will be officially completed and effective.                  

COMPARATIVE PER SHARE DATA AND DIVIDEND INFORMATION                             

The following table sets forth the historical per share information of
Litronic and BIZ and combined per share data on an unaudited pro forma basis    
after giving effect to the merger between the two companies, assuming that      
0.4751248 shares of our common stock had been issued in exchange for each       
outstanding share of BIZ common stock and that 0.8564122 shares of our common   
stock had been issued in exchange for each outstanding share of Series B Stock. 
You should read this information in conjunction with the selected historical    
financial data, audited consolidated financial statements and unaudited interim 
financial statements of Litronic and BIZ, including the notes thereto, which are
included as Appendices C and D, respectively, to this proxy statement. You      
should also read this information in conjunction with the unaudited pro forma   
combined financial statements, including the notes thereto, which are included  
elsewhere in this proxy statement. The pro forma information is presented for   
illustrative purposes only. You should not rely on the pro forma financial      
information as an indication of the combined financial position or results of   
operations of future periods or the results that actually would have been       
realized had the entities been a single entity during the periods presented.    

The unaudited pro forma combined information per share combines the   
financial information of Litronic with the financial information of BIZ for the 
three month periods ended March 31, 2001. The                                   

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unaudited pro forma combined information per share combines the Litronic        
financial information for the year ended December 31, 2000 with the BIZ         
financial information from April 30, 2000 (inception) to December 31, 2000.     

Historical book value per common share is computed by dividing        
stockholders' equity (deficiency) attributable to common stockholders by the    
number of common shares outstanding at the end of each period presented.        
Historical book value per preferred share is computed by dividing stockholders' 
equity attributable to preferred stockholders by the number of shares of Series 
B Stock outstanding at the end of each period presented. Litronic unaudited pro 
forma combined book value per share is computed by dividing pro forma total     
stockholders' equity by the pro forma number of common shares outstanding at    
March 31, 2001 for both Litronic and BIZ. The BIZ equivalent pro forma book     
value per share is calculated by multiplying the pro forma combined book value  
per common share outstanding at March 31, 2001 by the assumed exchange ratio.   
The BIZ equivalent basic and diluted net loss per share is calculated by        
multiplying the pro forma combined net loss per share for the period from April 
30, 2000 (inception) to December 31, 2000 and for the three months ended March  
31, 2001 by the assumed exchange ratio.                                         

                                                        [Enlarge/Download Table]

                                                             THREE MONTHS                     
                                                                 ENDED         PERIOD ENDED   
                                                             MARCH 31, 2001  DECEMBER 31, 2000
                                                             --------------  -----------------
                                                                                              
LITRONIC HISTORICAL PER SHARE DATA:                                                           
   Basic and diluted net loss per common share .............  $   (0.24)     $   (4.20)(1)    
   Book value per common share at period end ...............  $    0.43      $    0.67        

BIZ HISTORICAL PER SHARE DATA:                                                                
   Basic and diluted net loss per share ....................  $   (0.35)     $   (0.14)       
   Book value per common share at period end ...............  $   (0.66)     $   (0.10)       
   Book value per Series B preferred share at period end ...  $    4.44            N/A        

LITRONIC UNAUDITED PRO FORMA COMBINED:                                                        
   Basic and diluted net loss per common share .............  $   (0.48)     $   (2.46)       
   Book value per share at period end ......................  $    2.81            N/A        

BIZ EQUIVALENT PRO FORMA COMBINED (UNAUDITED):                                                
   Basic and diluted net loss per common share .............  $   (0.23)     $   (1.17)       
   Book value per share at period end ......................  $    1.33            N/A        

-------------------------                                                       

(1)  We have determined that the integration of our wholly-owned subsidiary,    
 Pulsar Data Systems, Inc., or Pulsar, will not be completed as planned.
     Based on the results of an independent valuation, we recorded an impairment
charge of $31.4 million in the fourth quarter of 2000 related to      
    unamortized goodwill and intangible assets acquired in connection with our
acquisition of Pulsar.                                                

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   Our common stock has been traded on The Nasdaq National Market, under the
symbol "LTNX" since it began trading publicly on June 9, 1999. As required by   
the terms of the Reorganization Agreement, prior to the Closing Date, the symbol
for trading of our common stock on The Nasdaq National Market shall have been   
changed to "SSPX." The following table sets forth the range of high and low     
closing sale prices reported on The Nasdaq National Market for our common stock 
for the calendar quarters indicated. Such prices are inter-dealer quotations    
without retail mark-ups, mark-downs or commissions, and may not represent actual
transactions. Since BIZ is a privately held corporation, historical per share   
data for BIZ is not available.                                                  

                                                                [Download Table]

                                                   HIGH              LOW  
                                                   ----              ---  
                                                                          
1999                                                                      
    First Quarter.............................       N/A               N/A
    Second Quarter............................    $11.13             $6.56
    Third Quarter.............................    $11.44             $4.16
    Fourth Quarter............................     $9.88             $4.00
2000                                                                      
    First Quarter.............................    $26.00             $8.72
    Second Quarter............................    $17.38             $6.69
    Third Quarter.............................     $9.50             $2.94
    Fourth Quarter............................     $7.81             $2.34
2001                                                                      
    First Quarter.............................     $6.59             $2.50
    Second Quarter ...........................     $4.60             $2.46

    The following table sets forth the closing sale price for our common stock
on The Nasdaq National Market on February 9, 2001, the last trading day prior to
the public announcement of the merger, and on July 24, 2001, the most recent    
practicable date prior to the printing of this proxy statement.                 

                                                                [Download Table]

                                                 OUR  
                                                COMMON
                                                STOCK 
                                                ------
                                                      
February 9, 2001...................             $5.69 
July 24, 2001.......................            $2.31 

 During the past two fiscal years, we have not paid any dividends on our
common stock. The payment of future dividends on our common stock will be a     
business decision to be made by our board of directors from time to time based  
upon our results of operations and financial condition and such other factors as
our board of directors considers relevant, although it is presently anticipated 
that we will retain earnings for the operation and expansion of our business for
the foreseeable future. In addition, our loan agreement restricts our ability to
pay cash dividends.                                                             

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 SELECTED HISTORICAL AND UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION
 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

OUR SELECTED HISTORICAL FINANCIAL INFORMATION                                   

 The following selected historical consolidated financial data presented
below under the captions "Selected Statements of Operations Data" and "Selected 
Balance Sheet Data" for, and as of the end of, each of the five years in the    
five year period ended December 31, 2000, are derived from the consolidated     
financial statements of Litronic Inc. and subsidiary, which financial statements
have been audited by KPMG LLP, independent auditors. The consolidated statements
of operations data for the three year period ended December 31, 2000, and the   
balance sheet data at December 31, 2000 and 1999 are derived from the           
consolidated financial statements of Litronic which have been audited by KPMG   
LLP, independent auditors, which are attached hereto as Appendix C. The         
consolidated statements of operations data for the years ended December 31, 1997
and 1996, and the balance sheet data at December 31, 1998, 1997 and 1996 are    
derived from the consolidated financial statements of Litronic which have also  
been audited by KPMG LLP, independent auditors which are not included herein.   
The selected data presented below for the three month periods ended March 31,   
2001 and 2000 and as of March 31, 2001, are derived from the unaudited          
consolidated financial statements of Litronic which are also attached to this   
proxy statement as Appendix C. Historical results are not necessarily indicative
of the results to be expected in the future.                                    

                                                        [Enlarge/Download Table]

                                      THREE MONTHS ENDED                                                                       
                                           MARCH 31,                                YEAR ENDED DECEMBER 31,                    
                                     -----------------------   ----------------------------------------------------------------
                                       2001          2000       2000(1)       1999(1)        1998          1997         1996   
                                     ---------     ---------   ---------     ---------     ---------     ---------    ---------
                                                                                                                               
SELECTED STATEMENTS OF                                                                                                         
OPERATIONS DATA:                                                                                                               
Revenues:                                                                                                                      
   Product ......................... $   4,144     $   4,351   $  37,421     $  29,587     $   5,214     $   8,627    $   7,855
   License and service .............       334           371       1,935         1,270         1,041         1,539        1,541
   Research and development ........        --            --          --           798           398            --           --
                                     ---------     ---------   ---------     ---------     ---------     ---------    ---------
         Total revenues ............     4,478         4,722      39,356        31,655         6,653        10,166        9,396
                                     ---------     ---------   ---------     ---------     ---------     ---------    ---------
Costs and expenses:                                                                                                            
   Cost of sales--product ..........     3,066         3,619      30,481        25,478         2,821         3,211        4,098
   Cost of sales--license and                                                                                                  
     service........................       133           168         679           590           950           643          581
   Selling, general, and                                                                                                       
     administrative.................     1,773         2,380       9,559         7,194         2,631         3,487        2,052
   Research and development ........     1,843         1,322       5,800         3,906         1,334         1,172          725
   Impairment of goodwill and                                                                                                  
     other intangibles(2)...........        --            --      31,415            --            --            --           --
   Amortization of goodwill and                                                                                                
     other intangibles .............        23           703       2,828         1,448            --            --           --
                                     ---------     ---------   ---------     ---------     ---------     ---------    ---------

Operating income (loss) ............    (2,360)       (3,470)    (41,406)       (6,961)       (1,083)        1,653        1,940

Other (income) expense, net ........        16           (14)         (7)          168           418            42           19
                                     ---------     ---------   ---------     ---------     ---------     ---------    ---------
Earnings (loss) from continuing                                                                                                
   operations before income taxes ..    (2,376)       (3,456)    (41,399)       (7,129)       (1,501)        1,611        1,921
Provision for (benefit from)                                                                                                   
   income taxes ....................        --             5           6           (43)          (95)           22           29
                                     ---------     ---------   ---------     ---------     ---------     ---------    ---------
Earnings (loss) from continuing                                                                                                
   operations ...................... $  (2,376)    $  (3,461)  $ (41,405)    $  (7,086)    $  (1,406)    $   1,589    $   1,892
                                     ---------     ---------   ---------     ---------     ---------     ---------    ---------
Net earnings (loss) ................ $  (2,376)    $  (3,461)  $ (41,405)    $  (7,086)    $  (1,406)    $  15,334    $     906
                                     ---------     ---------   ---------     ---------     ---------     ---------    ---------

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                                                        [Enlarge/Download Table]

                                                                                                                     
Earnings (loss) from continuing                                                                                      
   operations per share: basic and                                                                                   
   diluted ......................... $   (0.24)  $   (0.35)  $   (4.20)  $   (1.00)  $    (.36)  $     .41  $     .49
                                     =========   =========   ---------   ---------   ---------   ---------  ---------
Net earnings (loss) per share:                                                                                       
   basic and diluted ............... $   (0.24)  $   (0.35)  $   (4.20)  $   (1.00)  $    (.36)  $    3.96  $     .23
                                     =========   =========   =========   =========   =========   =========  =========
Shares used in per share                                                                                             
   computations: basic and diluted . 9,746,814   9,871,826   9,862,472   7,055,882   3,870,693   3,870,693  3,870,693
                                     =========   =========   =========   =========   =========   =========  =========

--------------------------                                                      

(1)  On June 14, 1999, we acquired all of the outstanding shares of Pulsar in   
exchange for 2,169,938 shares of our common stock. The acquisition was
     accounted for using the purchase method of accounting, and accordingly, the
results of operations of Pulsar have been included in our consolidated
financial statements from June 14, 1999.                              

(2)  We have determined that the integration of Pulsar will not be completed as 
   planned. Based on the results of an independent valuation, we recorded an
     impairment charge of $31.4 million in the fourth quarter of 2000 related to
    unamortized goodwill and intangible assets from our acquisition of Pulsar.

                                                        [Enlarge/Download Table]

                                                 AS OF                          AS OF DECEMBER 31,                        
                                               MARCH 31,  --------------------------------------------------------------- 
                                                 2001        2000        1999          1998         1997          1996    
                                               ---------  ---------    ---------    ---------     ---------     --------- 
SELECTED BALANCE SHEET DATA:                                                                                              
                                                                                                                          
Cash and cash equivalents .................... $   3,885  $   4,120    $   6,441    $     898     $     490     $     862 
Working capital ..............................     2,733      4,858       12,592          758           385         1,662 
Total assets .................................     8,863     11,768       51,104        2,791         2,347         7,409 
Current installments of long-term debt .......     1,149      1,986          481          580            --           545 
Long-term debt, less current installments ....        --         19           --        5,200         3,506         4,997 
Total liabilities ............................     4,688      5,220        3,171        6,998         5,148         7,510 
Total shareholders' equity (deficit) .........     4,175      6,548       47,933       (4,207)       (2,801)         (101)

BIZ'S SELECTED HISTORICAL FINANCIAL INFORMATION                                 

 The following selected historical consolidated financial data should be
read in conjunction with BIZ's consolidated financial statements and related    
notes thereto attached hereto as Appendix D. The consolidated statements of     
operations data for the period from April 30, 2000 (inception) to December 31,  
2000, and the balance sheet data at December 31, 2000 are derived from the      
consolidated financial statements of BIZ which have been audited by KPMG LLP,   
independent auditors, which are attached hereto as Appendix D. The consolidated 
statements of operations data for the three month period ended March 31, 2001   
and the period from April 30, 2000 (inception) through March 31, 2001 and       
balance sheet data at March 31, 2001 are derived from the unaudited consolidated
financial statements of BIZ which are also attached as Appendix D. Historical   
results are not necessarily indicative of the results to be expected in the     
future.                                                                         

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                                                        [Enlarge/Download Table]

                                              PERIOD FROM INCEPTION                  PERIOD FROM INCEPTION
                                                 (APRIL 30, 2000)     THREE MONTHS     (APRIL 30, 2000)   
                                                      THROUGH             ENDED            THROUGH        
                                                  MARCH 31, 2001     MARCH 31, 2001    DECEMBER 31, 2000  
                                              ---------------------  --------------  ---------------------
                                                                                                          
STATEMENT OF OPERATIONS DATA:                                                                             

   Total revenues............................              $--                $--               $--       
   Cost of sales.............................               --                 --                --       
   Operating expenses........................          (4,372)            (2,155)           (2,217)       
   Realized loss on trading securities.......          (3,620)            (3,620)                --       
   Interest income, net......................               20                  7                13       
   Net loss..................................          (7,972)            (5,768)           (2,204)       
   Net loss per share........................           (0.49)             (0.35)            (0.14)       

                                                        [Enlarge/Download Table]

                                                                   AS OF            AS OF      
                                                              MARCH 31, 2001  DECEMBER 31, 2000
                                                              --------------  -----------------
                                                                                               
BALANCE SHEET DATA:                                                                            
Cash and cash equivalents....................................       $36              $407      
Working capital..............................................     6,044             (702)      
Total assets.................................................     9,104               541      
Current installments of long-term debt.......................       918               370      
Long-term debt, less current installments....................        --                --      
Total liabilities............................................     2,925             1,137      
Series A preferred stock.....................................     1,000             1,000      
Total shareholders' equity (deficiency)......................     5,179           (1,596)      

UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL INFORMATION                     

The selected unaudited pro forma combined financial data reflects the 
merger using the purchase method of accounting. The unaudited pro forma         
condensed combined statements of operations combine Litronic's consolidated     
statement of operations data for the fiscal year ended December 31, 2000 with   
BIZ's statement of operations data for the period from April 30, 2000           
(inception) to December 31, 2000 and combine Litronic's and BIZ's consolidated  
statement of operations data for the three month period ended March 31, 2001.   
The unaudited selected pro forma combined balance sheet data combines Litronic's
and BIZ's consolidated balance sheet data as of March 31, 2001. The selected    
unaudited pro forma combined financial data have been derived from information  
contained in the most recent annual and quarterly consolidated financial        
statements of Litronic and BIZ, which are attached hereto, and has been prepared
to illustrate the effects of the merger as if it had occurred on January 1,     
2000, with respect to the statements of operations information, and as of March 
31, 2001, with respect to the balance sheet information. The complete unaudited 
pro forma combined financial statements are included elsewhere herein.          

   The selected unaudited pro forma combined financial data is presented for
illustrative purposes only and is not necessarily indicative of the operating   
results or financial position that would have occurred if the merger had been   
consummated at the beginning of the periods indicated, nor is such information  
indicative of the future operating results of financial position of Litronic    
after the merger.                                                               

                                                        [Enlarge/Download Table]

                                                    THREE MONTHS ENDED    PERIOD ENDED   
                                                      MARCH 31, 2001    DECEMBER 31, 2000
                                                    ------------------  -----------------
                                                                                         
Revenues:                                                                                
   Product ........................................      $  4,144          $ 37,421      
   License and service ............................           334             1,935      
                                                         --------          --------      
     Total revenues ...............................         4,478            39,356      
                                                         --------          --------      

Cost and expenses                                                                        
   Cost of sales -- product .......................         3,066            30,481      
   Cost of sales -- license and service ...........           133               679      
   Selling, general and administrative ............         2,517            11,225      
   Research and development .......................         3,296             6,615      
   Impairment of goodwill and other intangibles ...            --            31,415      
   Amortization of goodwill and other intangibles..         1,828            10,051      
                                                         --------          --------      

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                                                        [Enlarge/Download Table]

                                                  THREE MONTHS ENDED    PERIOD ENDED   
                                                    MARCH 31, 2001    DECEMBER 31, 2000
                                                  ------------------  -----------------
                                                                                       

     Operating loss .............................        (6,362)          (51,110)     
Interest expense (income), net ..................             9               (20)     
Realized loss on trading securities .............         3,620                --      
                                                       --------          --------      
Loss before income taxes ........................        (9,991)          (51,090)     
Provision for income taxes ......................            --                 6      
                                                       --------          --------      
Net loss ........................................      $ (9,991)         $(51,096)     
                                                       ========          ========      
Net loss per share:                                                                    
   Basic and diluted ............................      $  (0.48)         $  (2.46)     
                                                       ========          ========      
Shares used in per share computations:                                                 
       Basic and diluted ........................        20,622            20,737      
                                                       ========          ========      

                                                                [Download Table]

                                                                       AT      
                                                                 MARCH 31, 2001
                                                                 --------------
BALANCE SHEET DATA:                                                            
                                                                               
Cash and cash equivalents....................................       $ 6,401    
Working capital..............................................         5,778    
Total assets.................................................        67,528    
Total liabilities............................................         9,613    
Total stockholders' equity...................................        57,915    

LISTING OF OUR COMMON STOCK                                                     

    Our common stock is listed on The Nasdaq National Market, and trades under
the symbol "LTNX." On or immediately after the Closing Date, we will change our 
trading symbol to "SSPX."                                                       

RISK FACTORS                                                                    

THE PROPOSED MERGER IS A COMPLEX TRANSACTION AND INVOLVES SIGNIFICANT 
RISKS. YOU ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY THE ENTIRE PROXY   
STATEMENT, PARTICULARLY THE MATTERS REFERRED TO UNDER THE HEADING "RISK FACTORS"
BEGINNING ON PAGE 15.                                                           

PROPOSAL 2 -- AMENDED AND RESTATED 1999 STOCK OPTION PLAN                       

  On May 31, 2001, our board of directors adopted our Amended and Restated
1999 Stock Option Plan, subject to stockholder approval. Under the Amended and  
Restated 1999 Stock Option Plan, we have increased the number of shares of our  
common stock issuable upon exercise of stock options granted under the plan from
1,500,000 to 4,000,000 shares. The purpose of the plan is to strengthen our     
ability to attract and retain well-qualified personnel, to furnish additional   
incentives to those persons who contribute to, and are responsible for, our     
success, and enhance stockholder value as a result.                             

PROPOSAL 3 -- ELECTION OF DIRECTORS                                             

The election of four directors to our board of directors.             

PROPOSAL 4 -- AMENDMENTS TO OUR AMENDED AND RESTATED CERTIFICATE OF             
INCORPORATION                                                                   

We are proposing amendments to our amended and restated certificate of
incorporation, upon approval by the holders of a majority of our outstanding    
common stock, to change our name to SSP Solutions, Inc. in accordance with the  
terms of the Reorganization Agreement and to increase the number of shares of   
common stock that we are authorized to issue to 100,000,000 shares.             

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PROPOSAL 5 -- APPOINTMENT OF KPMG LLP                                           

Ratification of KPMG LLP as our independent auditors for 2001.        

PROPOSAL 6 -- ISSUANCE OF SECURITIES IN FUTURE FINANCING TRANSACTIONS           

     We are seeking your approval, in accordance with The Nasdaq National Market
Rules, to issue common stock or securities exercisable for, or convertible into,
common stock, which, when exercised or converted, would constitute more than 20%
and up to 50% of our outstanding common stock after the merger. The purpose of  
this proposal is to provide us with the flexibility to take advantage of future 
opportunities to raise additional capital.                                      

PROPOSAL 7 -- 2001 EMPLOYEE STOCK PURCHASE PLAN                                 

  On June 12, 2001, our board of directors adopted our 2001 Employee Stock
Purchase Plan, subject to stockholder approval. There are 1,000,000 shares of   
our common stock reserved for issuance under this plan, none of which have been 
granted as of the date of this proxy statement. The purpose of this plan is to  
provide us with an additional method to provide incentives to and increase      
retention of our employees.                                                     

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RISK FACTORS

   You should carefully consider and evaluate the following risks, which are
not listed in order of priority, in addition to the other information contained 
in this proxy statement before making a decision about voting on any of the     
Proposals.                                                                      

 RISKS RELATED TO THE MERGER

THE ANTICIPATED BENEFITS OF THE MERGER MAY NOT BE REALIZED                      

    The anticipated benefits of the merger with BIZ may not be realized due to
a number of factors. For example,:                                              

     -  The anticipated management synergies and operational efficiencies of the
merger may not be realized.                                     

  -  The anticipated increase in sales resulting from the combined efforts
and combined distribution channels may not be realized.         

WE MAY NOT SUCCESSFULLY INTEGRATE OUR BUSINESS WITH BIZ, WHICH COULD HARM FUTURE
EARNINGS                                                                        

   Following the merger, there may be challenges in integrating our products
and services with those of BIZ and this may continue for some time. The         
integration might not be smooth or successful. The integration of certain       
operations requires the dedication of management resources, which may           
temporarily distract management's attention from the day-to-day business of the 
combined company. The business of the combined company may also be disrupted by 
employee uncertainty and lack of focus during the integration. If this occurs,  
the anticipated advantages from the merger could be undermined and our business,
financial condition and results of operations could be adversely impacted.      

OUR INABILITY TO INTEGRATE OUR MANAGEMENT TEAM WITH BIZ'S MANAGEMENT TEAM MAY   
ADVERSELY AFFECT OUR ABILITY TO REALIZE THE EXPECTED BENEFITS OF THE MERGER     

 The success of the merger depends, in part, on our ability to unite the
members of our respective management teams. As a result of the merger, there    
will be significant changes at our senior executive officer level. Combining    
management from BIZ and our company will result in changes that will affect all 
employees and operations. Differences in corporate cultures, strategies and     
management philosophies may strain employee relations. Additionally, if we      
encounter difficulties in integrating our management teams, our ability to      
realize the expected benefits from the merger, including management synergies,  
operational efficiencies and increased sales, could be adversely affected.      

OUR STOCKHOLDERS WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION TO THEIR EQUITY 
AND VOTING INTERESTS                                                            

   The total number of shares of our common stock to be issued in the merger
is 10,875,128, which represents approximately 111.6% of the total number of     
shares of our common stock currently outstanding. Accordingly, the merger will  
have the effect of substantially reducing the percentage of equity and voting   
interest held by each of our stockholders.                                      

THE BIZ STOCKHOLDERS WILL BE ABLE TO INFLUENCE OUR COMPANY SIGNIFICANTLY        
FOLLOWING THE MERGER                                                            

     After the merger, former BIZ stockholders (other than Kris Shah), including
those who become directors or executive officers of our company, will hold      
approximately 49.5% of the total number of                                      

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shares of our common stock outstanding. As a result, they will be able to       
exercise substantial influence on the election of directors and other matters   
submitted for approval by our stockholders. This concentration of ownership of  
our common stock may make it difficult for our other stockholders to            
successfully approve or defeat matters submitted for stockholder action. It may 
also have the effect of delaying, deterring or preventing a change in control of
our company without the consent of the BIZ stockholders.                        

UNANTICIPATED COSTS RELATING TO THE MERGER COULD REDUCE OUR FUTURE EARNINGS     

We believe that we have reasonably estimated the likely costs of      
integrating our operations with the operations of BIZ and the incremental costs 
of operating as a combined company. It is possible that unexpected transaction  
costs, such as taxes, fees or professional expenses, or unexpected future       
operating expenses, such as increased personnel costs, as well as other types of
unanticipated developments, could adversely impact our business and             
profitability.                                                                  

THE UNCERTAINTIES ASSOCIATED WITH THE MERGER MAY CAUSE OUR CUSTOMERS AND BIZ'S  
CUSTOMERS TO DELAY OR DEFER DECISIONS, WHICH MAY RESULT IN THE LOSS OF CUSTOMERS
AND REVENUES                                                                    

   Our customers and BIZ's customers may, in response to the announcement of
the merger and prior to its effectiveness, delay or defer decisions concerning  
business with both companies. Any delay or deferral in those decisions by our   
respective customers could adversely affect our businesses. For example, either 
BIZ or we could experience a decrease in expected revenue as a consequence of   
such delays or deferrals.                                                       

THE UNCERTAINTIES ASSOCIATED WITH THE MERGER MAY CAUSE BIZ OR US TO LOSE KEY    
PERSONNEL                                                                       

Current and prospective employees of ours or of BIZ may perceive      
uncertainty about their future role with the combined company until strategies  
with regard to the combined company are announced or executed. Any uncertainty  
may adversely affect either company's ability to attract and retain key         
management, sales, marketing and technical personnel.                           

MERGER-RELATED ACCOUNTING CHARGES MAY DELAY OR REDUCE OUR PROFITABILITY         

We are accounting for the acquisition of BIZ as a purchase. Under the 
purchase method of accounting, the purchase price of BIZ will be allocated to   
the fair value of the identifiable tangible and intangible assets and           
liabilities that we acquire from BIZ. The excess of the purchase price over     
BIZ's tangible net assets will result in intangible assets for us that will have
to be amortized over their useful lives, unless the Financial Accounting        
Standards Board, or the FASB, proposal described below is adopted. In addition, 
we will incur an in-process research and development charge in connection with  
our acquisition of BIZ. As a result, we will incur accounting charges from the  
merger that may delay and reduce our profitability after the merger.            

IF ADOPTED, RECENT PROPOSALS OF THE FASB WOULD CAUSE US TO HAVE TO EVALUATE THE 
FAIR VALUES OF INTANGIBLE ASSETS AND GOODWILL THAT WE ACQUIRE IN THE MERGER     
WHICH COULD RESULT IN SIGNIFICANT CHARGES TO OUR EARNINGS AND MAY ADVERSELY     
AFFECT THE MARKET PRICE OF OUR COMMON STOCK                                     

     In February 2001, the FASB issued an exposure draft, "Business Combinations
and Intangible Assets-Accounting for Goodwill," that proposes significant       
changes to the current treatment of goodwill and intangible assets in a business
combination. As proposed, the changes would require companies to perform        
impairment tests on goodwill and certain intangibles using a fair value approach
rather than requiring companies to amortize goodwill and certain intangibles    
over their useful lives. If the exposure draft is adopted and becomes effective 
as currently anticipated, we will be required to evaluate periodically whether  
intangible assets and goodwill that we acquire in the merger have fair values   
that                                                                            

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meet or exceed the amounts recorded on our balance sheet. We cannot predict     
whether or when there will be an impairment charge, or the amount of such       
charge, if any. However, if the charge is significant, it could cause the market
price of our common stock to decline. In addition, adoption of the exposure     
draft will eliminate recurring amortization charges that would remove intangible
assets and goodwill from our balance sheet, and such amounts will remain        
permanently on our balance sheet unless future evaluations require us to record 
impairment charges.                                                             

THE EXCHANGE RATIO AND THE SERIES B EXCHANGE RATIO WILL NOT BE ADJUSTED FOR     
CHANGES IN OUR STOCK PRICE                                                      

    The number of shares of our common stock into which each outstanding share
of BIZ common stock and Series B Stock is to be converted in the merger is fixed
at 0.4751248 shares for each share of BIZ common stock and 0.8564122 shares for 
each share of Series B Stock. These conversion rates were determined based on   
the relative values of the two companies determined by their management and     
boards of directors. The market value of our common stock and/or the value of   
the BIZ stock at the Effective Time may vary significantly from the value as of 
the date on which the Reorganization Agreement was executed, the date of this   
proxy statement or the date on which our stockholders vote on the merger. These 
changes may result from a number of factors, including, among others:           

-  market perception of the synergies expected to be achieved by the  
merger;                                                         

-  changes in the business, operations or prospects of ours or of BIZ;

   -  market assessments of the likelihood that the merger will be completed
and the timing of the merger; and                               

-  general market and economic conditions.                            

    Because neither the Exchange Ratio nor the Series B Exchange Ratio will be
adjusted to reflect changes in the market value of our common stock or the value
of the BIZ stock, the market value of our common stock issued in the merger, and
the value of the BIZ stock surrendered in the merger, may be higher or lower    
than the value of these shares at the time the merger was negotiated or approved
by our board of directors. We are not permitted to terminate the Reorganization 
Agreement or resolicit the vote of our stockholders because of changes in the   
market price of our common stock or the value of the BIZ stock.                 

KRIS SHAH, OUR CHIEF EXECUTIVE OFFICER, PRESIDENT, CHAIRMAN OF THE BOARD AND    
SECRETARY, HAS INTERESTS IN THE MERGER THAT ARE DIFFERENT FROM, OR ARE IN       
ADDITION TO, YOUR INTERESTS AS A STOCKHOLDER                                    

  Kris Shah, our chief executive officer, president, chairman of the board
and secretary, beneficially owns 1,400,000 shares of BIZ common stock. These    
shares will convert into 665,174 shares of our common stock in the merger. See  
"The Merger--Interests of Certain Persons in the Reorganization." As a result,  
Mr. Shah may be more likely to vote to approve the Reorganization Agreement than
if he did not own shares of BIZ common stock. You should consider whether this  
may have influenced Mr. Shah to support or recommend the Reorganization         
Agreement and the merger.                                                       

AFTER THE MERGER, A SMALL NUMBER OF STOCKHOLDERS, WHO INCLUDE CERTAIN OF OUR    
OFFICERS AND DIRECTORS, WILL HAVE THE ABILITY TO CONTROL STOCKHOLDER VOTES      

     Kris Shah, Marvin Winkler, their affiliates and certain family members will
own, in the aggregate, approximately 63.8% of our outstanding common stock after
the merger. These stockholders, if acting                                       

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together, would have the ability to elect our directors and to determine the    
outcome of corporate actions requiring stockholder approval, irrespective of how
our other stockholders may vote. In fact, these stockholders, along with the    
holders of BIZ's Series B Stock, have entered into a voting agreement which     
provides, among other things, that for a period of three years after the        
consummation of the merger, each of these two groups will vote their shares to  
ensure that three persons selected by Marvin Winkler, three persons selected by 
Kris Shah, and one person jointly selected by Messrs. Winkler and Shah are      
elected to our board of directors at each annual or special meeting called for  
the purpose of electing directors. This concentration of ownership may also have
the effect of delaying or preventing a change in control of our company.        

 RISKS RELATED TO BIZ'S BUSINESS

BIZ HAS INCURRED NET LOSSES AND GENERATED NO REVENUES OR PRODUCT SALES SINCE ITS
INCEPTION AND MAY NOT GENERATE SUFFICIENT NET REVENUE IN THE FUTURE TO ACHIEVE  
OR SUSTAIN PROFITABILITY                                                        

  BIZ has incurred net losses since its inception, including net operating
losses of $2,217,000 and net losses of $2,204,000 in the period from April 30,  
2000 (inception) to December 31, 2000 and net operating losses of $2,155,000 and
net losses of $5,768,000 (including realized losses of $3,620,000 on trading    
securities) for the three months ended March 31, 2001. In addition, BIZ         
generated no revenues or product sales in the period from April 30, 2000        
(inception) to December 31, 2000 or during the three months ended March 31,     
2001. To achieve profitability, BIZ will need to generate and sustain sufficient
revenues while maintaining reasonable cost and expense levels. BIZ expects to   
continue to incur significant operating expenses primarily to support research  
and development and expansion of its sales and marketing efforts. These         
expenditures may not result in increased revenues or customer growth. BIZ does  
not know when or if it will become profitable. BIZ may not be able to sustain or
increase profitability on a quarterly or annual basis.                          

IF BIZ'S SSP(TM) SOLUTION SUITE IS NOT COMMERCIALLY SUCCESSFUL, BIZ'S OPERATING 
RESULTS WILL SUFFER                                                             

BIZ is seeking to enter the complex and competitive market for digital
commerce and communication security solutions. BIZ believes that many potential 
customers in its target markets are not fully aware of the need for security    
products and services in the digital economy. Historically, only enterprises    
having substantial resources developed or purchased security solutions for      
Internet or other means of delivering digital content. Also, there is a         
perception that security in delivering digital content is costly and difficult  
to implement. Therefore, BIZ will not succeed unless it can educate its target  
markets about the need for security in delivering digital content and convince  
potential customers of BIZ's ability to provide this security in a              
cost-effective and easy-to-use manner.                                          

   Even if BIZ convinces its target markets about the importance of and need
for such security, BIZ does not know if this will result in the sale of its     
products. To date, BIZ has not entered into any commitments or contractual      
agreements for the delivery of its SSP(TM) Solution Suite products or           
components. Commercial customers may not select BIZ's products over those of its
competitors. If BIZ's SSP(TM) Solution Suite products or components do not      
achieve wide market acceptance and/or if BIZ's pricing system is not            
competitive, BIZ's ability to earn revenues will be negatively impacted and its 
operating results will suffer.                                                  

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BIZ'S COMPLETE RELIANCE ON THIRD PARTY TECHNOLOGIES FOR THE DEVELOPMENT OF ITS  
PRODUCTS AND ITS RELIANCE ON THIRD PARTIES FOR MANUFACTURING MAY DELAY PRODUCT  
LAUNCH, IMPAIR ITS ABILITY TO DEVELOP AND DELIVER ITS PRODUCTS OR HURT ITS      
ABILITY TO COMPETE IN THE MARKET                                                

   BIZ has licensed the rights to use a broad array of technology components
from third parties to develop the SSP(TM) Solution Suite and BIZ faces many     
risks associated with its reliance on third parties as follows:                 

     -  a third party may develop or enable others to develop a similar solution
       for digital communication security issues as the SSP(TM) Solution Suite
thereby eroding BIZ's market share;                             

-  BIZ's dependence on the patent protection of third parties may not 
      afford BIZ any control over the protection of the technologies that it
   relies on, and, thus, if any of the patent protection of such third
     parties was compromised, BIZ's ability to compete in the market would
also be impaired.                                               

     BIZ currently does not have any products in the market, but plans to launch
its first product in the third quarter of 2001. BIZ will depend entirely on     
third parties for the manufacturing of its initial products and any future      
products. As a result, if any manufacturer fails to timely deliver adequate     
supplies of a sufficiently high quality product, this will delay product launch,
impair BIZ's ability to deliver its products on a timely basis, or otherwise    
impair BIZ's competitive position.                                              

INTENSE COMPETITION IN ITS MARKET COULD PREVENT BIZ FROM GENERATING OR          
SUSTAINING ITS REVENUES AND ACHIEVING OR SUSTAINING PROFITABILITY               

    The market for the products that BIZ is developing is very competitive and
BIZ expects the intensity of competition to increase. There are few substantial 
barriers to entry and additional competition from existing competitors and new  
market entrants is likely to occur in the future. Many of BIZ's anticipated     
competitors have longer operating histories, greater name recognition, access to
larger customer bases and significantly greater financial, technical,           
operational and marketing resources and more experience in research and         
development than BIZ. As a result, they may be able to adapt more quickly to new
or emerging technologies and changes in customer requirements or to devote      
greater resources to the promotion and sale of their products than BIZ. These   
companies may have developed or could in the future develop new technologies    
that will compete with BIZ's products or even render BIZ's products obsolete. To
the extent that these alternative technologies provide comparable data security 
solutions at lower cost than BIZ's products, BIZ's potential customers may      
choose to purchase products from its competitors. Increased competition could   
result in pricing pressures, reduced sales, reduced margins or failure to       
achieve or maintain widespread market acceptance, any of which could prevent BIZ
from generating or sustaining its revenues or achieving or sustaining           
profitability.                                                                  

BIZ'S INABILITY TO MAINTAIN AND DEVELOP NEW RELATIONSHIPS WITH PARTNERS AND     
SUPPLIERS COULD IMPACT BIZ'S ABILITY TO OBTAIN OR SELL ITS SSP(TM) SOLUTION     
SUITE AND RESULT IN A FAILURE TO GENERATE REVENUES                              

     BIZ plans to obtain its products, have products built to specifications and
sell its products through alliance and supplier agreements. While BIZ will have 
direct sales channels, it currently anticipates that many of its products will  
be sold through alliance and supplier partners. While BIZ has entered into      
several such agreements, none of these agreements include commitments to        
purchase any of BIZ's products. If alliance or supplier agreements are          
cancelled, modified or delayed, if alliance or supplier partners decide not to  
purchase BIZ's products or purchase only limited quantities of BIZ's products,  
or if BIZ is unable to enter into additional alliance or supplier agreements,   
BIZ's ability to produce and sell its products and, therefore, its ability to   
generate revenues, could be adversely affected.                                 

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FAILURE TO LICENSE NEW TECHNOLOGIES COULD IMPAIR BIZ'S NEW PRODUCT DEVELOPMENT  

    BIZ's SSP(TM) Solution Suite is a collection of technologies licensed from
its alliance and supplier partners. As a result, BIZ's ability to license new   
technologies from third parties is, and will continue to be, critical to its    
ability to offer a complete suite of products that meets customer needs and     
technological requirements. Some of BIZ's licenses do not run for the length of 
the patent for the technology. BIZ may not be able to renew its existing        
licenses on favorable terms, or at all. If BIZ loses the rights to a patented   
technology, it may need to stop selling certain of its products, redesign its   
products or lose a competitive advantage. Potential competitors could license   
technologies that BIZ fails to license and potentially erode BIZ's market share 
for certain products.                                                           

FAILURE TO DEVELOP NEW PRODUCTS COULD REDUCE BIZ'S GROWTH RATE OR DAMAGE ITS    
BUSINESS                                                                        

  The markets for the products that BIZ is developing are characterized by
rapid technological change and frequent new product introductions. BIZ's future 
success will depend, in part, on its timely development and introduction of new 
products that address these evolving market requirements. Product development   
for Internet and other digital communication network security applications      
requires substantial engineering time and testing. To the extent that BIZ fails 
to introduce new and innovative products, it will probably lose market share to 
its competitors, which may be difficult or impossible to regain. An inability,  
for technological or other reasons, to successfully develop and introduce new   
products could reduce BIZ's growth rate or damage its business.                 

THE AVERAGE SELLING PRICE OF THE PRODUCTS THAT BIZ IS DEVELOPING MAY DECREASE,  
WHICH MAY REDUCE GROSS MARGINS                                                  

The average selling prices for the products that BIZ is developing may
decline as a result of competitive pricing pressures, promotional programs and  
customers who negotiate price reductions in exchange for longer term purchase   
commitments. The pricing of products depends on the specific features and       
functions of the products, purchase volumes and the level of sales and service  
support required. BIZ expects competition to increase in the future. As BIZ     
experiences pricing pressure, it anticipates that the average selling prices and
gross margins for its products will decrease over product life cycles. These    
same competitive pressures may require BIZ to write down the carrying value of  
inventory on hand, if any.                                                      

BIZ HAS NOT GENERATED ANY SALES TO DATE OF ITS SSP(TM) SOLUTION SUITE, WHICH    
MAKES IT DIFFICULT TO EVALUATE ITS CURRENT BUSINESS PERFORMANCE AND FUTURE      
PROSPECTS                                                                       

    To date, BIZ has not sold any products and has not established a sales and
marketing force to promote these products. BIZ may be unable to establish sales 
and marketing operations to levels necessary for it to grow its business,       
especially if it is unsuccessful at selling its products into vertical markets. 
BIZ may not be able to support the promotional programs required by selling     
simultaneously into several markets. If BIZ is unable to develop an efficient   
sales system, its operating results will suffer.                                

DELAYS IN DELIVERIES FROM BIZ'S COMPONENTS SUPPLIERS OR DEFECTS IN COMPONENTS   
SUPPLIED BY ITS VENDORS COULD CAUSE REVENUES TO DECLINE AND ADVERSELY AFFECT    
BIZ'S OPERATING RESULTS                                                         

  BIZ relies on a limited number of vendors for certain components for the
products which it is developing that will comprise the SSP(TM) Solution Suite.  
If BIZ is unable to purchase these components, this may delay or prevent product
shipments and result in a loss of sales. In addition, if any components have    
undetected flaws, this could lead to unanticipated costs to repair or replace   
these parts. This could cause a loss of revenue, which would adversely affect   
BIZ's results of operations. BIZ may not be able to                             

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replace any of its supply sources on economically advantageous terms. Further,  
if BIZ experiences price increases for the components for its products, it will 
experience declines in its gross margins.                                       

BIZ MAY NOT BE ABLE TO PROTECT ITS PROPRIETARY RIGHTS ADEQUATELY, WHICH MAY     
LIMIT ITS ABILITY TO COMPETE EFFECTIVELY                                        

     Unauthorized parties may misappropriate or infringe on BIZ's trade secrets,
trademarks and similar proprietary rights. BIZ has not received any patent      
protection for its technology or products. Even if BIZ obtains such patents,    
there can be no guarantee that its patent rights will be valuable, create a     
competitive barrier or will be free from infringement. In addition, competitors 
may independently develop similar or superior technologies and products or      
duplicate the technologies and products developed by BIZ, which could           
substantially limit the value of its intellectual property and thus its ability 
to compete effectively.                                                         

BIZ MAY BE REQUIRED TO UNDERTAKE COSTLY LEGAL PROCEEDINGS TO ENFORCE OR PROTECT 
ITS INTELLECTUAL PROPERTY THAT COULD SUBJECT BIZ TO SIGNIFICANT LIABILITY FOR   
DAMAGES AND INVALIDATION OF ITS PROPRIETARY RIGHTS                              

In the future, litigation may be necessary for BIZ to protect its     
trademarks, trade secrets and other intellectual property rights, to determine  
the validity and scope of the proprietary rights of others, or to defend against
claims of infringement or invalidity. Litigation is inherently uncertain and any
adverse decision could limit BIZ's ability to offer some of its products. Any   
litigation, regardless of its merit or success, would be costly and divert BIZ's
managerial, technical, legal and financial resources from normal business       
operations, which could adversely affect BIZ's business, financial condition and
results of operations. Additionally, adverse determinations in litigation could 
result in a loss of BIZ's proprietary rights, subject it to significant         
liabilities, require it to seek licenses from third parties which only may be   
available on unacceptable terms, or limit the value of its products that        
incorporate challenged proprietary rights.                                      

IF THE INTERNET AND OTHER DIGITAL COMMUNICATIONS NETWORKS DO NOT CONTINUE TO    
GROW OR IF BIZ IS UNABLE TO ADDRESS THE ISSUES ASSOCIATED WITH THE DEVELOPMENT  
OF THE INTERNET AND OTHER DIGITAL COMMUNICATION NETWORKS, DEMAND FOR THE        
PRODUCTS BEING DEVELOPED BY BIZ MAY NOT INCREASE AND ITS BUSINESS AND FINANCIAL 
CONDITION WILL SUFFER                                                           

   Increased demand for the products being developed by BIZ depends in large
part on the continued growth of the Internet and other digital communication    
networks and the widespread acceptance and use of the Internet and other digital
communication networks for electronic commerce and communications. If the use of
electronic commerce and communications by BIZ's potential customers does not    
increase or increases more slowly than expected, BIZ's ability to develop and   
market its products would be adversely affected. Additionally, the Internet     
infrastructure is characterized by rapid technological change, frequent         
enhancements to existing products and new product introductions, changes in     
customer requirements and evolving industry standards. BIZ may not be able to   
respond effectively or quickly to these developments. The introduction by       
competitors of new products, market acceptance of products based on new or      
alternative technologies, or the emergence of new industry standards could      
render BIZ's products obsolete, which would negatively impact its business,     
prospects and financial performance.                                            

BIZ MAY HAVE TO DEFEND LAWSUITS OR PAY DAMAGES IN CONNECTION WITH ANY ALLEGED OR
ACTUAL FAILURE OF ITS PRODUCTS AND SERVICES                                     

Since BIZ's products and services provide and monitor security for the
digital economy and may protect valuable information, BIZ may face claims for   
product liability, tort or breach of warranty. Anyone who circumvents BIZ's     
security measures could misappropriate the confidential information or          

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other property of end users using BIZ's products and services or interrupt their
operations. If that happens, affected end users or others may sue BIZ. In       
addition, BIZ may face liability for breaches caused by faulty installation of  
its products by resellers or end users. Defending a lawsuit, regardless of its  
merit, could be costly and could divert management's attention. Although BIZ    
currently maintains business liability insurance, this coverage may be          
inadequate or may be unavailable in the future on acceptable terms, if at all.  
BIZ's business liability insurance has no specific provisions for potential     
liability for Internet security breaches for Internet and other digital         
communication networks.                                                         

A SECURITY BREACH OF BIZ'S INTERNAL SYSTEMS OR THOSE OF ITS CUSTOMERS COULD HARM
ITS BUSINESS                                                                    

Since BIZ will provide security for Internet and other digital        
communication networks, it may become a greater target for attacks by computer  
hackers. BIZ will not succeed unless the marketplace is confident that it       
provides effective security protection for Internet and other digital           
communication networks. Networks protected by BIZ's products may be vulnerable  
to electronic break-ins. Because the techniques used by computer hackers to     
access or sabotage networks change frequently and generally are not recognized  
until launched against a target, BIZ may be unable to anticipate these          
techniques. Although BIZ has not experienced any act of sabotage or unauthorized
access by a third party of its internal network to date, if an actual or        
perceived breach of security for Internet and other digital communication       
networks occurs in its internal systems or those of its end-user customers,     
regardless of whether BIZ caused the breach, it could adversely affect the      
market perception of BIZ's products and services. This could cause BIZ to lose  
customers, resellers, alliance partners or other business partners.             

GOVERNMENTAL REGULATIONS AFFECTING SECURITY OF INTERNET AND OTHER DIGITAL       
COMMUNICATION NETWORKS COULD LIMIT THE MARKET FOR BIZ'S PRODUCTS AND SERVICES   

The United States and other foreign governments have imposed controls,
export license requirements and restrictions on the import or export of some    
technologies, including encryption technology. Any additional governmental      
regulation of imports or exports or failure to obtain required export approval  
of BIZ's encryption technologies could delay or prevent the acceptance and use  
of encryption products and public networks for secure communications and could  
limit the market for BIZ's products and services. In addition, some foreign     
competitors are subject to less rigorous controls on exporting their encryption 
technologies and, as a result, they may be able to compete more effectively than
BIZ in the United States and in the international security market for Internet  
and other digital communication networks. In addition, certain governmental     
agencies, such as the Federal Communications Commission, periodically issue     
regulations governing the conduct of business in telecommunications markets that
may negatively affect the telecommunications industry and BIZ.                  

IF BIZ IS UNABLE TO RAISE ADDITIONAL CAPITAL TO FUND ITS FUTURE OPERATIONS, ITS 
BUSINESS WILL BE HARMED                                                         

If BIZ is unable to obtain additional capital to fund operations when 
needed, its product development efforts would be adversely affected, causing    
BIZ's business, operating results, financial condition and prospects to be      
materially harmed. If BIZ undertakes or accelerates significant research and    
development projects for new products, BIZ may require additional outside       
financing. BIZ expects that, to meet its long-term needs, it will need to raise 
substantial additional funds through the sale of equity securities or the       
incurrence of additional debt or through collaborative arrangements. Any        
additional equity financing may be dilutive to stockholders, and debt financing,
if available, may involve restrictive covenants. Collaborative arrangements, if 
necessary to raise additional funds, may require BIZ to relinquish rights to    
certain technologies, products or marketing territories. BIZ's failure to raise 
capital when needed could have a significant negative effect on BIZ's business, 
operating results, financial condition and prospects.                           

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BIZ'S FAILURE TO RETAIN AND ATTRACT SKILLED PERSONNEL ON WHICH IT HEAVILY       
RELIES, WOULD NEGATIVELY IMPACT ITS BUSINESS AND OPERATIONS, INCLUDING ITS      
RESEARCH AND DEVELOPMENT EFFORTS                                                

BIZ's failure to attract and retain skilled personnel could hinder its
research and development and sales and marketing efforts and its ability to     
obtain financing. BIZ's future success depends to a significant degree upon the 
continued services of key technical and senior management personnel, including  
Marvin Winkler, its chief executive officer. None of these individuals are bound
by an employment agreement or covered by an insurance policy of which we are the
beneficiary. BIZ's future success also depends on its continuing ability to     
attract, retain and motivate highly qualified managerial, technical and sales   
personnel. The inability to retain or attract qualified personnel could have a  
significant negative impact upon BIZ's research and development and sales and   
marketing efforts and its ability to obtain financing and thereby materially    
harm BIZ's business and financial condition.                                    

THE ANNUAL MEETING

  This proxy statement is furnished in connection with the solicitation of
proxies from the holders of our common stock by our board of directors for use  
at the annual meeting of our stockholders.                                      

DATE, TIME, PLACE; PURPOSE                                                      

    Our annual meeting of stockholders will be held on August 23, 2001 at 2:00
p.m., local time, at the Irvine Marriott Hotel, 18000 Von Karman Avenue, Irvine,
California 92612. At the annual meeting, you will be asked to consider and vote 
upon the Proposals and such other matters as may properly come before the annual
meeting. A copy of the Reorganization Agreement is included as Appendix A to    
this proxy statement.                                                           

VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL                                      

    Only holders of record of our common stock at the close of business on the
Record Date are entitled to notice of and to vote at the annual meeting. As of  
the close of business on the Record Date, there were 9,747,526 shares of our    
common stock outstanding and entitled to vote at the annual meeting, held of    
record by 81 stockholders. Each holder of record of our common stock on the     
Record Date is entitled to cast one vote per share. The presence, in person or  
by proxy, of the holders of a majority of the outstanding shares of our common  
stock entitled to vote is necessary to constitute a quorum at the annual        
meeting. The approval of Proposal 1 (to consider and vote on the merger) and    
Proposal 4 (to approve amendments to our amended and restated certificate of    
incorporation) will require the affirmative vote of the holders of a majority of
our outstanding shares as of the Record Date. The approval of Proposal 2 (to    
approve our Amended and Restated 1999 Stock Option Plan), Proposal 5 (to ratify 
the appointment of our independent auditors), Proposal 6 (to approve the        
issuance of securities in future financing transactions) and Proposal 7 (to     
approve our 2001 Employee Stock Purchase Plan) will require the affirmative vote
of the holders of a majority of the shares of our common stock present in person
or represented by proxy and entitled to vote at the annual meeting. For Proposal
3 (the election of the members of our board of directors), the four nominees    
receiving the highest vote totals will be elected.                              

PROXIES                                                                         

   The proxy accompanying this proxy statement is solicited on behalf of our
board of directors for use at the annual meeting of our stockholders.           
Stockholders are requested to complete, date and sign the accompanying proxy and
promptly return it in the accompanying envelope or otherwise mail it to us. All 
proxies that are properly executed and returned, and that are not revoked, will 
be voted at the annual meeting in accordance with the instructions indicated on 
the proxies or, if no direction is indicated, to                                

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approve the Proposals. Our board of directors does not presently intend to bring
any business before the annual meeting of our stockholders other than the       
Proposals referred to in this proxy statement and specified in the notice of the
annual meeting. So far as is known to our board of directors, no other matters  
are to be brought before the annual meeting. As to any business that may        
properly come before the annual meeting, however, it is intended that shares    
represented by proxies, in the form enclosed, will be voted in respect thereof  
in accordance with the judgment of the persons voting the shares. A stockholder 
who has given a proxy may revoke it at any time before it is exercised at the   
annual meeting, by:                                                             

-  delivering to our secretary (by any means, including facsimile) a  
     written notice, bearing a date later than the proxy, stating that the
proxy is revoked;                                               

-  signing and so delivering a proxy relating to the same shares and  
bearing a later date prior to the vote at the annual meeting; or

   -  attending the annual meeting and voting in person (although attendance
at the annual meeting will not, by itself, revoke a proxy).     

QUORUM                                                                          

   The required quorum for the transaction of business at the annual meeting
is a majority of the shares of our common stock issued and outstanding on the   
Record Date. Shares of our common stock represented in person or by proxy, as   
well as abstentions and broker non-votes, represented by proxy, will be counted 
for the purpose of determining whether a quorum is present at the annual        
meeting. Abstentions by stockholders represented at the meeting will have the   
same effect as a vote against Proposals 1 and 4 since these proposals require   
the affirmative vote of the holders of a majority of our outstanding shares of  
common stock on the Record Date. Abstentions by stockholders represented at the 
meeting will also have the same effect as a vote against Proposals 2, 5, 6 and 7
since these proposals require the affirmative vote of the holders of a majority 
of our common stock present in person or represented by proxy and entitled to   
vote at the meeting. Abstentions will have no effect on Proposal 3, the election
of the four nominees to our board of directors, because directors are elected by
a plurality vote.                                                               

     If you do not vote your shares on non-routine matters held through a broker
and your broker does not vote them, the votes will be "broker non-votes." Broker
non-votes will count as a vote against Proposals 1 and 4, and will have no      
effect on any other matter that may be voted on at the meeting.                 

EXPENSES                                                                        

We will bear the cost of the solicitation of proxies. Following the   
original mailing of the proxies and other soliciting materials, we will request 
brokers, custodians, nominees and other record holders to forward copies of the 
proxy and other soliciting materials to persons for whom they hold shares of our
common stock and to request authority for the exercise of proxies and, at their 
request, will reimburse them for their expenses in so doing. We have no present 
plans to hire special employees or paid solicitors to assist us in obtaining    
proxies.                                                                        

RECOMMENDATION OF OUR BOARD OF DIRECTORS                                        

Our board of directors recommends that our stockholders vote for the  
approval of each of the Proposals.                                              

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PROPOSAL 1
APPROVAL OF THE REORGANIZATION AGREEMENT

THE MERGER

BACKGROUND OF THE MERGER                                                        

    The provisions of the Reorganization Agreement and the Agreement of Merger
are the result of arm's-length negotiations conducted among representatives of  
our company and of BIZ and their respective legal and financial advisors. The   
following is a summary of the meetings, negotiations and discussions between the
parties that preceded execution of these agreements.                            

   During 1999, our chairman, Kris Shah, and BIZ's chairman, Marvin Winkler,
were introduced by a mutual friend. At that time, Mr. Winkler was an executive  
with a company known as Broadband Interactive Group, Inc., or BIG. BIG was      
focusing its efforts on broadband interactive entertainment, and discussions    
revolved around how we might contribute high-speed security solutions to be     
incorporated in, for example, set-top boxes.                                    

During 2000, Mr. Winkler decided to turn his attention to             
Core-To-The-Edge(TM) security solutions for electronic commerce and business    
transactions. As a result, he left BIG and in April 2000, he founded BIZ. Mr.   
Winkler immediately began discussions with Mr. Shah about an alliance between   
our company and BIZ to incorporate our technology into BIZ's SSP(TM) product    
line.                                                                           

On September 5, 2000, the two companies entered into a Strategic      
Development and Marketing Alliance Agreement pursuant to which we manufacture   
private label versions of our products for resale by BIZ under BIZ's "SSP"      
trademark.                                                                      

Between October 12, 2000 and October 25, 2000, representatives of our 
company and of BIZ held numerous discussions regarding a possible business      
combination. The potential synergies between the two companies were agreed to,  
so the primary topics of discussion were the relative valuations of the two     
companies and possible deal structures, such as earnouts, that might bridge the 
gap between the two sides' beliefs as to those valuations. The parties were     
unable to come to a satisfactory resolution.                                    

     On November 20, 2000, we entered into a letter of intent with BIZ regarding
the intentions of the two companies to enter into additional agreements for,    
among other things, an investment by BIZ in our company and additional marketing
alliances between the companies and to further discuss a possible merger between
us and BIZ. Since we ultimately decided to proceed with a merger, the investment
by BIZ did not occur.                                                           

  On December 8, 2000, BIZ gave us a purchase order for 3,400 CipherServer
100 accelerator boards (now known as the CipherAccelerator 440), totaling       
$9,000,000. Deliveries under the purchase order are expected to be made in the  
third quarter of 2001.                                                          

During the first two weeks of January 2001, the companies renewed     
discussions regarding relative valuations and a possible business combination.  

   On January 16, 2001, the two companies agreed on relative valuations, and
between that date and February 9, 2001, engaged in almost daily discussions     
regarding the other terms of the business combination, including the structure, 
accounting consequences, securities law issues and, in particular, the premium  
exchange ratio for BIZ's Series B Stock.                                        

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 On February 9, 2001, each company executed a term sheet relating to the
merger. The execution of the term sheet was announced shortly afterwards by the 
issuance of a press release.                                                    

   On July 2, 2001, Friend delivered a written opinion to the members of our
board of directors to the effect that the proposed merger was fair from a       
financial point of view to us and to our stockholders.                          

 On July 3, 2001, each company executed and delivered the Reorganization
Agreement and related documents.                                                

OUR REASONS FOR THE MERGER                                                      

Our board of directors believes that the terms of the Reorganization  
Agreement, the transactions contemplated by that agreement and the merger are in
the best interests of our company and our stockholders. In addition, our board  
of directors believes that the Exchange Ratio and Series B Exchange Ratio are   
fair to our stockholders. Accordingly, our board of directors has approved the  
Reorganization Agreement, the Agreement of Merger and the issuance of shares of 
our common stock in the merger and recommends the approval of Proposal 1 by our 
stockholders.                                                                   

In view of the number of factors considered in connection with its    
evaluation of the merger, our board of directors did not quantify or otherwise  
attempt to assign relative weights to the separate factors considered in        
reaching its determination. In reaching its determination to recommend approval 
of the merger, our board consulted with members of our management, as well as   
our legal counsel and our investment banker, and considered a number of factors.
Our board of directors considered the nature and scope of the business of BIZ,  
and quality and breadth of its assets, products, distribution contacts,         
competitive position and prospects for future growth. Our board also considered 
that while we have technology and a significant level of government sales, BIZ  
has significant commercial sales potential and is already utilizing our         
technology under the terms of the Strategic Development and Marketing Alliance  
Agreement that we entered into with BIZ in September 2000.                      

    In reviewing these assets and operations, our board of directors took into
account the quality of BIZ's senior management and product distribution         
contacts. It also reviewed the complementary nature of the businesses of the two
companies, which have significant overlap and which present opportunities for   
expansion. In that regard, our board of directors considered that the           
complementary nature of the two companies' businesses creates significant       
opportunities for development of the two companies on a combined basis. Our     
board also gave serious consideration to BIZ's strategic alliance with          
Electronic Data Systems Corporation, or EDS, which our board felt validated     
BIZ's position as a serious contender in the commercial segment of the data     
security industry.                                                              

     Our board of directors also reviewed companies comparable to BIZ within the
data security industry in considering the strategic and financial rationale for 
the merger. In that regard, the board considered, among other factors, the      
relative financial positions of our company and BIZ and the potential impacts of
the merger on the financial position of the new combined company. Our board of  
directors considered the terms and conditions of the Reorganization Agreement,  
including the number of shares of our common stock to be received by holders of 
BIZ common stock and Series B Stock. In addition, our board considered the      
opinion of Friend contained in a written opinion dated July 2, 2001, which will 
be confirmed in writing as of the Closing Date that the merger is fair to us and
to our stockholders from a financial point of view. A copy of the written       
opinion of Friend to our board of directors dated July 2, 2001, which will be   
confirmed in writing as of the Closing Date, is attached hereto as Appendix B   
and is incorporated herein by reference. See "Fairness Opinion" below.          

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FAIRNESS OPINION                                                                

The following description of the opinion of Friend is qualified in its
entirety by reference to the full text of the opinion as set forth in Appendix  
B. The opinion is sometimes referred to in this proxy statement as the "Fairness
Opinion" or the "Opinion."                                                      

  Friend provided to our board of directors its written opinion on July 2,
2001 that, as of that date, based upon and subject to the various factors and   
assumptions set forth in the Opinion, the terms of the merger were fair to us   
and to our stockholders (except Kris Shah and his affiliates) from a financial  
point of view. The terms of the merger were determined pursuant to negotiations 
between BIZ and us and not pursuant to recommendations of Friend. Friend's      
Opinion, and its presentation to our board of directors, was only one of several
factors taken into consideration by our board of directors in making its        
determination to approve the merger. The Opinion was provided to our board to   
assist it in connection with its consideration of the merger and does not       
constitute a recommendation to any holder of our stock as to how to vote with   
respect to the merger.                                                          

  THE FULL TEXT OF THE OPINION, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX B  
TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS   
ARE URGED TO READ THE OPINION CAREFULLY AND IN ITS ENTIRETY. THE SUMMARY OF THE 
OPINION OF FRIEND SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF THE OPINION. FRIEND'S OPINION IS DIRECTED TO   
OUR BOARD OF DIRECTORS. IT ONLY ADDRESSES THE FAIRNESS OF THE MERGER FROM A     
FINANCIAL POINT OF VIEW TO OUR COMPANY AND OUR STOCKHOLDERS AND DOES NOT        
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF OUR COMPANY AS TO HOW TO VOTE 
AT THE ANNUAL MEETING.                                                          

 Friend has advised our board of directors expressly in its Opinion that
Friend does not believe that any person (including a stockholder of our company)
other than our board of directors has the legal right to rely upon its Opinion  
to support any claims against Friend arising under applicable state law and     
that, should any such claims be brought against Friend by any such person, this 
assertion will be raised as a defense. Should a claim arise, the availability of
such a defense would be resolved by a court of competent jurisdiction.          
Resolution of the question of the availability of such a defense, however, will 
have no effect on the rights and responsibilities of our board of directors     
under applicable state law. Nor would the availability of such a state law      
defense to Friend have any effect on the rights and responsibilities of either  
Friend or our board of directors under the federal securities laws. The summary 
of the Opinion set forth in this proxy statement is qualified in its entirety by
reference to the full text of the Opinion.                                      

   Friend is engaged in the investment banking business and, as such, Friend
regularly engages in the valuation of businesses and the securities of          
businesses in connection with mergers and acquisitions, negotiated              
underwritings, secondary distributions of listed and unlisted securities,       
private placements and other activities. Our board of directors selected Friend 
to serve as its financial advisor based on Friend's qualifications, expertise   
and familiarity with the businesses of our company and BIZ. The terms of        
Friend's engagement to by us are set forth in an engagement letter dated in     
February 2001. Other than its meetings with us as described above, Friend was   
not authorized to solicit and did not solicit interest from any party with      
respect to a merger or acquisition of our company.                              

In rendering its Opinion, among other things, Friend: (i) reviewed the
draft Reorganization Agreement dated June, 27 2001; (ii) reviewed our S-1       
Registration Statement dated June 9, 1999; our Annual Reports on Form 10-K for  
the fiscal years ended December 31, 2000 and December 31, 1999; Quarterly       
Reports on Form 10-Q for the periods ended March 31, 2001, September 30, 2000,  
June 30, 2000 and March 31, 2000; and our Definitive Proxy Statement dated May  
24, 2000; (iii) reviewed audited                                                

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financial statements of BIZ for its fiscal year ended December 31, 2000 and     
reviewed BIZ financial statements for the three month period ended March 31,    
2001 which have been prepared by BIZ's management; (iv) reviewed certain        
internal financial statements and other financial and operating data concerning 
BIZ and us prepared by the respective managements of BIZ and our company; (v)   
examined certain combined pro forma financial projections dated June 22, 2001,  
showing the results of the merger as if it had occurred on January 1, 2001, as  
provided to Friend by the management of our company; (vi) examined certain      
financial projections dated June 22, 2001, of our company on a stand-alone      
basis, as if the transaction had not occurred, as provided to Friend by our     
management; (vii) examined certain financial projections dated June 22, 2001,   
provided to Friend by the management of BIZ; (viii) discussed the past and      
current operations and financial condition and the prospects of our company with
our senior executives, and conducted further limited interviews with certain    
members of our management; (ix) discussed the past and current operations and   
financial condition and the prospects of BIZ with senior executives of BIZ, and 
conducted further limited interviews with certain members of BIZ management; (x)
reviewed the reported prices and trading history of our common stock; (xi)      
compared the financial performance, financial projections and the prices and    
trading activity of our company with that of certain other comparable           
publicly-traded companies and their securities; (xii) compared the combined pro 
forma financial projections with that of certain other comparable               
publicly-traded companies and their securities; (xiii) reviewed the financial   
terms, to the extent publicly available, of certain comparable merger and       
acquisition transactions; (xiv) visited our headquarter facilities; (xv) visited
BIZ's headquarter facilities; and (xvi) performed such other analyses and       
inquiries and considered such other factors as it deemed appropriate.           

  In rendering its Opinion, Friend relied, without assuming responsibility
for verification, upon the accuracy and completeness of all of the financial and
other information reviewed by Friend for purposes of its Opinion. With respect  
to financial projections, estimates and analyses provided to Friend by BIZ or   
us, Friend assumed that these projections, estimates and analyses were          
reasonably prepared on bases reflecting the best currently available estimates  
and judgments of our management and the management of BIZ, as the case may be.  
In addition, Friend did not make any independent evaluation or appraisal of any 
assets or liabilities (contingent or otherwise) of us or of BIZ and was not     
furnished with any such evaluation or appraisal. The analyses performed by      
Friend are not necessarily indicative of actual values or predictive of future  
results or values, which may be significantly more or less favorable than       
suggested by these analyses. In its Opinion, Friend noted that among other      
things, its Opinion was necessarily based upon business, economic, market and   
other conditions as they existed and evaluated by Friend at the date of its     
Opinion. In its Opinion, Friend assumed that the final form of the              
Reorganization Agreement (including the exhibits thereto) did not vary in any   
respect that is material to its analysis from the last draft that it reviewed   
and it did not independently verify the accuracy and completeness of the        
financial and other information supplied to it or publicly available and did not
assume any responsibility with respect to such information. Friend relied upon  
our company or counsel to our company or upon BIZ, as the case may be, with     
respect to interpretations of the provisions contained in the constituent       
documents and related documents of our company or BIZ, respectively, and the    
application of applicable law to such documents. You are urged to read the      
Opinion in its entirety for assumptions made, matters considered and limits of  
the review by Friend.                                                           

In connection with rendering its Opinion, Friend performed various    
financial analyses, which are summarized below. It is important to note, that at
the advisement of the management of the companies, Friend performed certain     
analyses as if our company and BIZ were one entity. Our management advised      
Friend to perform certain analyses in such a manner because each company's      
financial projections assumed the investment of additional capital from outside 
sources, without which each company's specified projections could not be        
attained. In addition, Friend performed certain analyses as if our company and  
BIZ were each a stand-alone entity. However, each company believed that its     
business strategies and market presence apart from the other company were not   
sufficient to attract the significant                                           

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amount of new capital required to meet internal projections. Since neither      
company believed it could meet its objectives absent a combination with the     
other, a combined strategy was developed which would be attractive to potential 
investors and which could provide the best possible chance to achieve positive  
cash flow in the shortest period of time.                                       

  Friend's Opinion, which focuses on the consideration to be paid by us in
the merger, was supported by, among other analyses, a discounted cash flow      
analysis and comparable company analysis.                                       

Friend believes that the one entity approach supports its Opinion in  
several ways. The one entity approach served to provide an acceptable basis to  
perform a discounted cash flow analysis. Combining each company's assets and the
cash infusions required to execute a combined budget based upon the ability to  
raise capital at acceptable rates provided the foundation for management to     
build a business model presentable to the investment community. Additionally,   
after the combined entity discounted cash flow analysis was performed, it was   
then possible to deconstruct its elements (i.e., the assets in terms of new     
products, distribution relationships, key employees and strategic partners) that
each side brought to the transaction. If the combined company cash flow did not 
support a per share price attractive to each party to the merger, then it would 
be clear that the relative value of each entity would not be fair. BIZ and we   
also adjusted the performance risks of the combined projected cash flows based  
upon their respective anticipated revenue contributions and ultimately the value
each brought to the combined company.                                           

The one entity approach was also significant to the comparable company
analysis. The comparable companies had a demonstrable ability to raise          
attractively priced financing to execute their respective business plans whereas
BIZ and we did not. It was important that the combined entity have appropriate  
revenue figures and common shares outstanding that compared at least as         
favorably as the mean statistics for this industry group at the time of the     
contemplated merger. If the combined company's operating results (historically  
and prospectively) did not reflect or compare well with industry peers, it would
be clear that either BIZ or we were being valued too high as compared to the    
other. Due to issues of share volatility, trading liquidity and short company   
histories, examining each company individually as compared to larger, better    
capitalized peers would be inadequate. It should be noted that in all instances,
the analyses of our company excluded the operations of our subsidiary, Pulsar,  
per the assumptions set forth below.                                            

     (i) DISCOUNTED CASH FLOW VALUATION. Friend performed a discounted cash flow
analysis of the combined entity and us on a stand-alone basis, wherein the      
present value of projected net free cash flows was determined by discounting    
those cash flows using discount rates and terminal year EBITDA multiples        
indicated below. The analysis began by using five-year operating projections    
provided by our management and BIZ's management through the year 2005 for       
revenue, expense and balance sheet accounts as if the merger had occurred on    
January 1, 2001. The projections provided by us incorporate several material    
assumptions on which Friend based its analysis. For both the combined entity and
our company on a stand-alone basis, management made the assumption that we would
divest our subsidiary company, Pulsar, in fiscal 2001. Hence, the projections   
for both the combined entity and our company on a stand-alone basis did not     
reflect any operations from Pulsar. It should be noted that if we are not       
successful in divesting Pulsar on a stand-alone basis, we would need additional 
financing. For the combined entity, management assumed an incremental equity    
financing of approximately $15,000,000.                                         

  The analysis calculated the present value of the unlevered net free cash
flows of the combined entity as of January 1, 2001 using a range of discount    
rates from 15.4% to 19.4%, which was the weighted average cost of capital, or   
WACC. The WACC reflects both the after-tax cost of debt and the cost of equity, 
taking into account various premiums for market and company specific risk. The  
terminal value was calculated for the year following 2005 using a range of      
terminal year EBITDA multiples of 6x to 8x. The terminal multiples were derived 
based on Friend's judgment as to the appropriate range of multiples             

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at the end of the projected period. The terminal values were then discounted to 
the present using the discount rates above. This analysis assumed no synergies  
and yielded an implied common equity value range per share for the combined     
entity of $7.70 to $11.83.                                                      

     Friend calculated the present value of the unlevered net free cash flows of
our company on a stand-alone basis as of January 1, 2001 using discount rates   
between 11.4% and 15.4%. The basis for determining the discount rates and       
terminal values followed the methodology outlined above. This analysis indicated
an implied common equity value range per share for our company on a stand-alone 
basis of $1.79 to $2.59. Friend noted that the per share value range of the     
combined entity compared favorably to our company on a stand-alone basis.       

     (ii) COMPARABLE COMPANY ANALYSIS. Friend compared and analyzed the combined
entity and our company on a stand-alone basis with the market values and trading
multiples of 12 selected publicly-traded companies in the data security industry
that Friend believed were reasonably comparable to the combined entity and our  
company. The comparable companies consisted of ActiveCard S.A., Aladdin         
Knowledge Systems, Baltimore Technologies, Certicom, Entrust Technologies,      
Internet Security Systems, Netegrity, Rainbow Technologies, RSA Security, SCM   
Microsystems, Sonicwall, and Verisign, which are collectively referred to as the
Comparable Group. In examining these comparable companies, Friend calculated the
Enterprise Value, or EV, of each company (i.e., the market value of common      
equity, plus total interest bearing debt and liquidation value of outstanding   
preferred stock less cash and equivalents) as a multiple of its respective      
latest twelve-month, or LTM, revenue, projected fiscal year 2001 and 2002       
revenue and LTM earnings before interest and taxes plus depreciation and        
amortization, or EBITDA. Friend also calculated the equity value of each company
as a multiple of its respective LTM net income, or the P/E ratio, projected     
fiscal year 2001 and 2002 net income and multiples of total equity market value 
of common equity to book value, or Price/Book. The share prices used in         
calculating the market values of common equity were based on the preceding      
20-day average closing prices as of June 15, 2001. All historical data were     
derived from publicly available sources, from which Friend excluded all         
non-recurring and extraordinary items and all projected data were obtained from 
publicly available brokerage analysts' estimates of earnings per share. Based on
an analysis of the Comparable Group, Friend derived a selected range for each   
respective multiple. The selected high-end multiple represents the third        
quartile (i.e., 75th percentile) of the observed range and the low-end multiple 
represents the first quartile (i.e., 25th percentile) of the observed range. The
average of the observed range represents the adjusted mean, which excludes the  
high and low observations.                                                      

   Friend's analysis of the Comparable Group for the combined entity yielded
the following results: EV/LTM revenue multiples ranging from 1.1x to 10.0x with 
an average multiple of 6.0x; EV/2001E revenue multiples ranging from 1.9x to    
7.6x with an average multiple of 4.9x; EV/2002E revenue multiples ranging from  
2.0x to 5.3x with an average multiple of 4.0x; EV/LTM EBITDA multiples ranging  
from 38.1x to 96.3x with an average multiple of 65.5x; LTM P/E multiples ranging
from 17.5x to 146.5x with an average multiple of 75.4x; projected 2001 P/E      
multiples ranging from 55.9x to 92.0x with an average multiple of 76.4x;        
projected 2002 P/E multiples ranging from 27.7x to 54.2x with an average        
multiple of 40.8x; and Price/Book multiples ranging from 0.9x to 2.8x with an   
average multiple of 2.4x. The analysis assumed that no synergies or accounting  
write-offs were realized by the merger. Using the combined entity's pro forma   
financial results for comparable periods, Friend applied these multiples and    
estimated an implied common equity value range per share for the combined entity
of $6.17 to $12.51.                                                             

    Friend's analysis of the Comparable Group for our company on a stand-alone
basis included only those companies in the Comparable Group whose primary focus 
was public-key infrastructure, or PKI, products and services. This group        
consisted of ActiveCard S.A., Aladdin Knowledge Systems, Baltimore Technologies,
Certicom, Entrust Technologies, Rainbow Technologies, RSA Security and SCM      
Microsystems. This analysis yielded the following results: EV/LTM revenue       
multiples ranging from 0.8x                                                     

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to 5.3x with an average multiple of 3.0x; EV/2001E revenue multiples ranging    
from 1.0x to 4.8x with an average multiple of 2.9x; EV/2002E revenue multiples  
ranging from 1.2x to 4.1x with an average multiple of 2.6x; EV/LTM EBITDA       
multiples did not result in meaningful observations; LTM P/E multiples ranging  
from 12.3x to 19.6x with an average multiple of 15.5x; projected fiscal year    
2001 P/E multiples did not result in meaningful observations; projected fiscal  
year 2002 P/E multiples ranging from 22.2x to 43.8x with an average multiple of 
26.5x; and Price/Book multiples ranging from 0.8x to 1.6x with an average       
multiple of 1.3x. Using our LTM and projected financial results for comparable  
periods, Friend applied these multiples and estimated an implied common equity  
value range per share for our company on a stand-alone basis of $1.16 to $6.22. 
Friend noted that the per share value range of the combined entity compared     
favorably to us on a stand-alone basis. The actual price of our stock (based on 
the preceding 20-day average closing price as of June 15, 2001) was $3.92.      

(iii) SELECTED MERGERS AND ACQUISITION TRANSACTIONS. Using publicly   
available information, Friend reviewed the consideration paid in 11 selected    
acquisition transactions of companies in the data security industry from 1996   
through the present. Specifically, Friend reviewed the following transactions,  
which are collectively referred to as the Selected Transactions: the acquisition
of Axent Technologies by Symantec; Phobos Corp. by SonicWall, Inc; enCommerce by
Entrust Technologies; CygnaCom Solutions Inc. by Entrust Technologies; Worldtalk
Communications Corp. by Tumbleweed Communications; Shuttle Technology Group by  
SCM Micro Systems; Securit, Inc by Verisign; Raptor Systems Inc. by Axent;      
Nations, Inc. by BTG, Inc.; Assurant Technologies, Inc by Axent; and RSA Data   
Security, Inc by Security Dynamics Tech. In examining these acquisitions, Friend
calculated the EV of the acquired company implied by each of these transactions 
as a multiple of LTM revenue and LTM EBITDA. Friend also calculated the market  
value of common equity of the acquired company implied by each of these         
transactions as a multiple of LTM net income, or Price/Earning, and Price/Book. 
Based on an analysis of the Selected Transactions, Friend derived a selected    
range for each respective multiple. The selected high-end multiple represents   
the third quartile (i.e., 75th percentile) of the observed range and the low-end
multiple represents the first quartile (i.e., 25th percentile) of the observed  
range. The average of the observed range represents the adjusted mean, which    
excludes the high and low observations. The indicated EV/LTM revenue multiples  
ranged from 2.0x to 14.3x with an average multiple of 8.5x; the indicated EV/LTM
EBITDA multiples ranged from 8.0x to 53.1x with an average multiple of 22.2x;   
the indicated Price/Earnings multiples ranged from 9.3x to 271.4x with an       
average multiple of 125.3x; and the indicated Price/Book multiples ranged from  
5.4x to 16.5x with an average multiple of 10.9x.                                

    With the transaction structured as a merger, Friend elected to utilize the
total amount of consideration paid in the merger, which provided a basis for    
determining the implied value of the combined entity. Using this implied value, 
transaction multiples were derived based on LTM pro forma results. Friend       
calculated the transaction multiples of EV/LTM revenue, EV/LTM EBITDA,          
Price/Earnings and Price/Book. These multiples were then compared to the        
Selected Transaction multiples. Based on this, Friend noted that the implied    
value of the combined entity generated an EV/LTM revenue multiple of 16.9x and a
Price/Book multiple of 1.7x. The EV/LTM EBITDA and Price/Earnings multiples did 
not produce meaningful data. Friend noted that the EV/LTM revenue multiple was  
outside of the selected range, but below the absolute mean of the range. The    
book value multiple was below the selected range and the absolute mean of the   
range.                                                                          

(iv) CONTRIBUTION ANALYSIS AND EARNINGS PER SHARE IMPACT. A relative  
contribution analysis measures the relative contributions to items such as      
revenue and operating income on a percentage basis of our company and BIZ to the
proposed merger on a percentage basis. Friend examined the pro forma relative   
contributions for our company and BIZ for the period ending December 31, 2001   
through projected fiscal year 2005 based upon projections provided by our       
management for revenue and gross profit. The analysis was performed assuming no 
pro forma transaction adjustments and indicated that our relative contribution  
to revenue for projected fiscal year ending December 31, 2001, 2002, 2003, 2004,

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and 2005 was 42.2%, 18.0%, 7.6%, 7.4%, and 6.3%, respectively. Our relative     
contribution to gross profit was 47.5%, 19.3%, 9.5%, 9.2%, and 8.0%,            
respectively. On a cumulative basis over the forecast period, our relative      
contribution to revenue and gross profit was 8.8% and 10.9%, respectively.      
Friend noted that we were receiving a higher percentage of the combined entity  
than it was contributing with respect to the measures of revenue and gross      
profit.                                                                         

 Friend also analyzed the earnings per share impact of the merger to our
stockholders. For the projected fiscal years ending December 31, 2001, 2002,    
2003, 2004, and 2005, the merger resulted in accretion (dilution) of (80.1%) or 
($0.38) per share, 1,010.9% or $0.24 per share, 84.9% or $0.23 per share, 387.9%
or $1.15 per share and 427.9% or $1.48 per share, respectively. The analysis    
indicated that the merger would be accretive to our earnings beginning in 2002. 
In arriving at these accretion (dilution) results, Friend compared the combined 
entity's pro forma earnings per share estimates with our forecast earnings per  
share on a stand-alone basis, and assumed the merger would not result in any    
synergies.                                                                      

(v) STOCK TRADING HISTORY. To provide contextual data and comparative 
market data, Friend reviewed the historical daily closing prices and trading    
activity of our common stock since our initial public offering beginning July   
14, 1999 and ending June 15, 2001 and for the six-month period ended June 15,   
2001, and compared such closing stock prices with the closing stock prices of a 
composite group of 12 comparable publicly-traded data security companies and the
Nasdaq composite Index. The 12 comparable publicly-traded companies consisted of
the Comparable Group. Friend noted that our common stock is reported on The     
Nasdaq Stock Market and is traded by approximately 13 market makers with no     
recently published research coverage. On June 15, 2001, our common stock closed 
at a price of $3.31 and over the six-month period preceding that date ranged in 
price from $3.01 to $6.88 with a mean price of $4.38 and a standard deviation of
$0.63. Since our initial public offering, our stock price ranged from $30.00 to 
$2.06 with a mean price of $7.41 and a standard deviation of $4.20. For the     
six-month period ended June 15, 2001, our trading volume averaged 18,765 shares 
or approximately 0.4% of its total float. The analysis indicated that on a      
percentage change basis our common stock had performed approximately equal to   
the Comparable Group and under performed the Nasdaq composite index over both   
the latest six-months, and since inception. This information was presented      
solely to provide our board of directors with background information regarding  
the historical trading history and stock prices of our common stock relative to 
our peers and an appropriate index.                                             

     The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative methods of financial analysis and
the application of those methods to particular circumstances, and, therefore,   
such an opinion is not readily susceptible to a partial analysis or summary     
description. The summary of Friend's analyses set forth below does not purport  
to be a complete description of the presentation by Friend to our board of      
directors. In arriving at its Opinion, Friend did not attribute any particular  
weight to any analysis or factor considered by it, but rather made qualitative  
judgments as to the significance and relevance of each analysis and factor.     
Accordingly, Friend believes that its analyses and the summary set forth below  
must be considered as a whole, and that considering any portion of such analyses
and summary of the factors considered, without considering all such analyses and
factors, could create a misleading or incomplete view of the processes          
underlying the analyses set forth in the Friend presentation to our board of    
directors and in the Opinion. In performing its analyses, Friend made numerous  
assumptions with respect to industry performance, general business and other    
conditions and matters, many of which are beyond the control of BIZ or us. Any  
estimates contained therein are not necessarily indicative of actual values,    
which may vary significantly. Estimates of the relative financial values of our 
company and the combined entity do not purport to be appraisals or necessarily  
reflect the prices at which such companies may actually be sold. In addition, no
assurance can be given as to the trading value of our company's common stock    
upon consummation of the merger, which may differ materially from the recent    
trading prices of our common stock. Because such matters                        

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are inherently uncertain, none of us, BIZ, Friend nor any other person assumes  
any responsibility for such matter.                                             

     No Comparable Group company nor any transaction utilized as a comparison in
Friend's analyses is identical to our company or the combined entity, or to the 
merger. In evaluating the analyses above, Friend made judgments and assumptions 
with regard to industry performance, general business, economic, market and     
financial conditions and other matters, many of which are beyond the control of 
our company and BIZ, such as the impact of competition on us or BIZ and the     
industry generally, industry growth and the absence of any adverse material     
change in the financial condition and prospects of our company or BIZ or the    
industry or in the financial markets in general. Mathematical analysis (such as 
determining the average or median) is not in itself a meaningful method of using
comparable company or transaction data.                                         

Friend was selected by our board of directors based on Friend's       
qualifications, experience, expertise and reputation. As part of its investment 
banking business, Friend is regularly engaged in the investment banking business
and, as such, Friend regularly engages in the valuation of businesses and the   
securities of businesses in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and    
other transactions.                                                             

Pursuant to a letter agreement dated as of February 13, 2001, we have 
agreed to pay Friend a fee for its services referred to above including         
rendering its Opinion, and have agreed to reimburse Friend for its reasonable   
expenses incurred in connection with its engagement by us upon delivery of      
Friend's written Opinion. We have also agreed to indemnify Friend and its       
directors, officers, agents, employees, affiliates, and controlling persons     
against any losses, claims, or liabilities to which Friend becomes subject in   
connection with its rendering of services, except those that arise from Friend's
gross negligence or willful misconduct. Friend, in the ordinary course of       
business, has from time to time provided, and in the future may continue to     
provide, investment banking, financial advisory and other related services to us
and/or our affiliates, as the case may be, for which it has or will receive     
fees. In the ordinary course of business, Friend or its affiliates may trade in 
our equity securities for its own accounts and for the accounts of its customers
and, accordingly, may at any time hold a long or short position in such         
securities.                                                                     

     Our Relationship with Friend. We retained Friend in February 2001 to render
its opinion as to the fairness, from a financial point of view, of the merger to
us and to our stockholders.                                                     

   At our request, on June 27, 2001, Friend delivered an oral opinion to our
board, which was confirmed in a written opinion dated July 2, 2001, and which   
will be further confirmed in a written opinion dated as of the Closing Date,    
that, based upon and subject to the matters set forth in its written opinion, as
of such date, the merger was fair, from a financial point of view, to us and to 
our stockholders (except Kris Shah and his affiliates). The full text of the    
written Opinion of Friend dated July 2, 2001, which will be confirmed in writing
as of the Closing Date, is set forth as Appendix B to this proxy statement and  
describes the assumptions made, matters considered and the scope and limitations
of the review undertaken by Friend. You are urged to read the Fairness Opinion  
in its entirety.                                                                

     Friend's Opinion addresses only the fairness of the merger from a financial
point of view to us and to our stockholders and does not constitute a           
recommendation as to how you should vote with respect to the approval of        
Proposal 1. Although Friend evaluated and commented on the financial terms of   
the merger, Friend did not recommend the specific number of shares of our common
stock to be issued to BIZ stockholders in the merger.                           

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Prior to its engagement by us in connection with the Fairness Opinion,
Friend had no business relationship with us. After we engaged Friend in         
connection with the Fairness Opinion, we requested Friend perform an independent
valuation of Pulsar. The purpose of this valuation was to determine the         
impairment, if any, related to unamortized goodwill and other intangible assets 
acquired in connection with our acquisition of Pulsar.                          

ACCOUNTING TREATMENT                                                            

   The merger will be accounted for as a purchase of BIZ by us in accordance
with generally accepted accounting principles, or GAAP. For the purpose of      
applying purchase accounting, we will be treated as the acquiror, since our     
stockholders (including Kris Shah with respect to shares he receives in the     
merger) will own the largest portion of the common stock of the combined entity 
immediately following the merger. Litronic and BIZ will be treated as separate  
entities for periods prior to the Closing Date, and after the Closing Date, the 
consolidated financial statements will include the accounts of both Litronic and
BIZ.                                                                            

MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER                          

    For federal income tax purposes, we intend that the merger will qualify as
a reorganization within the meaning of Section 368 of the Code and that none of 
Litronic, Litronic Merger Corp., BIZ or any of their stockholders will recognize
any gain or loss for federal or state income tax purposes as a result of the    
merger.                                                                         

REGULATORY APPROVALS                                                            

 We will file the Agreement of Merger with the Secretary of State of the
State of Delaware for approval. Once the Delaware Secretary of State has        
accepted the Agreement of Merger, the merger will be officially completed and   
effective.                                                                      

VOTING AGREEMENTS                                                               

Kris Shah and certain of his affiliates and family members, who       
collectively held, as of the Record Date, approximately 55% of our outstanding  
common stock, have agreed to vote their shares of common stock in favor of the  
merger and the transactions contemplated by the Agreement of Merger, including  
the election of the nominees for director named in this proxy statement. Marvin 
Winkler, the chief executive officer of BIZ and his affiliates, and the holders 
of Series B Stock, who collectively held, together with Kris Shah, as of the    
Record Date, 100% of BIZ's outstanding stock, are also parties to this voting   
agreement and have likewise agreed to vote in favor of the merger and the       
transactions contemplated by the Agreement of Merger, including the election of 
the nominees for director named in this proxy statement. Therefore, absent an   
extraordinary event, management believes that the approval of the Proposals     
described in this proxy statement is assured. A copy of the voting agreement,   
which contains provisions regarding the voting of those shares, is attached as  
Appendix G to this proxy statement. You should carefully read the entire voting 
agreement.                                                                      

INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION                              

     In considering the recommendation of our board of directors with respect to
the Reorganization Agreement and the transactions contemplated thereby, you     
should be aware that Kris Shah has certain interests in the merger that are     
different from, or in addition to, your interests as a stockholder generally and
may create a potential conflict of interest.                                    

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  Kris Shah, our chairman of the board, chief executive officer, president
and secretary owns 1,400,000 shares of BIZ common stock that, at the Effective  
Time will be converted into 665,174 shares of our common stock. Mr. Shah,       
disclosed this interest to the remaining members of our board of directors. Our 
board recognized this interest and determined that this interest neither        
detracted from nor supported the fairness of the merger to our stockholders. The
merger and the Reorganization Agreement were then unanimously approved by our   
board.                                                                          

PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS                                     

  On March 1, 2000, our wholly-owned subsidiary, Litronic Industries, Inc.
entered into a sublease for a portion of our former corporate headquarters      
located in Irvine, California to Broadband Consumer Products, a wholly-owned    
subsidiary of BIZ. BIZ's principal executive offices are now located on the     
subleased premises. The sublease was the result of arm's length negotiations    
between us and BIZ and expires in September 2001.                               

  In September 2000, we entered into a Strategic Development and Marketing
Alliance Agreement with BIZ. Under the terms of that agreement, we manufacture  
and sell to BIZ, our standard products and products with design modification and
enhancement variations specified by BIZ under the BIZ label. This agreement has 
a five-year term that will automatically renew for successive one-year periods  
unless either party otherwise notifies the other party no later than 60 days    
before expiration.                                                              

CONDITIONS                                                                      

     In addition to the approval of our stockholders that we are seeking by this
solicitation of proxies and the approval of the stockholders of BIZ, BIZ's and  
our obligations to consummate the merger are subject to the satisfaction of a   
number of other conditions, unless waived, including:                           

-  the absence of any order, decree, ruling or threat by any court or 
 governmental agency, or any other fact or circumstance that would
prohibit or render illegal the transactions contemplated by the 
Reorganization Agreement;                                       

-  the receipt of all consents, permits or authorizations that may be 
required by regulatory authorities;                             

 -  the receipt by BIZ of demands for the exercise of dissenters' rights
      from holders of shares representing not more than 5% of its issued and
outstanding shares of capital stock;                            

-  our receipt of a fairness opinion of Friend dated as of the Closing
Date;                                                           

-  the termination of the amended and restated stockholders' agreement
among BIZ and certain of its stockholders;                      

-  our receipt of an opinion of BIZ's counsel and BIZ's receipt of an 
      opinion of our counsel, each dated the Closing Date, regarding certain
matters set forth in the Reorganization Agreement;              

-  the election of the directors nominated and set forth in this proxy
statement at our annual meeting of stockholders;                

     -  the authorization by Nasdaq of the listing on The Nasdaq National Market
 of our shares of common stock to be issued in connection with the
merger; and                                                     

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-  the approval of the change of our Nasdaq trading symbol to "SSPX." 

Each party's obligations under the Reorganization Agreement are also  
conditioned upon:                                                               

-  the accuracy in every material respect of the representations and  
warranties made by the other party;                             

-  the performance and compliance in all material respects with all   
covenants required to be performed by such party;               

    -  the lack of any adverse change in the condition, results of operations,
   properties, assets, liabilities, business or prospects of the other
party; and                                                      

-  the receipt of certain other documents.                            

APPRAISAL RIGHTS OF STOCKHOLDERS                                                

Our stockholders will not have rights of appraisal under the DGCL with
respect to the merger because our common stock is traded on The Nasdaq National 
Market.                                                                         

THE REORGANIZATION AGREEMENT

   The Reorganization Agreement provides, among other things, for the merger
of Litronic Merger Corp. with and into BIZ under the Agreement of Merger, which 
will result in BIZ, as the surviving corporation of the merger, becoming our    
wholly-owned subsidiary.                                                        

The following is a brief summary of the material provisions of the    
Reorganization Agreement, a copy of which is attached as Appendix A to this     
proxy statement and is incorporated herein by reference. This summary is        
qualified in its entirety by reference to the full and complete text of the     
Reorganization Agreement.                                                       

THE MERGER                                                                      

     Under the Reorganization Agreement and subject to its terms and conditions,
Litronic Merger Corp. will be merged with and into BIZ. As a result of the      
merger, BIZ will become our wholly-owned subsidiary. As a part of the merger,   
stockholders of BIZ will receive the consideration described below.             

  Subject to the terms and conditions of the Reorganization Agreement, the
closing of the transactions contemplated by that agreement will take place at a 
time to be mutually agreed upon by the parties, not later than the fifth        
business day after all conditions to closing have been satisfied or waived. The 
merger will become effective upon the acceptance of the Agreement of Merger by  
the Secretary of State of the State of Delaware (or such other date and time as 
may be specified in the Agreement of Merger).                                   

CONVERSION OF BIZ STOCK                                                         

Under the Reorganization Agreement and the Agreement of Merger, upon  
consummation of the merger, each share of BIZ common stock, except for          
Dissenting Shares, issued and outstanding immediately prior to the Effective    
Time will be converted into 0.4751248 shares of our common stock, and each share
of Series B Stock, except for Dissenting Shares, issued and outstanding         
immediately prior to the Effective Time will be converted into 0.8564122 shares 
of our common stock. As of July 19, 2001, there were 16,400,000 shares of BIZ   
common stock outstanding (of which 1,400,000 shares were owned                  

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by our chairman, chief executive officer, president and secretary, Kris Shah)   
and 3,600,000 shares of Series B Stock outstanding. Therefore, the total number 
of shares of our common stock to be issued to the BIZ stockholders (other than  
Kris Shah) in the merger is 10,209,954, which will represent 49.5% of the total 
number of our issued and outstanding shares of common stock after the merger.   
Kris Shah will receive 665,174 shares of our common stock in the merger.        

Assumption of BIZ Stock Options and BIZ Warrants                      

     As provided in the Reorganization Agreement, at the Effective Time, we will
assume BIZ's Stock Option Plan and each outstanding BIZ Option (whether vested  
or unvested) and each outstanding BIZ Warrant shall be converted into an option 
or warrant, as the case may be, to purchase that number of shares of our common 
stock determined by multiplying the number of shares of BIZ common stock subject
to such BIZ Option or BIZ Warrant at the Effective Time by the Exchange Ratio,  
at an exercise price per share of our common stock equal to the exercise price  
per share of BIZ Option or BIZ Warrant immediately prior to the Effective Time  
divided by the Exchange Ratio and rounded up to the nearest whole cent. If this 
calculation results in an assumed BIZ Option or BIZ Warrant being exercisable   
for a fraction of a share of our common stock, then the number of shares of our 
common stock subject to the option or warrant will be rounded to the nearest    
whole number of shares (rounded down, in the cases of BIZ Options that are      
ISOs). The other terms of the BIZ Options or BIZ Warrants, including vesting    
schedules, will remain unchanged. At the Effective Time, we will assume all     
rights and obligations of BIZ under the BIZ Options. We will file a registration
statement on Form S-8 with the Commission with respect to the issuance of shares
of our common stock upon exercise of the assumed BIZ Options which are eligible 
to be registered on Form S-8 as soon as practicable after the Closing Date. As  
of July 19, 2001, BIZ Options to acquire an aggregate of 1,756,500 shares of BIZ
common stock were outstanding and BIZ Warrants to purchase an aggregate of      
450,000 shares of BIZ common stock were outstanding. Of these, a warrant to     
purchase 400,000 shares of BIZ common stock is held by us. This warrant will be 
cancelled upon consummation of the merger.                                      

Fractional Shares                                                     

   No fractional shares of our common stock will be issued in the merger. In
lieu of the issuance of any fractional shares, each former BIZ stockholder who  
would otherwise be entitled to receive a fraction of a share of our common stock
will receive cash equal to the product of that fraction, and the average of the 
closing prices of one share of our common stock as quoted on The Nasdaq National
Market for the five trading day period ending on the trading day immediately    
preceding the Effective Time.                                                   

CERTAIN REPRESENTATIONS AND WARRANTIES                                          

The Reorganization Agreement contains customary representations and   
warranties by both us and BIZ as to, among other things:                        

-  due organization and good standing;                                

-  corporate authority to enter into the Reorganization Agreement and 
related agreements;                                             

-  authorized capital stock;                                          

-  ownership of subsidiaries;                                         

-  the compliance of the Reorganization Agreement with certificates of
incorporation, bylaws and the law;                              

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-  the absence of certain material defaults or violations;            

-  the accuracy of certain documents filed by us with the Commission; 

-  the accuracy of financial statements;                              

-  the absence of certain litigation;                                 

-  the absence of material changes, events or undisclosed liabilities;

-  tax matters;                                                       

   -  the absence of material liabilities related to employee benefit plans;

-  the absence of material labor disputes;                            

-  intellectual property matters;                                     

-  environmental matters;                                             

-  board approval of the reorganization and merger; and               

-  compliance with relevant ERISA requirements.                       

CERTAIN COVENANTS                                                               

Conduct of Business Pending the Merger                                

Pursuant to the Reorganization Agreement, Litronic and BIZ have made  
various customary covenants relating to the merger. BIZ and we have each agreed 
that, prior to the Effective Time, we will use our commercially reasonable      
efforts to carry on and preserve our respective businesses and our relationships
with our customers, suppliers, employees and others and conduct our respective  
businesses and maintain our business relationships in the ordinary and usual    
course. Specifically, unless either company first receives the written consent  
of the other, each of us has agreed not to, among other things:                 

-  amend its certificate of incorporation or bylaws;                  

    -  pay (or make any oral or written commitments or representations to pay)
   any bonus, increased salary or special remuneration to any officer,
     employee or consultant (except for normal salary increases consistent
     with past practices not to exceed 10% per year and except pursuant to
     existing arrangements previously disclosed) or enter into or vary the
   terms of any employment, consulting or severance agreement with any
     officer, employee or consultant, pay any severance or termination pay
(other than payments made in accordance with plans or agreements
       currently existing), grant any stock option or restricted stock (except
    for normal grants in the ordinary course of business consistent with
past practice);                                                 

-  borrow any money except for amounts that are not in the aggregate  
material to its financial condition;                            

  -  enter into any material transaction not in the ordinary course of its
business;                                                       

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-  encumber or permit to be encumbered any of its assets except in the
ordinary course of its business;                                

   -  dispose of any of its assets except in the ordinary course of business
consistent with past practice;                                  

  -  enter into any material lease or contract for the purchase or sale or
        license of any property, real or personal, except in the ordinary course
of business;                                                    

-  fail to maintain its equipment and other assets in good working    
        condition and repair according in all material respects to the standards
      it has maintained to the date of the Reorganization Agreement, subject
only to ordinary wear and tear;                                 

-  change accounting methods;                                         

-  declare, set aside or pay any cash or stock dividend or other      
        distribution in respect of capital stock, or redeem or otherwise acquire
  any of its capital stock (other than pursuant to arrangements with
      terminated employees or consultants in the ordinary course of business
consistent with BIZ's past practice);                           

    -  amend or terminate any material contract, agreement or license to which
       it is a party except those amended or terminated in the ordinary course
of its business, or which are not material in amount or effect; 

 -  lend any amount to any person or entity, other than (a) advances for
travel and expenses which are incurred in the ordinary course of
  business consistent with past practice, not material in amount and
documented by receipts for the claimed amounts, or (b) any loans
    pursuant to any pension plan which is intended to be qualified under
Section 401(a) of the Code;                                     

   -  guarantee or act as a surety for any obligation except for obligations
in amounts that are not material;                               

-  waive or release any material right or claim;                      

    -  issue or sell any shares of its capital stock of any class (except upon
        the exercise of a bona fide option or warrant currently outstanding), or
any other of its securities, or issue or create any warrants,   
    obligations, subscriptions, options (except for normal grants in the
       ordinary course of business consistent with past practice), convertible
    securities or other commitments to issue shares of capital stock, or
   accelerate the vesting of any outstanding option or other security;

-  split or combine the outstanding shares of its capital stock of any
   class or enter into any recapitalization or agreement affecting the
        number or rights of outstanding shares of its capital stock of any class
or affecting any other of its securities;                       

-  merge, consolidate or reorganize with, or acquire any entity;      

   -  license any of its intellectual property rights except in the ordinary
course of business consistent with past practice; or            

-  agree to any audit assessment by any tax authority.                

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Employee Benefits                                                     

   The Reorganization Agreement provides that promptly following the merger,
employees of BIZ, at our option, will either (i) become subject to our standard 
employee benefit plans on an equivalent basis with other similarly situated     
employees of our company and will receive full credit pursuant to those plans   
for years of service at BIZ; or (ii) participate in such benefit plans to be    
established by BIZ and/or us for the benefit of BIZ employees and will receive  
full credit pursuant to such plans for years of service at BIZ; or (iii) any    
combination of options (i) and (ii). We have also agreed to recognize all       
vacation time accrued through the Effective Time under BIZ's vacation policy as 
then in effect.                                                                 

Other Actions                                                         

     Pursuant to the Reorganization Agreement, both BIZ and Litronic have agreed
to use their reasonable efforts to take, or cause to be taken, all other actions
and to do, or cause to be done, all other things necessary, proper or           
appropriate to consummate the transactions contemplated by the Reorganization   
Agreement.                                                                      

Indemnification of Officers and Directors                             

  The Reorganization Agreement provides that, after the Effective Time, we
will, to the fullest extent permitted under applicable law, indemnify and hold  
harmless each present or former director and officer of BIZ against any costs or
expenses (including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement in connection with any claim, suit,  
action, proceeding or investigation, whether civil, criminal, administrative or 
investigative, arising out of or pertaining to the transactions contemplated by 
the Reorganization Agreement, or any other matter arising out of the            
indemnitee's status as a director, officer, employee or agent of BIZ whether or 
not the matter was existing prior to the Effective Time. In addition, the       
Reorganization Agreement provides that for a period of three years after the    
Effective Time, we will maintain in effect, directors and officers liability    
insurance, if available, covering the executive officers and directors of BIZ on
the date of the Reorganization Agreement and that we will fulfill any           
obligations of BIZ under indemnification agreements or provisions of BIZ's      
certificate of incorporation or bylaws with respect to BIZ's executive officers,
directors and key employees as in existence at the Effective Time.              

Certain Other Covenants                                               

Both Litronic and BIZ have also agreed:                               

    -  to obtain all necessary authorizations, approvals and consents from the
     necessary federal, state, local or foreign governmental body prior to
the Effective Time;                                             

-  to cooperate in the filing of this proxy statement and obtain all  
necessary state securities laws, permits or approvals;          

-  to allow all designated agents of the other reasonable access to   
  offices, records, files and books and to instruct their respective
        employees, counsel and financial advisors to cooperate with each other's
investigation;                                                  

-  that we will use our best efforts to continue the quotation of our 
common stock on The Nasdaq National Market and take all actions 
   necessary to provide for the listing on that market, at or prior to
     closing, of the shares of our common stock issuable in the merger and
    upon exercise of the BIZ Options and BIZ Warrants assumed by us; and

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  -  that we will reserve for issuance the maximum number of shares of our
       common stock issuable upon exercise of the BIZ Options and BIZ Warrants
assumed by us.                                                  

CONDITIONS TO THE MERGER                                                        

Our obligation and BIZ's obligation to consummate the merger are      
conditioned on the fulfillment of the following:                                

     -  receipt of all material permits or authorizations, and completion of any
     such other action, as may be required to consummate the merger by any
 regulatory authority having jurisdiction over the parties and the
     actions proposed to be taken in connection with the merger, including
     but not limited to requirements, if any, under applicable federal and
state securities laws;                                          

     -  approval of the merger by our stockholders and approval of the merger by
BIZ's stockholders;                                             

-  no temporary restraining order, preliminary injunction or permanent
   injunction or other order preventing the consummation of the merger
  shall have been issued by any federal or state court and remain in
  effect, nor shall any proceeding initiated by the U. S. Government
seeking any of the foregoing be pending;                        

   -  BIZ shall not have received demands for exercise of dissenters' rights
  from holders of shares representing more than 5% of the issued and
outstanding shares of capital stock of that corporation;        

-  our receipt of a fairness opinion of Friend dated as of the Closing
Date;                                                           

-  the authorization for listing on The Nasdaq National Market of our 
shares of common stock to be issued by us in the merger; and    

-  our Nasdaq trading symbol shall have been changed to "SSPX."       

   Our obligation to consummate the merger is conditioned on the fulfillment
of the following conditions:                                                    

-  BIZ's representations and warranties made in the Reorganization    
        Agreement shall be true and accurate in every material respect on and as
      of the Closing Date with the same force and effect as if they had been
made at the closing (except to the extent the failure of the    
       representations and warranties to be true and accurate in such respects
   has not had and could not reasonably be expected to have a material
adverse effect on BIZ);                                         

    -  BIZ shall have performed and complied in all material respects with all
        of its covenants required to be performed by it under the Reorganization
Agreement and the Agreement of Merger on or before the closing; 

-  there shall have been no material adverse change in the condition  
      (financial or otherwise), properties, assets, liabilities, businesses,
     operations, results of operations or prospects of BIZ, other than any
        change that shall result from general economic conditions, or conditions
generally affecting the data security market;                   

    -  there shall be no order, decree or ruling by any governmental agency or
 written threat thereof, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the          

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merger, which would prohibit or render illegal the transactions 
contemplated by the Reorganization Agreement;                   

     -  we shall have received all governmental consents necessary to consummate
the transactions contemplated by the Reorganization Agreement;  

   -  we shall have received the opinion of Gray Cary Ware & Freidenrich LLP
        based upon reasonably requested certifications as to factual matters and
     dated the Closing Date regarding the status and authority of BIZ, the
authorization by BIZ of the Reorganization Agreement and the    
transactions contemplated thereby, and the binding effect of the
Reorganization Agreement on BIZ; and                            

   -  the amended and restated stockholders' agreement among BIZ and certain
      of its stockholders shall have been terminated and ceased to be of any
further force and effect.                                       

The obligation of BIZ to consummate the merger is conditioned on the  
fulfillment of the following conditions:                                        

    -  our representations and warranties made in the Reorganization Agreement
     shall be true and accurate in every material respect on and as of the
       Closing Date with the same force and effect as if they had been made at
        the closing (except to the extent the failure of the representations and
   warranties to be true and accurate in such respects has not had and
     could not reasonably be expected to have a material adverse effect on
our company);                                                   

   -  we shall have performed and complied in all material respects with all
        of our covenants required to be performed by us under the Reorganization
Agreement and the Agreement of Merger on or before the closing; 

-  there shall have been no material adverse change in our condition  
      (financial or otherwise), properties, assets, liabilities, businesses,
     operations, results of operations or prospects, other than any change
that shall result from general economic conditions or conditions
generally affecting the Internet data security market;          

    -  there shall be no order, decree or ruling of any governmental agency or
 written threat thereof, or any statute, rule, regulation or order
    enacted, entered, enforced or deemed applicable to the merger, which
     would prohibit or render illegal the transactions contemplated by the
Reorganization Agreement;                                       

-  BIZ shall have received all governmental consents necessary to     
consummate the transactions contemplated by the Reorganization  
Agreement;                                                      

  -  BIZ shall have received the opinion of Rutan & Tucker, LLP based upon
       reasonably requested certifications as to factual matters and dated the
    Closing Date regarding our status, authority and capitalization, the
        authorization by us of the Reorganization Agreement and the transactions
  contemplated thereby, and the binding effect of the Reorganization
Agreement on us; and                                            

 -  the directors nominated and identified in this proxy statement shall
    have been elected to our board of directors at our annual meeting of
stockholders.                                                   

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TERMINATION OF THE REORGANIZATION AGREEMENT                                     

 The Reorganization Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the merger by our           
stockholders or the stockholders of BIZ:                                        

-  by mutual agreement of BIZ and us;                                 

  -  by BIZ, if we have breached any representation, warranty, covenant or
      agreement set forth in the Reorganization Agreement, not curable by us
within 45 days, resulting in the conditions precedent to BIZ's  
obligations to consummate the merger not being satisfied;       

 -  by us, if BIZ has breached any representation, warranty, covenant or
       agreement set forth in the Reorganization Agreement, not curable by BIZ
        within 45 days, resulting in the conditions precedent to our obligations
to consummate the merger not being satisfied;                   

-  by either party if the required vote of our stockholders or BIZ's  
stockholders has not been obtained;                             

    -  by either party, if the merger has not occurred on or before August 31,
       2001 other than as a result of a breach of the Reorganization Agreement
  by the party seeking to terminate the Reorganization Agreement; or

     -  by either party, if a permanent injunction or other order by any federal
or state court which would make illegal or otherwise restrain or
      prohibit the consummation of the merger has been issued and has become
final and nonappealable.                                        

     The Reorganization Agreement provides that in case of termination resulting
from a breach by a party or the failure of a party to satisfy conditions to     
closing to be satisfied by it and which are within its control, that party shall
bear all of the expenses (including reasonable legal, accounting and other      
advisory fees) of both parties incurred in connection with the failed           
transaction. In all other cases of termination, each party will be responsible  
for its own expenses.                                                           

VOTE REQUIRED                                                                   

     The proposal to approve the merger must receive the affirmative vote of the
holders of a majority of the outstanding shares of our common stock as of the   
Record Date.                                                                    

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.         

PROPOSAL 2
 APPROVAL OF OUR AMENDED AND RESTATED 1999 STOCK OPTION PLAN

OUR 1999 STOCK OPTION PLAN                                                      

Introduction                                                          

   On May 31, 2001, our board of directors approved, subject to the approval
of our stockholders, our Amended and Restated 1999 Stock Option Plan, or 1999   
Plan, that would increase the number of shares of common stock underlying       
options that may be granted under the 1999 Plan from its present number of      
1,500,000 shares to 4,000,000 shares. As of July 19, 2001, there were 1,040,212 
shares available for future stock option grants under the 1999 Plan.            

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   Our board of directors believes that adding shares to the 1999 Plan is in
our best interests because it will facilitate the merger by providing us with   
enough options to satisfy our obligation under the Agreement of Merger to issue 
options to acquire shares of our common stock upon conversion of the BIZ        
Options. Additionally, our board believes that the increase is in our best      
interest because it will strengthen our ability to attract and retain qualified 
employees (the number of which will have increased following the merger), to    
furnish additional incentive to those persons who contribute to, and are        
responsible for, our success and enhance stockholder value as a result.         

The following is a general summary of the 1999 Plan, as amended and   
restated, which is qualified in its entirety by reference to the full text of   
the 1999 Plan, attached to this proxy statement as Appendix E.                  

Shares Subject to the 1999 Plan                                       

  A total of 1,500,000 shares of our common stock are currently authorized
for issuance under the 1999 Plan. If our stockholders approve the Amended and   
Restated 1999 Stock Option Plan, the maximum number of shares that may be issued
upon exercise of stock options that may be granted under the 1999 Plan will be  
4,000,000 shares. Any shares of our common stock that are subject to an option  
but are not used because the terms and conditions of the option are not met, or 
any shares used by participants to pay all or part of the purchase price of any 
option may again be used for awards under the 1999 Plan. The number of shares   
issuable under the 1999 Plan, and the exercise price of such options, is subject
to proportional adjustments to reflect stock splits, stock dividends, mergers,  
consolidations and similar events.                                              

Eligibility For Participation                                         

    Options granted under the 1999 Plan may be either incentive stock options,
which are intended to qualify for special tax treatment under Section 422 of the
Code, or nonqualified stock options. Employees, including our officers and      
directors who are employees, may be granted incentive or nonqualified stock     
options. However, members of our board of directors who are not officers or     
employees, and consultants to our company may only be granted nonqualified stock
options.                                                                        

     As of July 19, 2001, approximately 110 persons were eligible to participate
in the 1999 Plan, and 459,788 shares were subject to outstanding options.       

Administration                                                        

 Our board of directors administers the 1999 Plan. Administration of the
1999 Plan may be delegated to a committee. Subject to the terms of the 1999     
Plan, our board of directors determines the persons who are to receive awards,  
the number of shares subject to each such award, and the terms and conditions of
such award.                                                                     

Exercise of Options                                                   

    Our board of directors or a committee of our board determines whether each
option is exercisable in whole or in consecutive installments, cumulative or    
otherwise.                                                                      

 The exercise price of any incentive stock option granted under the 1999
Plan may not be less than the fair market value of the shares of common stock   
underlying such option, determined as of the date of the grant. If an eligible  
employee possesses at least 10% of the total combined voting power of all       
classes of our stock at the time of grant of an incentive stock option, the     
exercise price may not be less than 110% of the fair market value of the common 
stock underlying the option, determined as of the date of the grant.            

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The exercise price of nonqualified stock options shall be not less than 85% of  
the fair market value of the common stock underlying the option. The exercise   
price of an option may be paid in cash or, at the discretion of our board of    
directors or a committee of our board, through the delivery of other shares of  
our common stock. Our board of directors or a committee of our board may provide
for other methods of payment upon the exercise of an option.                    

  As of July 19, 2001, the aggregate fair market value of shares of common
stock subject to outstanding options under the 1999 Plan was approximately      
$1,163,264 based upon the closing sale price of our stock ($2.53) reported on   
The Nasdaq Stock Market on that date.                                           

Expiration of Options                                                 

 No option granted under the 1999 Plan may be made exercisable after the
expiration of ten years from the date the option is granted. In addition, any   
option granted to an eligible employee who possesses at least 10% of the total  
combined voting power of all classes of our stock at the time that an incentive 
stock option is granted, may not be made exercisable after the expiration of    
five years from the date of the grant. Subject to certain exceptions described  
in the 1999 Plan, options may terminate before their expiration as described    
below.                                                                          

    Before the expiration date of an option, the option is exercisable (to the
extent vested) by an eligible employee or eligible director or consultant while 
that person continues to be employed by, or is performing services for, us or   
our subsidiaries. Upon the termination of an eligible employee's employment or  
the termination of an eligible director or consultant's relationship with us or 
our subsidiaries (other than termination by death, by disability, or by         
involuntary dismissal for cause or voluntary resignation in violation of any    
agreement to remain in our employ), an option may be exercised (to the extent   
exercisable at the date of termination) within the earlier of three months after
the termination of employment or relationship, or the expiration date of the    
option as provided in the option agreement.                                     

   If an eligible employee's employment or eligible director or consultant's
relationship with us or our subsidiaries terminates by reason of disability, the
option may be exercised (to the extent exercisable at the date of termination)  
within the earlier of 12 months following such termination or the expiration    
date of the option as provided in the option agreement. Following the death of  
an eligible employee or eligible director or consultant, the option may be      
exercised (to the extent exercisable at the date of death) by the optionee's    
estate on the earlier of 12 months from the date of death or the expiration date
of such option as provided in the option agreement.                             

  If an eligible employee or eligible director or consultant is terminated
for cause, or voluntarily resigns in violation of any agreement to remain in our
employ, his or her option will terminate immediately.                           

Options which are not exercisable by an eligible employee or eligible 
director or consultant at the time of termination of employment or termination  
of relationship with us or our subsidiaries will terminate as of the date of    
termination of employment or relationship.                                      

Amendments                                                            

  Our board may amend, suspend or terminate the 1999 Plan, without notice,
and in its sole discretion. No amendment, suspension, or termination of the 1999
Plan by the board, however, shall materially impair any option previously       
granted under the 1999 Plan without the express written consent of the optionee.
In addition, our stockholders must approve any amendment that materially        
increases the number                                                            

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of shares, increases the benefits, modifies the eligibility requirements or     
alters the method for determining the option exercise price.                    

Term of the 1999 Plan                                                 

    Unless terminated earlier as provided in the 1999 Plan, the 1999 Plan will
terminate on February 9, 2009, which is ten years from the date the 1999 Plan   
was adopted by the board.                                                       

Federal Income Tax Information                                        

   Incentive Stock Options. Upon the grant of an incentive stock option, the
optionee will not recognize any taxable income and we will not be entitled to a 
tax deduction. Upon the exercise of an incentive stock option while the optionee
is employed by us or a subsidiary of ours, or within three months after         
termination of employment, the optionee will not recognize taxable income if    
certain holding period requirements under the Code are met; however, under      
certain circumstances, the excess of the fair market value of the shares of     
common stock acquired upon an exercise over the exercise price may be subject to
the alternative minimum tax.                                                    

     If the shares of common stock acquired through the exercise of an incentive
stock option are held for at least two years from the date of grant and at least
one year from the date of exercise, the optionee's gain or loss upon a          
disposition of those shares of common stock will be a long-term capital gain or 
loss equal to the difference, if any, between the sale price and the purchase   
price of the shares. If the optionee satisfies these holding periods, upon a    
sale of the shares, we will not be entitled to any deduction for federal income 
tax purposes. If the shares are disposed of prior to the expiration of these    
holding periods, the optionee will recognize ordinary income on certain amounts 
in excess of the option price and we will be entitled to a corresponding tax    
deduction.                                                                      

    Nonqualified Stock Options. Upon the grant of a nonqualified stock option,
the optionee will not recognize any taxable income. Upon the exercise of a      
nonqualified stock option, the optionee will recognize taxable ordinary income  
in an amount equal to the difference between the fair market value of the shares
of common stock acquired upon exercise, and the exercise price. At that time, we
will be entitled to a corresponding tax deduction. Upon a subsequent disposition
of shares of common stock acquired upon the exercise of a nonqualified option,  
the optionee will recognize long-term or short-term capital gain or loss,       
depending on the holding period of those shares.                                

THE SUMMARY OF FEDERAL INCOME TAX INFORMATION SET FORTH ABOVE IS FOR  
GENERAL REFERENCE ONLY AND DOES NOT PURPORT TO COVER ALL FEDERAL INCOME TAX     
CONSEQUENCES THAT MAY APPLY TO ALL CATEGORIES OF STOCKHOLDERS. ALL OF OUR       
STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE PARTICULAR     
FEDERAL, FOREIGN, STATE AND LOCAL TAX CONSEQUENCES OF THE OPTION GRANTS TO THEM.

Possible Anti-Takeover Effects                                        

Although not intended as an anti-takeover measure by our board of     
directors, one of the possible effects of the 1999 Plan could be to place       
additional shares, and to increase the percentage of the total number of shares 
outstanding, in the hands of our directors and key employees. These persons may 
be viewed as part of, or friendly to, incumbent management and may, therefore,  
under certain circumstances be expected to make investment and voting decisions 
in response to a hostile takeover attempt that may serve to discourage or render
more difficult the accomplishment of an attempt.                                

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ADDITIONAL INFORMATION REGARDING THE 1999 PLAN                                  

     As stated above, our board of directors or a committee of our board has the
authority to determine the amounts, terms and grant dates of options to be      
granted in the future to eligible employees or eligible directors or consultants
under the 1999 Plan. To date, no such determinations have been made and, as a   
result, it is not possible to state such information.                           

     As of the date of this proxy statement, options to purchase an aggregate of
561,888 shares of our common stock have been granted under the 1999 Plan        
(including options that have been forfeited upon termination of employment or   
otherwise). Set forth below is information regarding the number of options that 
we have granted to date (including options that have been forfeited), under the 
1999 Plan to: (i) each of the individuals named in the summary compensation     
table contained elsewhere in this proxy statement; (ii) all of our current      
executive officers as a group; (iii) all of our current directors who are not   
executive officers as a group; (iv) each nominee for election as a director; (v)
each associate of any executive officer, director or nominee for election as a  
director; (vi) each other person who has received 5% or more of all options that
have been granted under the 1999 Plan; and (vii) all employees (including all   
officers who are not executive officers) as a group.                            

                                                        [Enlarge/Download Table]

                                                                              NO. OF OPTIONS GRANTED
NAME                                                  TITLE                     UNDER THE 1999 PLAN 
----                                                  -----                   ----------------------
                                                                                                    
Kris Shah                           Chief Executive Officer, Chairman of the                  0     
                                    Board, President and Secretary                                  
Roy E. Luna                         Chief Financial Officer                              30,000     
James S. Prohaska                   Vice President, Sales                                30,000     
Robert J. Gray                      Vice President, Product Development                  20,000     
William S. Holmes                   Vice President, Marketing                            18,388     
All current executive officers as                                                                   
   a group (3 persons)                                                                   50,000     
Gregg Amber                         Director and Director Nominee                        30,000     
Matthew Mederios                    Director and Director Nominee                        30,000     
Frank J. Cilluffo                   Director                                             22,500     
All current directors (other than                                                                   
   executive officers) as a group                                                                   
   (3 persons)                                                                           82,500     
Marvin J. Winkler                   Director Nominee                                          0     
Bruce J. Block                      Director Nominee                                          0     
All employees (including executive                                                                  
   officers)                                                                            479,388     

The number of options granted under the 1999 Plan to Messrs. Luna and 
Prohaska and to two of our nonemployee directors, Messrs. Amber and Medeiros,   
exceed 5% of the total number of options granted under the 1999 Plan to date.   

VOTE REQUIRED                                                                   

 The proposal to approve our Amended and Restated 1999 Stock Option Plan
must receive the affirmative vote of a majority of the holders of the shares of 
our common stock entitled to vote at and present in person or represented by    
proxy at the meeting.                                                           

 THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.

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PROPOSAL 3
 ELECTION OF DIRECTORS

  Our bylaws provide that our board of directors shall consist of not less
than one nor more than eleven directors. Our certificate of incorporation       
provides that the exact number of directors which constitute the board is set   
exclusively by a resolution of the board. The number of directors on our board  
is currently set at four directors and there are no vacancies on the board. If  
the merger is consummated, the number of directors will be set at seven and     
there will be one vacancy on the board. Our board of directors is divided into  
three classes designated as Class I, Class II and Class III, respectively. Two  
of the nominees for directors have been designated as Class I directors and two 
have been designated as Class II directors. Under the terms of the voting       
agreement between Mr. Shah, certain of his family members and affiliates, Mr.   
Winkler and his affiliates and the holders of our Series B Stock, Mr. Winkler   
will have the right to appoint a director to the board to fill the remaining    
seat. Our bylaws provide that at the first annual meeting of our stockholders   
following the date our bylaws were adopted, the term of office of the Class I   
directors expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the date of       
adoption of the bylaws, the term of office of the Class II directors shall      
expire and Class II directors shall be elected for a full term of three years.  
At the third annual meeting of stockholders following the date of adoption of   
the bylaws, the term of office of the Class III directors shall expire and Class
III directors shall be elected for a full term of three years. At each          
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three years to succeed the directors of the class whose terms expire at 
such annual meeting.                                                            

     The board proposes that the stockholders elect four directors to our board,
consisting of two Class I directors to serve until the annual meeting of        
stockholders in 2003 and two Class II directors to serve until our annual       
stockholders' meeting in 2004. A Class III director will be appointed by Mr.    
Winkler after the merger to fill the vacancy on our board. This Class III       
director will serve until our annual stockholders' meeting in 2002. If elected, 
the nominees, Gregg Amber and Bruce Block, will constitute our Class I          
directors. Gregg Amber is presently serving as a Class II director. If elected, 
the nominees, Matthew Medeiros and Marvin Winkler will constitute our Class II  
directors. Matthew Medeiros is currently serving as a Class II director of our  
company. Messrs. Shah and Cilluffo, each currently a Class III director, will   
continue in office for their existing terms. Biographical information on the    
four nominees and Messrs. Shah and Cilluffo is set forth below under the heading
"Directors and Executive Officers."                                             

     The board is currently composed of two Class II directors (Messrs. Medeiros
and Amber) and two Class III directors (Messrs. Shah and Cilluffo).             

    Our board of directors is of the opinion that the election to the board of
directors of the persons identified below, all of whom have consented to serve  
if elected, would be in our best interests. The names of the nominees are as    
follows: Gregg Amber, Bruce Block, Matthew Medeiros and Marvin Winkler.         

Management proxies will be voted FOR the election of the above-named  
nominees unless the stockholders indicate that the proxy shall not be voted for 
all or any one of the nominees. If for any reason a nominee should, prior to the
annual meeting, become unavailable for election as a director, an event not now 
anticipated, the proxies will be voted for such substitute nominee if any, as   
may be recommended by management. In no event, however, shall the proxies be    
voted for a greater number of persons than the number of nominees named.        

   The terms of our current Class II directors will expire upon the election
and qualification of directors at our annual stockholders' meeting to which this
proxy statement relates and the terms of our current                            

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Class III directors (Messrs. Shah and Cilluffo) will expire upon the election   
and qualification of directors at our annual meeting of stockholders in 2002.   

DIRECTORS AND EXECUTIVE OFFICERS                                                

     Set forth below is information regarding our current executive officers and
directors, nominees for positions on our board of directors who are not         
currently directors and those persons whom we expect to become executive        
officers of our company after the merger.                                       

                                                        [Enlarge/Download Table]

                 NAME                AGE                             POSITION                                    
                 ----                ---                             --------                                    
                                                                                                                 
Kris Shah(1)........................ 62   Chairman of the Board, Chief Executive Officer, President and Secretary
Marvin J. Winkler(2)(6)............. 47   Co-Chairman of the Board, Chief Executive Officer and President        
Robert J. Gorman(2)................. 42   President, Global Marketing Division                                   
Roy E. Luna(3)...................... 51   Chief Financial Officer                                                
Thomas E. Schiff(2)................. 50   Executive Vice President and Chief Financial Officer                   
Robert J. Gray...................... 64   Vice President, Product Development                                    
Gregg Amber(4)(5)................... 45   Director                                                               
Matthew Medeiros(4)(5).............. 45   Director                                                               
Frank J. Cilluffo(4)................ 30   Director                                                               
Bruce J. Block(6)................... 53   Director                                                               

----------------------------                                                    

(1)  At the Effective Time, Mr. Shah will become co-chairman of the board,      
     president, software and embedded systems division and secretary and will no
longer serve as our chief executive officer or president.             

(2)  Appointed to these positions effective as of the Effective Time.           

(3)  At the Effective Time, Mr. Luna will become our vice president, finance and
will no longer be considered an executive officer.                    

(4)  Member of audit committee.                                                 

(5)  Member of compensation committee.                                          

(6)  To begin serving on the board of directors if elected by our stockholders. 

    Kris Shah is currently our chairman of the board, chief executive officer,
president and secretary. Following the merger, Mr. Shah will become co-chairman 
of the board, president, software and embedded systems division, will continue  
to serve as secretary, and will no longer serve as our chief executive officer  
or president. Mr. Shah has been our chairman of the board and chief executive   
officer since he founded the company in 1970 and took over the position of      
president after Mr. Davis, our former president resigned in September 2000. Mr. 
Shah took over the position of secretary in May 2001, following Gregg Amber's   
resignation from that office. Mr. Shah's career has involved every major aspect 
of circuit design and chip packaging technology, including research and         
development, manufacturing, engineering, marketing and strategic planning.      
Before forming Litronic, Mr. Shah held management level positions at Hughes     
Aircraft Co., Fiberite Inc. and Bell Industries, Inc. Mr. Shah holds B.S. and   
M.S. degrees in mechanical engineering from the University of Southern          
California.                                                                     

    Marvin J. Winkler will serve as the co-chairman of our board of directors,
chief executive officer and president of our company following the merger. Mr.  
Winkler has served as the chief executive officer and chairman of the board of  
directors of BIZ since April 2000. In June 1999, Mr. Winkler partnered with     
principals of Broadcom Corporation to co-found Broadband Interactive Group to   
demonstrate the applications for interactive television in a convergent         
broadband media industry. In August 1996, Mr.                                   

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Winkler acquired Gotcha International, L.P., an apparel manufacturer. Finally,  
Mr. Winkler founded BIZ to address the secure processing and applications       
required to ensure secure high-speed knowledge and financial transactions across
the Internet. He also established the industry's first Core-To-The-Edge(TM)     
solution set of hardware, software and firmware products and applications for   
security in electronic commerce.                                                

 Robert J. Gorman will serve as our president, global marketing division
following the merger. Mr. Gorman has served as the president of sales, marketing
and strategic planning of BIZ since April 2001. From July 2000 to April 2001,   
Mr. Gorman served as the president and chief operating officer of BIZ, and prior
to that, as vice president, operations since May 2000. From November 1999 until 
May 2000, Mr. Gorman was the founder and chief executive officer of Tjazz, Inc.,
a start-up, travel-related application service provider. From April 1998 until  
October 1999, he served as vice president, corporate strategy and development   
and vice president, marketing and sales for SilkRoad, Inc., an optical          
telecommunications company, which filed a petition for bankruptcy under Chapter 
7 of the federal bankruptcy laws in November 2000. From March 1997 to April     
1998, Mr. Gorman served as vice president of marketing for LAND-5 Corporation, a
producer of data storage and server hardware, and from January 1996 to March    
1997, served as vice president, operations for ISIS Inc., a developer of        
Internet marketing analysis and virtual reality software. In the early 1980's,  
Mr. Gorman co-founded Pacific Celltech, which developed pocket-sized cellular   
equipment. Mr. Gorman holds a B.A. degree in international relations with a     
specialty in Chinese, from the University of Colorado.                          

     Roy E. Luna is currently our chief financial officer. Following the merger,
Mr. Luna will be our vice president, finance. Mr. Luna joined our company in    
January 2000 as our chief financial officer. From June 1995 to December 1999,   
Mr. Luna was primarily involved in pursuing personal interests. From May 1992 to
May 1995, Mr. Luna held the position of senior vice president and chief         
financial officer of CareLine, Inc. CareLine was a publicly-traded company      
involved in emergency medical transportation. Mr. Luna was one of three original
founders of CareLine. Prior to May 1992, Mr. Luna held a variety of financial   
management positions. Mr. Luna is a certified public accountant and holds a B.A.
degree in business administration from California State University, Fullerton.  

Thomas E. Schiff will serve as our executive vice president and chief 
financial officer following the merger. Mr. Schiff has served as the executive  
vice president, chief financial officer, treasurer, secretary and a member of   
the board of directors of BIZ since its inception in April 2000. From December  
1998 to June 2001, he was an executive vice president and chief financial       
officer for SW Gotcha Acquisition Ltd and Gotcha International, L.P. From March 
1996 to December 1998, Mr. Schiff was executive vice president and chief        
financial officer of Pacific Eyes & T's. Mr. Schiff was formerly a certified    
public accountant for the San Francisco office of Peat, Marwick, Mitchell. He   
holds a B.A. degree in economics from Stanford University and an M.B.A. degree  
from the Stanford Graduate School of Business.                                  

    Robert J. Gray is our vice president, product development. Mr. Gray joined
our company in May 1990. Mr. Gray served as president of Cyphernet, Inc., a     
division of Codercard, Inc., a data security company, from January 1985 to May  
1990. Mr. Gray has also served as president of Genisco Computers Corp., a       
manufacturer of computer graphics and imaging hardware for the computer aided   
design, image processing and simulation markets. After obtaining his education  
in meteorology, oceanography and computer sciences from various military schools
including the Naval Postgraduate School in Monterey, California, Mr. Gray served
as an officer in the U.S. Navy for 22 years, specializing in meteorology and    
computer sciences.                                                              

    Matthew Medeiros has been serving as one of our directors since June 1999.
Since February 1998, Mr. Medeiros has served as chairman and chief executive    
officer of Philips Flat Display Systems. Before                                 

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joining Philips, Mr. Medeiros served as vice president and general manager for  
the optical polymers group, and as vice president of business development for   
the electronic materials division of Allied Signal Inc. from January 1996 to    
February 1998. Mr. Medeiros served as an executive officer of Radius, Inc.,     
including as its vice president and general manager, MacIntosh systems, and as  
its vice president, operations and information systems, from March 1993 to      
January 1996. Mr. Medeiros also previously served in executive positions with   
Radius, Inc., NeXT Computer and Apple Computer, Inc. in which positions he      
developed an extensive background in personal computer manufacturing, operations
and materials management. Mr. Medeiros holds a B.S. degree in business          
administration, management science and finance from the University of San       
Francisco.                                                                      

     Gregg Amber has been serving as one of our directors since April 2000. From
March 2000 until May 2001, Mr. Amber also served as our secretary. Mr. Amber is 
currently a partner with the law firm of Rutan & Tucker, LLP. From December 1999
until July 2000, Mr. Amber was the senior vice president, secretary and general 
counsel for ZLand.com, Inc. From March 1998 through November 1999, Mr. Amber was
a partner with the law firm of Rutan & Tucker, LLP. Prior to that time, and     
since June 1995, he was a partner with the law firm of Snell & Wilmer LLP. Mr.  
Amber holds a B.A. degree in political science and mathematics from Principia   
College and a J.D. degree from Stanford Law School.                             

   Frank J. Cilluffo was appointed to our board of directors in June 2001 to
fill a vacancy on our board. Since 1993, Mr. Cilluffo has been a senior policy  
analyst and deputy director of the Global Organized Crime Program, chairman of  
the CBRN (Chemical, Biological, Radiological and Nuclear) Terrorism Committee   
and co-chairman of the Cyber Threats Committee on Homeland Defense at the Center
for Strategic and International Studies in Washington, D.C. Mr. Cilluffo is     
responsible for directing seven multi-agency and multi-disciplinary task forces 
comprising over 175 senior officials and experts within the federal government  
and the private sector on topics including information warfare and information  
assurance, the nuclear black market, the narcotics industry, financial crimes   
and terrorism. Mr. Cilluffo holds a B.A. degree in International Affairs from   
The Elliot School of International Affairs at The George Washington University  
and has completed graduate course work in Intelligence and Policy and           
Counterintelligence courses at the Institute of World Politics.                 

   Bruce J. Block is a nominee for election to our board of directors. Since
May 2000, Mr. Block has been serving as the senior vice president, technology of
the Recording Institute of America (RIAA). In that position, he manages the     
technology oversight program, specific technology initiatives and efforts in the
area of standards development. From July 1996 until May 2000, Mr. Block was the 
chief technology officer and vice president, business development of            
musicmaker.com, a web-based electronic commerce media company. Prior to joining 
musicmaker.com, Mr. Block founded and served as the president and chief         
executive officer of Spaceworks, Inc., a business-to-business, electronic       
commerce company. Mr. Block holds a B.S. degree from the City College of New    
York, an M.B.A. degree from American University and a Certificate in Health Care
Administration from Boston University.                                          

     There are no family relationships among our current officers and directors,
nominees for director or individuals who are expected to become executive       
officers following the merger.                                                  

Our board of directors held two meetings during the fiscal year ended 
December 31, 2000, and has held one meeting since the end of that year. The     
board of directors also took action by unanimous written consent on eight       
occasions during the fiscal year ended December 31, 2000 and has taken action by
unanimous written consent on eight occasions since the end of that year.        

    Our board of directors has standing audit and compensation committees, but
does not have a nominating committee. In practice, our entire board performs the
function of a nominating committee.                                             

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   Our compensation committee, composed of Messrs. Amber and Medeiros during
the fiscal year ended December 31, 2000, reviews and makes recommendations to   
our board of directors regarding executive compensation plans and arrangements. 
During the fiscal year ended December 31, 2000, our compensation committee held 
one meeting and has held no meetings since the end of that year.                

Our audit committee, currently composed of Messrs. Medeiros, Amber and
Cilluffo, is responsible for, among other things, considering and recommending  
to our board of directors, the appointment of our independent auditors,         
examining the results of audits and quarterly reviews, reviewing with the       
auditors, the plan and scope of the audit and audit fees, reviewing internal    
accounting controls, periodically with our independent auditors and monitoring  
all financial aspects of our operations. During the fiscal year ended December  
31, 2000, our audit committee held one meeting and has held no meetings since   
the end of that year. All of the members of our audit committee are independent 
as defined in the listing standards of the National Association of Securities   
Dealers.                                                                        

In June 2000, our board of directors approved and adopted an audit    
committee charter, which is attached to this proxy statement as Appendix F.     

   Each incumbent director attended all of the meetings of the board and the
committees on which he served held during 2000.                                 

PRINCIPAL ACCOUNTING FIRM FEES                                                  

    The following table sets forth the aggregate fees billed or expected to be
billed to us for services rendered to us during the fiscal year ended December  
31, 2000 by our independent auditors, KPMG LLP:                                 

                                                                [Download Table]

                                                                    
Audit Fees                                               $232,500(a)
Financial Information Systems Design and                       $0   
Implementation Fees                                                 
Other Fees:                                                         
    Tax related services                                  $59,000   
    Proposed merger related services                      $45,000   
                                                         --------   
         Total Other Fees                                $104,000(b)

--------------------------                                                      

(a)  Includes fees for the audit of our annual financial statements for the year
ended December 31, 2000, and the reviews of the condensed financial   
 statements included in our quarterly reports on Forms 10-Q for the year
ended December 31, 2000.                                              

(b)  The audit committee has considered whether the provision of these services 
is compatible with maintaining the auditors' independence.            

DIRECTORS' COMPENSATION                                                         

    Directors receive no compensation for serving on our board of directors or
any committee although directors are reimbursed for expenses incurred in        
attending board and committee meetings. No compensation is paid for attending   
meetings of committees of our board of directors on which directors serve. We   
may periodically award options or warrants to our directors, under our existing 
stock option plans and otherwise.                                               

EXECUTIVE COMPENSATION                                                          

    The following table sets forth information concerning compensation paid to
our chief executive officer and each of our other executive officers who        
received an annual salary and bonus of more than $100,000 for services rendered 
to us in all capacities during the fiscal year ended December 31, 2000.         

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SUMMARY COMPENSATION TABLE

                                                        [Enlarge/Download Table]

                                                                                        LONG-TERM          
                                             ANNUAL COMPENSATION                   COMPENSATION AWARDS     
                                           -----------------------------------    -------------------------
                                                                                                SECURITIES 
                                           FISCAL                                    OTHER      UNDERLYING 
       NAME AND PRINCIPAL POSITION          YEAR         SALARY          BONUS    COMPENSATION    OPTIONS  
       ---------------------------          ----         ------          -----    ------------  -----------
                                                                                                           
Kris Shah,                                  2000        $184,375              --        *               0  
   Chairman of the Board, Chief Executive   1999        $201,176              --        *               0  
   Officer and President(1)                 1998        $231,998              --        *               0  
Roy E. Luna                                 2000        $124,083              --        *          20,000  
   Chief Financial Officer(2)                                                                              
James S. Prohaska,                          2000        $151,206              --        *           2,500  
   Vice President, Sales(3)                 1999        $ 14,583              --        *          17,500  
Robert J. Gray,                             2000        $119,583              --        *          10,000  
   Vice President, Product Development      1999        $101,329              --        *              --  
William S. Holmes,                          2000        $110,000        $  1,000        *           8,388  
   Vice President, Marketing                1999        $127,599              --        *              --  

--------------------------                                                      

*    The executive officers also received other fringe benefits from us in their
  capacities as executive officers, however, those benefits were less than
$50,000 during the year ended December 31, 2000.                      

(1)  In May 2001, Mr. Shah also took over the office of secretary of our        
company.                                                              

(2)  Mr. Luna joined our company in January 2000.                               

(3)  Mr. Prohaska joined our company in December 1999.                          

OPTIONS GRANTED IN LAST FISCAL YEAR                                             

   The following table provides information regarding options granted in the
fiscal year ended December 31, 2000 to the executive officers named in the      
summary compensation table. We did not grant any stock appreciation rights in   
the year ended December 31, 2000. This information includes hypothetical        
potential gains from stock options granted in fiscal 2000. These hypothetical   
gains are based entirely on assumed annual growth rates of 5% and 10% in the    
value of our common stock price over the 10-year life of the stock options      
granted in 2000. These assumed rates of growth were selected by the Commission  
for illustrative purposes only and are not intended to predict future stock     
prices, which will depend upon market conditions and our future performance and 
prospects.                                                                      

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                                                        [Enlarge/Download Table]

                                            PERCENTAGE OF                                POTENTIAL         
                                               TOTAL                                  REALIZABLE VALUE     
                               NUMBER OF      OPTIONS                                 AT ASSUMED RATES     
                               SECURITIES    GRANTED TO                                OF STOCK PRICE      
                               UNDERLYING   EMPLOYEES IN   EXERCISE                   APPRECIATION FOR     
                       GRANT     OPTIONS       FISCAL        PRICE    EXPIRATION        OPTION TERM(3)     
      NAMED OFFICER    DATE     GRANTED(1)     YEAR(2)     PER SHARE     DATE        5%               10%  
      -------------  --------  -----------  ------------   ---------  ----------  --------         --------
                                                                                                           
Kris Shah                  --         0            --           --           --         --               --
Roy E. Luna          01/04/00    20,000          6.8%        $8.72     01/04/10   $109,600         $278,000
James S. Prohaska    04/17/00     2,500             *        $6.88     04/17/10    $10,825          $27,400
Robert J. Gray       04/17/00    10,000          3.4%        $6.88     04/17/10    $43,300         $109,600
William S. Holmes    04/17/00     8,388          2.8%        $6.88     04/17/10    $36,320          $91,932

-------------------------                                                       

*    Less than 1%.                                                              

(1)  Options vest 20% annually over five years commencing one year from grant   
date.                                                                 

(2)  Based on options to purchase 294,388 shares granted to our employees during
the fiscal year ended December 31, 2000.                              

(3)  Calculated using the potential realizable value of each grant.             

AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES                   

    The following table provides information regarding stock options exercised
in the fiscal year ended December 31, 2000 by the executive officers named in   
the summary compensation table, as well as the number of exercisable and        
unexercisable in-the-money stock options and their values at fiscal year end. An
option is in-the-money if the fair market value for the underlying securities   
exceeds the exercise price of the option.                                       

                                                        [Enlarge/Download Table]

                                                  NUMBER OF                                            
                                             SECURITIES UNDERLYING             VALUE OF UNEXERCISED    
                                             UNEXERCISED OPTIONS AT           IN-THE-MONEY OPTIONS AT  
                     SHARES                    DECEMBER 31, 2000               DECEMBER 31, 2000(1)    
                   ACQUIRED ON   VALUE    ------------------------------  -----------------------------
           NAME     EXERCISE    REALIZED  EXERCISABLE      UNEXERCISABLE  EXERCISABLE     UNEXERCISABLE
           ----    -----------  --------  -----------      -------------  -----------     -------------
                                                                                                       
Kris Shah              0           0             0                  0            $0                $0  
Roy E. Luna            0           0             0             20,000            $0                $0  
James S. Prohaska      0           0         3,500             16,500            $0                $0  
Robert J. Gray         0           0             0             10,000            $0                $0  
William S. Holmes      0           0         5,806             14,194       $10,451           $10,451  

---------------------------                                                     

(1)  Based on the last reported sale price of underlying securities ($2.50) on  
     December 29, 2000 (the last trading day during 2000) as reported by Nasdaq,
minus the exercise price of the options.                              

EMPLOYMENT AGREEMENTS                                                           

Kris Shah has entered into a two-year employment agreement with us,   
effective as of June 9, 1999. This agreement provides that after the initial    
term, it will automatically renew for successive one-year                       

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terms unless it is terminated by us or by the employee through written notice   
given to the other party 90 days before the expiration of the then current term.
Our board of directors may adjust Mr. Shah's salary. Mr. Shah is also entitled  
to receive an annual bonus award of $100,000 if we have earnings of $2.5 million
or more and an additional $37,500 for each additional $1.0 million of earnings  
in excess of $2.5 million. In making the calculation for the bonus, we will     
measure earnings before interest and taxes and will add back the amortization of
goodwill and other intangibles.                                                 

Mr. Shah's employment agreement provides that, in addition to being   
terminated through the notice feature described above, employment may be        
terminated as follows:                                                          

-  by Mr. Shah if he has good reason to terminate the agreement. Good 
reason exists if:                                               

      -   Mr. Shah is relieved of his position as, or is not reappointed as,
an officer of our company;                              

      -   Mr. Shah's title, office or responsibilities change substantially;

    -   Mr. Shah's base salary is reduced to an amount that is less than
$175,000 or by more than 10%;                           

-   we fail to maintain our employee benefit plan;              

      -   we sell or transfer our company and fail to obtain the successor's
assumption of the employment agreement; or              

      -   we fail to comply with a material term of the employment agreement
and fail to cure the default after appropriate notice.  

   -  by us if we determine that due cause for termination exists. Due cause
exists if we find that Mr. Shah:                                

-   intentionally misapplied our money or property;             

-   committed an act of dishonesty that harmed us;              

   -   was convicted of a felony or a crime involving moral turpitude;

     -   has used a controlled substance, including alcohol, which affects
his ability to perform his job duties; or               

-   breached the terms of the employment agreement.             

-  Additionally, we can terminate the terms of the agreement upon Mr. 
Shah's:                                                         

-   death;                                                      

      -   disability for more than 180 days after we give 30 days' notice of
our intention to terminate the employment agreement; or 

-   retirement.                                                 

We may be obligated to make payments to Mr. Shah upon termination of  
employment depending on the circumstances surrounding the termination. If the   
employment agreement is terminated by Mr. Shah after giving notice, by us for   
cause, or by Mr. Shah in breach of the agreement, we will not be obligated to   
pay any compensation after the termination date, except:                        

-    employee benefits;                                                         

-    unpaid base salary that Mr. Shah has earned which we have not paid; and    

-    vested stock options.                                                      

     If the employment agreement is terminated by Mr. Shah for good reason or by
us through a constructive termination, we will be obligated to pay Mr. Shah:    

-    his annual salary for the greater of the balance of the term of the        
employment agreement or for a period of two years;                    

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-    a pro rata bonus for the fiscal year in which the termination occurs;      

-    continuing medical and life employee benefits for six months after the     
termination; and                                                      

-    vested stock options.                                                      

 The employment agreement also contains non-compete, confidentiality and
non-disclosure clauses designed to protect our intellectual property.           
Additionally, the agreement contains a provision designed to preclude Mr. Shah  
from claiming rights to any products or technologies he developed while in our  
employ or for a two-year period following his termination.                      

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                  

   On February 2, 2000, Litronic Industries, Inc., a wholly-owned subsidiary
of ours, entered into a lease agreement for our principal executive offices with
KRDS, Inc., a California corporation. Kris Shah, our chief executive officer,   
president, chairman of the board and secretary, is the majority shareholder and 
a director of KRDS, Inc. The lease has a seven-year term and expires on February
28, 2007. We have an option to renew the lease for a five-year period which we  
may exercise by providing notice to KRDS, Inc. not less than six months prior to
the expiration of the initial seven-year term. We lease a building of           
approximately 20,702 square feet. Our monthly payments under the lease are      
currently $32,941 and we paid a security deposit to KRDS, Inc. of $31,674 when  
we executed the lease. Before our board determined whether to approve this      
lease, Mr. Shah disclosed to the board his interest in KRDS.                    

  On September 18, 2000, we entered into a Severance Agreement and General
Release of all Claims with our former president, William Davis in connection    
with the termination of his employment with us. Under this agreement, we agreed 
to transfer to Mr. Davis, title to furniture and equipment that had been located
in his office and to pay insurance premiums for Mr. Davis and his dependents    
until October 31, 2000 if he elected to continue his health insurance benefits  
under COBRA. In consideration of these severance payments and our waiver of     
certain claims that we believe we had against Mr. Davis arising out of our      
acquisition of Pulsar Data Systems, Inc., Mr. Davis agreed to release us from   
any and all known and unknown claims.                                           

   On October 31, 2000, our chairman, chief executive officer, president and
secretary, Kris Shah, purchased 629,269 shares of our common stock for $3.18 per
share from our former president, William Davis. Mr. Shah first presented this   
purchase opportunity to our company but, after consideration of our financial   
condition, including, in particular, our cash position, the disinterested       
members of our board of directors declined the offer and authorized Mr. Shah to 
proceed with the purchase.                                                      

 Likewise, on December 5, 2000, Mr. Shah purchased 828,396 shares of our
common stock from Mr. Davis' ex-wife, Lillian Davis for $3.18 per share. Our    
company also declined this offer under similar circumstances. As part of this   
transaction, Ms. Davis also agreed to return 141,573 shares of our common stock 
for cancellation. These shares are now held as treasury shares.                 

   Mr. Amber, one of our directors, and our former secretary, is currently a
partner of the law firm Rutan & Tucker, LLP (although he was not during the     
fiscal year ended December 31, 2000). During the fiscal year ended December 31, 
2000, we retained Rutan & Tucker, LLP to act as our legal counsel.              

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT                               

  Section 16(a) of the Securities Exchange Act of 1934, as amended, or the
Exchange Act, and the regulations thereunder, require the directors, executive  
officers and persons who own more than 10% of a                                 

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registered class of our equity securities to file with the Commission, initial  
reports of ownership and reports to changes in ownership of our common stock and
other equity securities, and to furnish us with copies of all Section 16(a)     
forms they file.                                                                

  During the fiscal year ended December 31, 2000, Robert J. Gray, our vice
president, product development, and James S. Prohaska, our vice president,      
sales, each failed to file on a timely basis, a Statement of Changes in         
Beneficial Ownership on Form 4. In addition, the Kris and Geraldine Shah Family 
Trust, the holder of more than 10% of our outstanding shares of common stock,   
failed to file on a timely basis, a Statement of Changes in Beneficial Ownership
on Form 4. Each of the transactions that were not reported on a timely basis,   
were subsequently reported.                                                     

 To our knowledge, based solely on a review of the copies of the reports
furnished to us and written representations that no other reports were required,
during the year ended December 31, 2000, our officers, directors and beneficial 
owners of more than 10% of a registered class of our equity securities complied 
with all other Section 16(a) filing requirements applicable to them.            

BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION                   

The compensation committee of the board of directors has submitted the
following report with respect to the executive compensation policies established
by the compensation committee and compensation paid or awarded to executive     
officers for the fiscal year ended December 31, 2000.                           

The compensation committee establishes the compensation level for our 
company's chief executive officer and other executive officers based upon its   
discretion, taking into account factors it deems appropriate, such as           
competitive factors, attainment of our company's established financial          
performance criteria, long term financial and strategic goals and the           
implementation of key strategic programs and products.                          

    The compensation committee believes that the compensation programs for our
company's executive officers should reflect our company's performance and the   
value created for our company's stockholders. In addition, the compensation     
programs should support the short-term and long-term strategic goals and values 
of our company and should reward individual contributions to our company's      
success. Litronic is engaged in a very competitive industry, and its success    
depends upon its ability to attract and retain qualified executives through the 
competitive compensation packages it offers to such individuals.                

     The compensation committee's policy is to provide executive officers of our
company with compensation opportunities that are based upon the financial       
performance of the company and the executive officers' contribution to that     
performance. In light of the competitiveness to retain qualified executive      
officers, the compensation committee also takes into consideration whether the  
compensation offered to our executive officers is competitive enough to attract 
and retain highly skilled individuals. Compensation for our chief executive     
officer for fiscal 2000, as reported above, was based on the compensation       
committee's analysis of Litronic's financial performance and achievement of     
strategic objectives, and the chief executive officer's contribution to this    
performance and these achievements. In November 2000, we increased the base     
salary of our chief executive officer to $250,000 per year. This increase was   
based primarily on the increased duties which Mr. Shah undertook as a result of 
his appointment as president when Mr. Davis, our former president resigned in   
October 2000.                                                                   

     The compensation committee also offers alternative sources of compensation,
such as incentive stock options, to the executive officers. Options provide     
executive officers with the opportunity to buy and maintain an equity interest  
in our company and to share in the appreciation of the value of our common      
stock. In addition, if a participant were to leave prior to vesting in these    
options, a significant number of                                                

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the options would be forfeited. This makes it more difficult for competitors to 
recruit key employees away from our company. The compensation committee believes
that the option grants afford a desirable long-term compensation method because 
they closely ally the interests of management and other employees of the company
with stockholder value and motivate the officers of our company to improve      
long-term stock market performance.                                             

Our company's policy is not to disclose target levels with respect to 
specific quantitative or qualitative performance-related factors, or factors    
considered to involve confidential business information, because their          
disclosure would have an adverse effect on our company.                         

     Based on its review of all of the factors described above, the compensation
committee recommended that salaries (including base salaries and allowances) for
our executive officers, including the salary of our chief executive officer, be 
decreased by 10% from their fiscal 2000 levels. The executive officers accepted 
this decrease effective May 1, 2001. All amounts paid or accrued during fiscal  
2000 under the above described plans and programs are included in the tables    
above.                                                                          

COMPENSATION COMMITTEE:                                                         

Gregg Amber                                                                     
Matthew Medeiros                                                                

BOARD AUDIT COMMITTEE REPORT                                                    

   The audit committee of the board of directors reviewed and discussed with
the independent auditors all matters required by generally accepted auditing    
standards, including those described in Statement on Auditing Standards No. 61, 
as amended, "Communication with Audit Committees," and reviewed and discussed   
the audited financial statements of Litronic Inc., both with and without        
management present. In addition, the audit committee obtained from the          
independent auditors, a formal written statement describing all relationships   
between the auditors and Litronic Inc. that might bear on the auditors'         
independence consistent with Independence Standards Board Standard No. 1,       
"Independence Discussions with Audit Committees," and discussed with the        
auditors any relationships that may impact their objectivity and independence   
and satisfied itself as to the auditors' independence. Based upon the audit     
committee's review and discussions with management, the audit committee         
recommended to the board of directors that the audited financial statements of  
Litronic Inc. be included in its Annual Report on Form 10-K for the fiscal year 
ended December 31, 2000, for filing with the Securities and Exchange Commission.
The audit committee also recommended reappointment, subject to stockholder      
approval, of the independent auditors and the board of directors concurred in   
such recommendation.                                                            

AUDIT COMMITTEE:                                                                

Gregg Amber                                                                     
Matthew Medeiros                                                                

PERFORMANCE GRAPH                                                               

    The following graph shows a comparison of the cumulative total stockholder
return on our common stock, based on its market price, with the cumulative total
return of companies on The Nasdaq Stock Market (U.S. common stocks) and the     
Standard & Poors Computers Index (Peripherals), assuming reinvestment of        
dividends, for the period beginning June 9, 1999 through our fiscal year ended  
December 31, 2000. This graph assumes that the value of the investment in our   
common stock and each of the comparison groups was $100 on June 9, 1999.        

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    Notwithstanding anything to the contrary set forth in our previous filings
under the Securities Act or the Exchange Act, that might incorporate future     
filings, including this proxy statement, in whole or in part, the reports of our
compensation and audit committees set forth in this proxy statement, and the    
performance graph below and the underlying data, shall not be incorporated by   
reference in any of these future filings.                                       

[PERFORMANCE GRAPH] 

                                                        [Enlarge/Download Table]

                                           JUNE 9, 1999  DECEMBER 31, 1999  DECEMBER 31, 2000
                                           ------------  -----------------  -----------------
                                                                                             
Litronic..................................      $100          $  72.73            $  22.73   
Nasdaq Stock Market Index (U.S.)..........      $100           $165.10            $  99.26   
Standard & Poors Computers Index..........      $100           $204.04             $229.89   

VOTE REQUIRED                                                                   

  Directors are elected by a plurality vote of shares present in person or
represented by proxy at the meeting, meaning that the director nominee with the 
most votes for a particular slot on the board is elected for that slot. In an   
uncontested election for directors, the plurality requirement is not a factor.  

     THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEES
LISTED IN THIS PROXY STATEMENT.                                                 

PROPOSAL 4
APPROVAL OF AMENDMENTS TO OUR CERTIFICATE OF INCORPORATION

The Reorganization Agreement provides that this proxy statement will  
include a proposal to change our name to SSP Solutions, Inc. Our board of       
directors has unanimously approved an amendment to Article I of our amended and 
restated certificate of incorporation to change our name to SSP Solutions, Inc."
As amended, Article I would read as follows:                                    

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 ARTICLE I

The name of the Corporation is SSP Solutions, Inc.

  The proposed amendment relating to the name change would not necessitate
any exchange of outstanding stock certificates.                                 

 In addition, our board believes that it is in the best interests of our
company and our stockholders to increase the number of authorized shares of     
common stock from 25,000,000 shares to 100,000,000 shares. Our board believes   
that the increase in our authorized shares of common stock will maintain our    
financing and capital raising flexibility. Our board has unanimously approved an
amendment to Section 1 of Article IV of our amended and restated certificate of 
incorporation to effect this increase. As amended, Section 1 of Article IV would
read as follows:                                                                

ARTICLE IV

          SECTION 1. The Corporation is authorized to issue one class of
stock to be designated "Common Stock" and another class of stock to be
  designated "Preferred Stock." The total number of shares of Common Stock
     that the Corporation is authorized to issue is 100,000,000 with a par value
   of $.01 per share. The total number of shares of Preferred Stock that the
  Corporation is authorized to issue is 5,000,000 with a par value of $.01
per share.                                                            

  In addition to the shares to be issued in connection with the merger, we
will issue additional shares of common stock if our board of directors          
determines the issuance would be in the best interests of our company and our   
stockholders.                                                                   

Any newly authorized shares of common stock will have voting and other
rights identical to those of the currently authorized shares of common stock.   
Under our amended and restated certificate of incorporation, holders of common  
stock do not have preemptive rights. As is true for shares presently authorized,
any issuance of additional shares of our common stock could dilute the equity of
the shares of common stock that are outstanding at the time of the issuance.    

VOTE REQUIRED                                                                   

     The proposal to amend our amended and restated certificate of incorporation
will be approved if the holders of a majority of the shares of our common stock 
outstanding on the Record Date, vote in favor of that proposal.                 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.         

PROPOSAL 5
 RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS

  Our board of directors has selected KPMG LLP to serve as our independent
auditors for the fiscal year ending December 31, 2001. Although stockholder     
ratification is not required, our board of directors has directed that this     
appointment be submitted to our stockholders for ratification at the annual     
meeting of stockholders. A representative of KPMG LLP will be present at the    
annual meeting, will have an opportunity to make a statement if he or she       
desires to do so and will be available to respond to appropriate questions.     

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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
SELECTION OF KPMG LLP AS OUR INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING    
DECEMBER 31, 2001.                                                              

PROPOSAL 6
 APPROVAL OF THE ISSUANCE OF SECURITIES IN FUTURE FINANCING TRANSACTIONS

BACKGROUND                                                                      

In April 2001, we began to anticipate a need for additional capital,  
primarily for the purposes of research and development, additional management   
personnel to support our growth, expansion of our facilities and working        
capital. As a result, we began to explore strategic alternatives available to us
and investigate possible sources of financing. On May 31, 2001, we engaged      
Tucker Anthony Sutro Capital Markets, Inc., or Tucker Anthony, to act as our    
exclusive financial advisor and placement agent to locate investors for our     
securities in a public or private placement transaction.                        

POSSIBLE PUBLIC OR PRIVATE PLACEMENT OF OUR SECURITIES                          

 Although we have not yet commenced any type of offering, we are seeking
your approval for the raising, as necessary, of up to $50 million in one or more
public or private financing transactions through the issuance of our common     
stock, or securities exercisable for, or convertible into, our common stock,    
potentially at a discount of up to 25% to market price. We believe that a       
discount may be necessary to attract investors for these financing transactions.
The rules of The Nasdaq National Market require us to obtain stockholder        
approval of the issuance of a number of shares of common stock, or securities   
exercisable for, or convertible into, common stock, equal to or greater than 20%
of the number of shares of our common stock outstanding prior to the issuance,  
if such issuance is for a price that is less than the greater of the book value 
or market value of our common stock at the time of issuance. Based upon the     
recent trading prices of our common stock, we would need to exceed the 20%      
threshold in order to generate proceeds from a financing transaction sufficient 
to meet our projected needs. Accordingly, we are seeking your approval to issue 
shares of our common stock or securities exercisable for, or convertible into,  
common stock, that would constitute more than 20% and up to 50% of our          
outstanding common stock after the merger described elsewhere in this proxy     
statement (on a post-exercise or as-converted basis) in future public or        
financing transactions. If our stockholders approve this proposal, their        
authorization of this proposal will expire six months from the date of the      
closing of the merger.                                                          

    The purchase price for the securities to be sold in any such offering, and
other terms and conditions of the offering, will be determined through          
negotiations among us, Tucker Anthony and the investors, based upon, among other
matters, the demand for our common stock and its trading prices prior to the    
closing of the transaction. Due to the fact that the shares to be sold in the   
offering will not be immediately freely tradable by the purchasers until a      
registration statement registering those shares has been filed and becomes      
effective under the Securities Act, we expect that the shares may be sold at a  
discount from the prevailing price of our common stock prior to closing. We do  
not know the actual amount of such discount as of the date of this proxy        
statement, but we expect that it will be within a customary range for offerings 
of restricted shares by public companies in similar transactions. We expect to  
enter into a registration rights agreement with each of the purchasers of shares
in the offering under which we will agree to register those shares in the       
future. Pursuant to our engagement of Tucker Anthony as placement agent in      
connection with the offering, Tucker Anthony will receive cash compensation and 
warrants exercisable for shares of our common stock upon the closing of such    
offering.                                                                       

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   If we issue additional shares of our capital stock, existing stockholders
may be diluted as a result of those issuances. At this time, however, we cannot 
predict the amount of shares that would be issued or price at which such shares 
would be sold, except that any sale will have no more than a 25% discount.      
Therefore, we cannot accurately estimate the parameters and effect of any       
dilution on our existing stockholders. If we issue common stock, it will have   
the same voting, dividend and other rights as our currently outstanding common  
stock. The terms of any preferred stock or other instruments exercisable for, or
convertible into, common stock, including dividend or interest rates, conversion
prices, voting rights, redemption prices, maturity dates, and similar matters   
will be determined by our board of directors before we issue those securities.  

   If our stockholders disapprove this proposal, but approve the merger, the
merger will be consummated but the offering, under the general terms described  
in this proxy statement, will not be pursued. Such an offering is conditioned   
upon stockholder approval of the merger, and if the merger is not approved, we  
do not intend to proceed with the offering, even if it is approved by our       
stockholders. Therefore, our stockholders must approve both the merger and this 
proposal in order for such a transaction to occur.                              

  If our stockholders do not approve this proposal, our board of directors
will be limited to authorizing the sale of securities not in excess of the 20%  
limitation. As a result, we would be required to seek additional means of       
financing. However, we may not be able to obtain such financing on a timely     
basis on commercially reasonable terms, or at all.                              

  If this proposal is approved by our stockholders, our board of directors
will be authorized to determine all aspects of the transaction, including (i)   
whether to consummate a public or private placement, (ii) the number and nature 
of securities issued in the transaction, (iii) the purchase price of the        
securities sold, and (iv) the terms and conditions of any warrants issued in    
connection with the offering, including Tucker Anthony's warrant.               

VOTE REQUIRED                                                                   

     The proposal to approve the issuance of shares of our common stock or other
securities, which, when exercised or converted into common stock, would         
constitute more than 20% and up to 50% of our common stock, requires the        
affirmative vote of a majority of the holders of the shares of our common stock 
entitled to vote at and present in person or represented by proxy at the        
meeting.                                                                        

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.         

PROPOSAL 7
 APPROVAL OF OUR 2001 EMPLOYEE STOCK PURCHASE PLAN

OUR 2001 EMPLOYEE STOCK PURCHASE PLAN                                           

Introduction                                                          

  On June 12, 2001, our board of directors adopted our 2001 Employee Stock
Purchase Program, or ESPP, subject to stockholder approval. Our board believes  
that the ESPP, together with our existing stock option plans, is an important   
part of providing incentives and retaining employees. Our board believes that   
the growth and success of our company will depend, in large part, upon our      
ability to retain qualified individuals who, through their efforts and          
expertise, can make significant contributions to the success of our business.   
Our board believes that the ESPP will provide incentives for our current and    
prospective employees to work for our best interests through ownership of our   
common stock. In assessing this                                                 

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proposal, you should consider that our employee directors may benefit from the  
adoption of the ESPP since they are eligible to participate in the plan and     
therefore, may be deemed to have a conflict of interest.                        

  Set forth below is a summary of the terms and provisions of the ESPP and
the federal income tax consequences of the ESPP. The complete text of the ESPP  
is attached to this proxy statement as Appendix H.                              

Shares Subject to the ESPP                                            

  A total of 1,000,000 shares of our common stock are currently authorized
for issuance under the ESPP. If a right expires or becomes unexercisable without
having been exercised in full, the shares of our common stock that were subject 
to that right will again become available for grant under the plan. The number  
of shares issuable under the ESPP, and the purchase price per share, is subject 
to proportional adjustments to reflect stock splits, stock dividends, mergers,  
consolidations and similar events.                                              

Eligibility For Participation                                         

    The ESPP is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Code. All of our employees (including, at the option of the  
committee administering the plan, employees of our subsidiaries) are eligible to
participate in this plan, except for (i) employees who customarily work less    
than 20 hours per week; (ii) employees whose customary employment is for less   
than five months per calendar year; and (iii) employees, who, after a grant     
under the plan is made, will own more than five percent of the total combined   
voting power of all classes of our stock.                                       

  As of the date of this proxy statement, approximately 110 employees were
eligible to participate in the ESPP and no rights had been granted under the    
plan.                                                                           

Administration                                                        

    Our board has appointed our compensation committee to administer the ESPP.
In administering the plan, our compensation committee will construe and         
interpret the plan and have full power to adopt, amend and rescind any rules    
deemed desirable and appropriate for the administration of the plan and which   
are not inconsistent with the terms of the plan. All decisions of the           
compensation committee are final and binding on all persons.                    

Grant and Exercise of Rights                                          

     The ESPP provides for six month offering periods commencing on each January
1 and July 1, provided, however, that the initial offering period will be a     
shortened period commencing on the effective date of the ESPP (which will be the
date on which the plan is approved by our stockholders) and ending on December  
31, 2001. At the beginning of each offering period, we will grant each eligible 
employee a right to purchase shares of our common stock at a price equal to the 
lesser of (i) 85% of the fair market value of a share of our common stock on the
applicable grant date; or (ii) 85% of the fair market value of a share of our   
common stock on the applicable exercise date. An employee may elect to          
participate in the plan by authorizing payroll deductions at a rate between 1%  
and 10% of his or her compensation. An employee's election to participate will  
continue at the same rate of payroll deductions for subsequent offering periods 
unless changed or revoked. The number of shares subject to each right will be   
determined by dividing the participant's account balance as of the exercise date
by the price per share, disregarding any fractional shares. The total market    
value of a participant's purchases under the ESPP is limited to $25,000 for each
calendar year.                                                                  

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  Each right granted under the ESPP will be automatically exercised at the
end of the offering period in which it was granted, unless terminated sooner in 
accordance with the provisions of the plan.                                     

Term of the ESPP                                                      

    Unless terminated earlier as provided in the ESPP, the plan will terminate
on the tenth anniversary of the date on which it is approved by our             
stockholders.                                                                   

Amendment                                                             

     Our board may at any time amend, suspend or discontinue the ESPP. Except as
provided in the plan, however, no such action may adversely affect the accrued  
rights of participants then outstanding, without their consent. No amendment of 
the ESPP will be effective unless approved by our stockholders if such approval 
is required to comply with Section 423 of the Code.                             

Federal Income Tax Consequences                                       

 Assuming that the ESPP qualifies as an employee stock purchase plan, as
defined in Section 423 of the Code, a participant would not recognize any       
taxable income as a result of participating in the plan, except as described    
below.                                                                          

   If a participant disposes of any share purchased under the plan more than
two years after the first day of the offering period during which the share is  
purchased (a qualifying transfer), or if he or she dies while owning any share  
purchased under the plan, the participant generally would recognize compensation
income for the taxable year in which such qualifying transfer or death occurs in
an amount equal to the lesser of (i) the excess of the fair market value of the 
disposed share at the time of such disposition or death over its purchase price,
or (ii) 15% of the fair market value of the disposed share on the last day of   
such offering period. In the case of a qualifying transfer, (a) the             
participant's tax basis in the disposed share could be increased by the amount  
of compensation income so recognized, and (b) the participant would recognize a 
capital gain or loss, as the case may be, equal to the difference between the   
amount realized from the disposition of the share and his or her tax basis (as  
so increased) in such share.                                                    

     If a participant disposes of any share other than by a qualifying transfer,
the participant generally would recognize compensation income in an amount equal
to the excess of the fair market value of the disposed share on the date of     
disposition over its purchase price, and we would be entitled to a tax deduction
equal to the amount of such compensation income. Otherwise, we would not be     
entitled to any tax deduction with respect to the grant or exercise of purchase 
options under the plan or the subsequent sale by participants of shares         
purchased under the plan.                                                       

Market Price of Shares                                                

  The closing price of our common stock as reported by The Nasdaq National
Market on July 19, 2001 was $2.53 per share.                                    

VOTE REQUIRED                                                                   

    The proposal to approve our 2001 Employee Stock Purchase Plan must receive
the affirmative vote of a majority of the holders of the shares of our common   
stock entitled to vote at and present in person or represented by proxy at the  
meeting.                                                                        

 THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.

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OUR MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS 

GENERAL                                                                         

 We provide professional Internet data security services and develop and
market software and microprocessor-based products needed to secure electronic   
commerce and communications over the Internet and other communications networks 
based on Internet protocols. Our primary technology offerings use public key    
infrastructure, or PKI, which is the standard technology for securing           
Internet-based commerce and communications. In addition, Pulsar, a wholly owned 
subsidiary, is an established computer and networking product reseller that     
focuses on resales to government agencies, large corporate accounts and state   
and local governments. We acquired Pulsar in June 1999 in exchange for 2,169,938
shares of our common stock.                                                     

   The operations of Pulsar may not fit in with our long range plans for the
combined company, and we are considering selling Pulsar. Revenue attributable to
Pulsar during the fiscal year ended December 31, 2000, was $31.9 million, and   
during the three months ended March 31, 2001, was $2.5 million, and the cost of 
goods sold attributable to Pulsar during those periods was $28.5 million and    
$2.3 million, respectively.                                                     

RESULTS OF OPERATIONS -- COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 AND
2001                                                                            

Total Revenues                                                        

 Total revenues decreased 5.2% from $4.7 million during the three months
ended March 31, 2000 to $4.5 million during the three months ended March 31,    
2001. The decrease was primarily attributable to a $774,000 decrease in revenues
related to the network solutions market that was partially offset by a $530,000 
increase in revenues related to information security products and services.     

    During the three months ended March 31, 2000, we derived 23%, 16%, and 14%
of our revenue from sales to the U.S. Immigration, NSA and the National         
Institute of Health, respectively. During the three months ended March 31, 2001,
we derived 11% of our sales from Gradkell Computers, Inc. Sales to Federal      
government agencies accounted for approximately 78% and 55% of our sales during 
the three months ended March 31, 2000 and 2001, respectively.                   

Product Revenue                                                       

Product revenue decreased 5% from $4.4 million during the three months
ended March 31, 2000 to $4.1 million during the three months ended March 31,    
2001. The decrease was primarily attributable to a $712,000 decrease in revenues
related to network deployment products that was partially offset by a $505,000  
increase in revenues related to data security products.                         

License and Service Revenue                                           

  License and service revenue decreased 10% from $371,000 during the three
months ended March 31, 2000 to $334,000 during the three months ended March 31, 
2001. The decrease was primarily attributable to a $62,000 decrease in revenues 
related to electric security systems that was partially offset by an increase of
$25,000 in licenses and services related to information security products and   
services. In July 2000, we discontinued the electric security systems product   
line.                                                                           

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Product Gross Margin                                                  

     Product gross margins increased as a percentage of net product revenue from
17% during the three months ended March 31, 2000 to 26% during the three months 
ended March 31, 2001. The increase was primarily attributable to an increase in 
the percentage of revenue related to data security products as compared to the  
revenue related to network deployment products. During the three months ended   
March 31, 2001, network deployment products, sold by Pulsar, represented 61% of 
total product revenue as compared to data security products that represented 39%
of product revenue. During the three months ended March 31, 2000, network       
deployment products, sold by Pulsar, represented 74% of total product revenue as
compared to data security products that represented 26% of product revenue.     
Margins from the sale of network deployment products are significantly lower    
than margins from the sale of data security products.                           

License and Service Gross Margin                                      

   License and service gross margin increased as a percentage of license and
service revenue from 55% during the three months ended March 31, 2000 to 60%    
during the three months ended March 31, 2001. This increase was primarily       
attributable to the discontinued electric security systems product line. Gross  
margins related to the electric security systems product line were significantly
less than those related to the other types of licenses and services that we     
provide.                                                                        

Selling, General and Administrative Expenses                          

    Selling, general and administrative expenses, or S,G&A, decreased 26% from
$2.4 million during the three months ended March 31, 2000 to $1.8 million during
the three months ended March 31, 2001. The decrease was primarily attributable  
to reduced S, G&A related payroll expenses at Pulsar. The average S, G&A        
headcount at Pulsar decreased by 23 or 49% during the three months ended March  
31, 2001 as compared to the three months ended March 31, 2000. As a percentage  
of revenue, S,G&A decreased from 50% during the three months ended March 31,    
2000 to 40% during the three months ended March 31, 2001. The percentage        
decrease was also primarily attributable to reduced S, G&A related payroll      
expenses at Pulsar. In an effort to reduce future expenses we have implemented a
cost reduction program that is discussed in the "Liquidity and Capital          
Resources" section below.                                                       

Research and Development Expenses                                     

  Research and development expenses increased 39% from $1.3 million during
the three months ended March 31, 2000 to $1.8 million during the three months   
ended March 31, 2001. The increase was primarily attributable to increased      
staffing related to product development including development efforts related to
the Forte smart card, Maestro, ProFile Manager, NetSign and our                 
CipherAccelerator 440. As a percentage of revenue, research and development     
expenses increased from 28% during the three months ended March 31, 2000 to 41% 
during the three months ended March 31, 2001. The percentage increase was       
primarily attributable to the actual increase in research and development       
expense combined with a decrease in total revenues. In an effort to reduce      
future expenses we have implemented a cost reduction program that is discussed  
in the "Liquidity and Capital Resources" section below.                         

Amortization of Goodwill and Other Intangibles                        

   In June 1999, we acquired Pulsar. All of the outstanding shares of Pulsar
were exchanged for 2,169,938 shares of our common stock. The acquisition was    
accounted for using the purchase method of accounting. In the fourth quarter of 
2000 we determined the integration of Pulsar would not be completed as planned  
and the anticipated operating synergies would not be realized, therefore, we are
currently                                                                       

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exploring various alternatives for the Pulsar operations. As a result, in       
accordance with Statement 121, "Accounting for the Impairment of Long-Lived     
Assets and for Long-Lived Assets to Be Disposed Of," we analyzed the            
recoverability of the goodwill and other intangibles relating to the acquisition
of Pulsar. In order to evaluate the recoverability of the remaining goodwill and
other intangible assets, we engaged the services of an independent valuation    
firm to perform a valuation. During the fourth quarter of 2000, based on the    
results of the independent valuation, we recorded an impairment charge of $31.4 
million related to unamortized intangible assets acquired in the purchase of    
Pulsar. Based on the independent valuation, management believes that after the  
impairment charge of $31.4 million, no further impairment exists. The remaining 
unamortized intangible assets acquired in the purchase of Pulsar will be        
amortized over the remainder of their 10-year life.                             

The amortization of goodwill and other intangibles decreased 97% from 
$703,000 during the three months ended March 31, 2000 to $23,000 during the     
three months ended March 31, 2001. The decrease in primarily attributable to the
reduction of goodwill that occurred as the result of the impairment charge that 
we recorded in the fourth quarter of 2000.                                      

Interest Expense (Income), Net                                        

     Net interest income changed $30,000 from $14,000 net interest income during
the three months ended March 31, 2000 to $16,000 net interest expense during the
three months ended March 31, 2001. The change was primarily attributable to a   
reduction in interest income of $22,000 and in increase in interest expense of  
$8,000. The reduction in interest income was primarily the result of lower cash 
balances and the increase in interest expense was the result of increased       
borrowings.                                                                     

Income Taxes                                                          

  Tax expense of $5,000 was recognized during the three months ended March
31, 2000 and was related to minimum franchise tax payments paid to the state of 
California. We did not recognize any tax benefit from operating losses in the   
three months ended March 31, 2000. No income tax expense or benefit was         
recognized during the three months ended March 31, 2001 as the realizability of 
the tax benefit is not more likely than not.                                    

RESULTS OF OPERATIONS -- COMPARISON OF YEARS ENDED DECEMBER 31, 1998, 1999 AND  
2000                                                                            

     Because we acquired Pulsar in June 1999, for the fiscal year ended December
31, 1999, our revenue and expenses include the results of Pulsar's operations   
since June 14, 1999. Therefore, revenue and expenses are not comparable from    
period to period.                                                               

Total Revenue                                                         

Total revenue increased 376% from $6.7 million during the year ended  
December 31, 1998 to $31.7 million during the year ended December 31, 1999 and  
increased 24% from $31.7 million during 1999 to $39.4 million during the year   
ended December 31, 2000. The increase from 1998 to 1999 consisted of $26.5      
million of network deployment and electric security systems, or ESS, revenue    
generated by Pulsar subsequent to the acquisition, a decrease of $1.9 million in
data security revenue, and an increase of $0.4 million in research and          
development revenue. The increase from 1999 to 2000 consisted of a $5.5 million 
increase in network deployment revenue primarily attributable to a full year of 
sales in 2000 as compared to a partial year in 1999, a $3.0 million increase in 
data security revenue primarily attributable to an increase in sales of existing
data security products and services, and a $0.8 million decrease in research and
development revenue attributable to the completion in 1999 of the contract that 
was responsible for generating research and development revenue.                

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During 1998, 44%, 20% and 17% of revenue was generated from sales to  
Lockheed Martin Corporation, the National Security Agency and the U.S. Army     
Corps of Engineers, respectively. During 1999, 31% and 12% of revenue was       
generated from sales to the United States Immigration and Naturalization Service
and the United States Department of State, respectively. During 2000, 42% of    
revenue was generated from sales to the United States Immigration and           
Naturalization Service. Sales to federal government agencies accounted for      
approximately 81%, 78% and 79% of sales during 1998, 1999 and 2000,             
respectively.                                                                   

Product Revenue                                                       

Product revenue increased 467% from $5.2 million during 1998 to $29.6 
million during 1999 and increased 26% from 1999 to $37.4 million during 2000.   
The increase from 1998 to 1999 consisted of $26.0 million of network deployment 
product revenue generated by Pulsar subsequent to the acquisition and a decrease
of $1.6 million in data security product revenue. The increase from 1999 to 2000
consisted of a $5.6 million increase in network deployment revenue and a $2.2   
million increase in data security revenue.                                      

License and Service Revenue                                           

    License and service revenue increased 22% from $1.0 million during 1998 to
$1.3 million during 1999 and increased 52% from $1.3 million during 1999 to $1.9
million during 2000. The increase from 1998 to 1999 was primarily attributable  
to service revenues of $436,000 associated with the ESS product line that was   
acquired as part of the Pulsar acquisition. The ESS product line did not fit    
into either of our primary business segments and in July 2000 we discontinued   
the ESS product line. We did not incur any significant expenses as a result of  
our decision to discontinue the ESS product line. The increase from 1999 to 2000
was primarily attributable to an increase of $444,000 related to an ongoing     
government support contract that began in August 1999 and to the recognition of 
$137,000 of revenue, out of a total $550,000 contract, that requires us to      
provide customer support for three years. The balance of this $550,000 contract 
has been recorded as deferred revenue and will be recognized over the remainder 
of the support period.                                                          

Research and Development Revenue                                      

     Research and development revenue represents amounts earned under a contract
with the National Security Agency, or NSA, for the design of a microprocessor   
meeting minimum specifications established by the NSA. We have contracted with  
others to perform aspects of the project. All related project costs were        
expensed as research and development was incurred. Regardless of the results of 
the development efforts, the amounts received from the NSA are nonrefundable.   
The related research and development costs were not separately identifiable.    
Therefore, the corresponding costs of the entire development effort were        
included in research and development expenses. Research and development revenue 
increased 101% from $398,000 during 1998 to $798,000 during 1999. The increase  
from 1998 to 1999 was primarily attributable to a greater portion of total      
contract revenues being earned in 1999 than were earned in 1998. The contract   
that resulted in research and development revenue was completed in 1999 and no  
further research and development revenue is currently anticipated under this    
contract.                                                                       

Product Gross Margin                                                  

    Product gross margin decreased as a percentage of net product revenue from
46% during 1998 to 14% during 1999 and increased to 19% during 2000. The        
decrease from 1998 to 1999 was primarily attributable to the mix of low-margin  
versus high-margin products sold during 1999. During 1999, network deployment   
products represented 88% of product revenue as compared to data security        
products                                                                        

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that represented 12% of product revenue. The increase from 1999 to 2000 was     
primarily attributable to the proportionately higher increase in revenue related
to data security products as compared to network deployment products. During    
2000, network deployment products represented 85% of product revenue as compared
to data security products that represented 15% of product revenue. Margins from 
the sale of data security products are significantly greater than the margins   
from the sale of network deployment products.                                   

License and Service Gross Margin                                      

   License and service gross margin increased as a percentage of license and
service revenue from 9% during 1998 to 54% during 1999 and increased to 65%     
during 2000. The increase from 1998 to 1999 was primarily attributable to our   
ability to reduce the underutilized labor cost that had resulted in lower gross 
margins in the prior year. The increase from 1999 to 2000 was primarily         
attributable to discontinuing the ESS product line. Gross margins associated    
with the ESS product line were significantly less than the gross margins        
associated with data security services. The ESS product line was discontinued in
July 2000.                                                                      

Selling, General and Administrative Expenses                          

Selling, general and administrative expenses increased 173% from $2.6 
million during 1998 to $7.2 million during 1999 and increased 33% from 1999 to  
$9.6 million during 2000. The increase from 1998 to 1999 was primarily          
attributable to the additional selling, general and administrative expenses     
associated with Pulsar. The increase from 1999 to 2000 was primarily            
attributable to twelve months of Pulsar-related selling, general and            
administrative expenses in 2000 as compared to approximately six months in 1999.
As a percentage of revenue, selling, general and administrative expenses        
decreased from 40% during 1998 to 23% during 1999 and increased to 24% during   
2000. The percentage decrease from 1998 to 1999 was primarily attributable to   
the revenues generated by Pulsar during 1999 and the percentage increase from   
1999 to 2000 was primarily attributable to selling, general and administrative  
expenses increasing at a rate slightly higher than the rate of increase in      
revenues due to lower sales than planned.                                       

Research and Development Expenses                                     

   Research and development expenses increased 193% from $1.3 million during
1998 to $3.9 million during 1999 and increased 48% from 1999 to $5.8 million    
during 2000. The increase from 1998 to 1999 was primarily attributable to       
significant increased staffing related to product development, including        
development efforts related to the Forte microprocessor, Maestro, Profile       
Manager, NetSign and token reader/writers. The increase from 1999 to 2000 was   
primarily attributable to continued significant staffing increases related to   
those same projects that were responsible for the staffing increases in 1999. As
a percentage of revenue, research and development expenses decreased from 20%   
during 1998 to 12% during 1999 and increased to 15% during 2000. The percentage 
decrease from 1998 to 1999 was primarily attributable to the revenues generated 
by Pulsar. The percentage increase from 1999 to 2000 was primarily attributable 
to the continued expansion of our research and development efforts increasing at
a rate of 48% while revenues increased at a rate of 24%.                        

Impairment of Goodwill and Other Intangibles                          

   In June 1999, we acquired Pulsar. All of the outstanding shares of Pulsar
were exchanged for 2,169,938 shares of our common stock. The acquisition was    
accounted for using the purchase method of accounting. We have determined the   
integration of Pulsar will not be completed as planned and the anticipated      
operating synergies will not be realized, therefore, we are currently exploring 
various alternatives for the Pulsar operations. In accordance with Statement of 
Financial Accounting Standards                                                  

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No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived 
Assets to Be Disposed Of," we have analyzed the recoverability of the goodwill  
and other intangibles relating to the acquisition of Pulsar. In order to        
evaluate the recoverability of the remaining goodwill and other intangible      
assets, we engaged the services of an independent valuation firm to perform a   
valuation. Based on the results of the independent valuation, we recorded an    
impairment charge of $31.4 million related to unamortized intangible assets     
acquired in the purchase of Pulsar. Based on the independent valuation,         
management believes that after the impairment charge of $31.4 million, no       
further impairment exists at December 31, 2000. The remaining unamortized       
intangible assets of $783,000 acquired in the purchase of Pulsar will be        
amortized over the remainder of their 10-year life.                             

Amortization of Goodwill and Other Intangibles                        

     The amortization of goodwill and other intangibles recorded during 1999 was
attributable to the acquisition of Pulsar. The amortization recorded during the 
year ended December 31, 1999 of $1.4 million relates to the period June 14, 1999
through December 31, 1999. The amortization of goodwill and other intangibles   
increased 100% from $1.4 million during 1999 to $2.8 million during 2000. The   
increase is primarily attributable to a full year of amortization expense       
related to unamortized intangible assets in 2000 compared to six months during  
1999 when we acquired Pulsar.                                                   

Other (Income) Expense, Net                                           

 Other (income) expense, net, decreased 60% from $418,000 during 1998 to
$168,000 during 1999 and decreased 104% from 1999 to ($7,000) during 2000. The  
decrease from 1998 to 1999 was primarily attributable to the reduction in       
interest expense that resulted when proceeds from our initial public offering   
were used to extinguish outstanding debt obligations. The decrease from 1999 to 
2000 was primarily attributable to an increase in interest income of $75,000 and
a reduction in interest expense of $27,000.                                     

Income Taxes                                                          

   For 1998, the income tax benefit of $95,000 was primarily attributable to
losses from continuing operations before income taxes of $1.5 million. For 1999,
the income tax benefit of $43,000 was primarily attributable to prior year tax  
refunds received that exceeded amounts recorded as receivable in prior years.   
For 2000, the income tax expense of $6,000 was primarily attributable to minimum
California franchise taxes.                                                     

Backlog                                                               

   At December 31, 1998, 1999 and 2000, total backlog was $717,000, $366,000
and $1.3 million, respectively. Orders are subject to cancellation in certain   
circumstances, and backlog may therefore not be indicative of future operating  
results. The increase in the backlog at December 31, 2000, was attributable to  
an increase of $409,000 related to data security products and $525,000 related  
to network deployment products. The backlog of data security products at        
December 31, 2000, consisted primarily of unfilled orders for the Argus 300.    
Materials required to assemble the Argus 300 were not received until January    
2001. Once the necessary materials were received, the Argus 300 readers were    
assembled and shipped during the first quarter of 2001. The backlog of network  
deployment products at December 31, 2000, was the result of orders that were    
received too close to the end of the year to be shipped before the end of the   
year.                                                                           

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LIQUIDITY AND CAPITAL RESOURCES                                                 

     In June 1999, we completed our initial public offering of common stock. The
net proceeds of the offering were $35.3 million.                                

In June 1999, we also entered into a three-year lending agreement with
Guaranty Business Credit Corporation, or GBCC, permitting borrowings under a    
$20.0 million secured revolving line of credit facility commencing on June 14,  
1999. The agreement provided for an annual interest rate of prime plus .625%;   
and a pledge of substantially all of our personal and real property as          
collateral. Although the credit facility was for borrowings up to $20.0 million,
under the terms of the agreement the amount of borrowing available to us was    
subject to a maximum borrowing limitation based on eligible collateral. Eligible
collateral consisted of 85% of eligible accounts receivable plus the lesser of  
(a) 50% of the value of eligible on-hand inventory or (b) $1.0 million. As a    
result, the amount that was actually available to us at any particular time may 
have been significantly less than the full $20.0 million credit facility due to 
the maximum borrowing limitation calculation. The agreement with our lender     
included a number of covenants and restrictions that we were required to adhere 
to. These covenants and restrictions included maintenance of minimum levels of  
working capital, tangible net worth, and profitability. In addition, the        
agreement did not allow us to pay dividends. At March 31, 2001, the maximum     
borrowings limitation calculation was $1.1 million. Our borrowings related to   
this agreement are included in the current installments of long-term debt in our
condensed consolidated financial statements.                                    

  On April 18, 2001 we and our lender amended the revolving line of credit
facility. Under the terms of the amended agreement, the maximum borrowings are  
$5.0 million, eligible collateral excludes inventory, and the advance rate is   
35%. In addition, certain of the financial covenants and requirements were      
adjusted. Changes in the amended agreement related to the definition of maximum 
borrowing, eligible collateral and the advance rate were effective on April 18, 
2001, changes related to financial covenants and requirements were effective as 
of March 31, 2001. We were in compliance with the adjusted covenants at March   
31, 2001. If the changes related to the definition of eligible collateral and   
the advance rate had been effective at March 31, 2001, the maximum borrowings   
available to us would have been $576,000, which is $206,000 less than actual    
borrowing at March 31, 2001.                                                    

Cash provided by operations decreased $342,000 during the three months
ended March 31, 2001 as compared to the three months ended March 31, 2000. The  
decrease in cash provided by operations was primarily attributable to a decrease
in the reduction of accounts receivable during the three months ended March 31, 
2001 of $774,000 as compared to the three months ended March 31, 2000. During   
the three months ended March 31, 2000, improved collection efforts enabled us to
collect a large amount of aged account balances, which provided a positive      
impact on cash collections during the quarter, and more timely collection of    
current accounts. During the three months ended March 31, 2001, with improved   
collection efforts in place throughout the year, we did not have a backlog of   
aged account balances similar to the prior year.                                

Cash used in investing activities decreased $101,000 during the three 
months ended March 31, 2001 as compared to the three months ended March 31,     
2000. The decrease was attributable to a decrease in the amount of property and 
equipment purchased.                                                            

Cash used in financing activities increased $383,000 during the three 
months ended March 31, 2001 as compared to the three months ended March 31,     
2000. The increase was primarily attributable to a net increase in debt         
repayments.                                                                     

We believe that existing cash and cash equivalents and the current    
availability under our amended $5.0 million revolving line of credit will be    
sufficient to satisfy our contemplated cash requirements for                    

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the next 12 months. Under the terms of our amended loan agreement there were no 
additional borrowings available to us at March 31, 2001. Our amended $5.0       
million revolving line of credit facility contains various covenants and        
restrictions including those noted above. If we do not maintain our amended $5.0
million revolving line of credit, or receive waivers for future covenant        
violations, we may seek additional capital from one or more of the following    
sources:                                                                        

   -  Merger -- We anticipate that following the merger, the combined entity
       will be in a more favorable position than us to access capital markets.
        If the merger is not completed in a timely manner or at all, we may seek
  additional capital on terms less favorable than if the merger were
completed in a timely manner.                                   

   -  Additional equity capital -- We and BIZ have engaged a placement agent
   to locate investors for our securities in order to raise additional
equity capital for the combined company after the merger. Equity
      capital, if available, may be issued at a discount to market resulting
  in dilution to current stockholders. In addition, providers of new
      equity capital may require additional concessions in order for them to
provide needed capital to us.                                   

-  Additional commitment -- Our chief executive officer and majority  
  stockholder has committed, if necessary, to providing the personal
      financial resources required to enable us to meet all of our financial
obligations as they become due through January 1, 2002.         

     On May 9, 2001, we announced the implementation of a cost reduction program
with the objective of lowering annualized expenses by $2.5 - $3.0 million. The  
cost reduction program was implemented in response to the general economic      
slowdown so that our cost structure would be better aligned with overall market 
conditions. The cost reductions include an approximate 20% decrease in workforce
and the reduction of discretionary spending where appropriate. The cost         
reductions were not limited to one particular area but were spread throughout   
our company. The cost reductions related to workforce will have an immediate    
impact while the reductions in discretionary spending will be realized at the   
time such expenses are not incurred.                                            

We plan to begin shipping our new CipherAccelerator 440s in the third 
quarter of 2001. Our operating forecast assumes the CipherAccelerator 440       
product launch goes as planned and anticipated sales of the CipherAccelerator   
440s are realized. If the product launch is delayed or if the anticipated       
CipherAccelerator 440s sales are not realized, it may be necessary for us to    
make additional expense reductions beyond those already made.                   

     Our future capital requirements may vary materially from those now planned.
The amount of capital that we will need in the future will depend on many       
factors including, but not limited, to:                                         

-  the market acceptance of our products and services;                

    -  the levels of promotion and advertising that will be required to launch
  new products and services and attain a competitive position in the
market place;                                                   

-  research and development plans;                                    

-  levels of inventory and accounts receivable;                       

-  technological advances;                                            

-  competitors' responses to our products and services;               

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-  relationships with partners, suppliers and customers;              

-  our projected capital expenditures; and                            

-  the merger with BIZ and successful integration.                    

In addition, we may require additional capital to accommodate planned 
growth, hiring, infrastructure and facility needs or to consummate acquisitions 
of other businesses, products or technologies.                                  

New Accounting Standards                                              

    In June 1998, the FASB issued Statement of Financial Accounting Standards,
or SFAS, No. 133, "Accounting for Derivative Instruments and Hedging            
Activities." SFAS No. 133 establishes accounting and reporting standards for    
derivative instruments, hedging activities, and exposure definition. SFAS No.   
133 requires an entity to recognize all derivatives as either assets or         
liabilities in the statement of financial position and measure those instruments
at fair value. Derivatives that are not hedges must be adjusted to fair value   
through earnings. If a derivative is a hedge, depending on the nature of the    
hedge, changes in fair value will either be offset against the change in fair   
value of the hedged assets, liabilities or firm commitments through earnings, or
recognized in other comprehensive income until the hedged item is recognized in 
earnings. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB      
Statement No. 133," which defers the effective date of SFAS No. 133 to all      
fiscal quarters for fiscal years beginning after June 15, 2000. In June 2000,   
the FASB issued SFAS No. 138 "Accounting for Certain Derivative Instruments and 
Certain Hedging Activities," an amendment of FASB SFAS No. 133. We have adopted 
SFAS No. 133 and SFAS No. 138. Their adoption did not have a material impact on 
our consolidated financial position or overall trends in results of operations, 
and did not result in significant changes to our financial risk management      
practices.                                                                      

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 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

     Set forth below is certain information as of July 19, 2001 and after giving
effect to the merger, regarding the beneficial ownership of our common stock by:

-  all directors and nominees for director;                           

   -  each of our executive officers named in the summary compensation table
in this proxy statement and each person who is expected to be an
executive officer after the merger;                             

  -  all persons who are or who are expected to be directors and executive
officers of our company after the merger as a group; and        

-  each person known by us to currently own 5% or more of our voting  
  securities and each person whom we expect to own 5% or more of our
voting securities after the merger.                             

The address of each person named below is the same as ours.           

                                                        [Enlarge/Download Table]

                                                                   BENEFICIAL OWNERSHIP OF COMMON STOCK               
                                                    ------------------------------------------------------------------
                                                                         PERCENTAGE                        PERCENTAGE 
                                                      NUMBER OF           OF COMMON       NUMBER OF         OF COMMON 
                                                    SHARES BEFORE        STOCK BEFORE    SHARES AFTER      STOCK AFTER
             NAME OF BENEFICIAL OWNER                   MERGER              MERGER          MERGER            MERGER  
             ------------------------               -------------        ------------    ------------      -----------
                                                                                                                      
Kris Shah..........................................    4,678,144              48%         5,343,318            25.9%  
Robert J. Gray.....................................       84,413                *            84,413                *  
Roy E. Luna........................................        4,000                *             4,000                *  
Matthew Medeiros...................................       10,500                *            10,500                *  
Gregg Amber........................................       14,295                *            14,295                *  
Frank J. Cilluffo..................................        2,000                *             2,000                *  
Marvin J. Winkler..................................            0               --         7,126,871            34.5%  
Thomas E. Schiff...................................          200                *            75,426                *  
Robert J. Gorman...................................            0               --            55,430                *  
Bruce J. Block.....................................            0               --             5,939                *  
All expected directors and executive officers                                                                         
as a group (currently consists of 6 persons                                                                           
and is expected to consist of 9 persons after                                                                         
the merger)........................................    4,793,352(1)            49%       12,718,192(2)          61.2% 

-------------------------                                                       

*   Less than 1%                                                              

(1)  Consists of shares beneficially owned by our current executive officers and
directors.                                                            

(2)  Consists of shares beneficially owned by our expected executive officers   
and directors following the merger.                                   

     Other than the persons named above, no one is known to us to own 5% or more
of our outstanding voting securities.                                           

 In calculating the information in the table, we relied on the following
assumptions:                                                                    

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     -  All persons named in the table have sole or shared voting and investment
 power over all shares they beneficially own, subject to community
property laws, where applicable; and                            

     -  A person or entity is considered the beneficial owner of securities that
       it can acquire through the exercise of options within 60 days from July
19, 2001.                                                       

The shares beneficially owned by Kris Shah before the merger include: 

   -  435,301 shares held by the Chandra L. Shah Trust, of which Mr. Shah is
the trustee;                                                    

  -  435,301 shares held by the Leena Shah Trust, of which Mr. Shah is the
trustee; and                                                    

  -  3,807,542 shares held by the Kris and Geraldine Shah Family Trust, of
which Mr. Shah and his wife are the trustees and beneficiaries. 

  The shares beneficially owned by Kris Shah after the merger also include
1,400,000 shares of BIZ common stock which will be converted into 665,174 shares
of our common stock at the Effective Time.                                      

The shares beneficially owned by all expected directors and executive 
officers as a group (after the merger) include 158,095 shares issuable upon     
exercise of currently exercisable options and options which are exercisable     
within 60 days from July 19, 2001. The inclusion of shares in this table as     
beneficially owned is not an admission of beneficial ownership.                 

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 DESCRIPTION OF BIZ'S BUSINESS

OVERVIEW                                                                        

 BIZ is a development stage enterprise devoting substantially all of its
efforts to develop and design security solutions for the financial, government, 
healthcare, education and entertainment industries. BIZ will offer both         
individual security components as well as a complete, end-to-end business-to-   
business transaction-based security solution for electronic commerce and        
communications conducted through the Internet or Internet protocol-based        
networks. BIZ has licensed the rights to use a broad array of technology        
components from Wave Systems Corp., Wave Express Corp., Litronic, OneName       
Corporation, Gilian Technologies and others and has combined these technology   
components into its SSP(TM) Solution Suite (SSP(TM) stands for Secure Service   
Provider).                                                                      

    In November 2000, BIZ entered into an alliance agreement with EDS pursuant
to which BIZ and EDS initiated a strategic relationship to market and sell BIZ's
SSP(TM) Solution Suite. EDS has installed the SSP(TM) Solution Suite into its   
testing/interoperability laboratory and has successfully tested the SSP(TM)     
components. EDS plans to install the SSP(TM) Solution Suite into approximately  
five of its marketing centers located throughout the United States. From these  
centers, EDS will conduct live demonstrations of the data security solutions    
that the SSP(TM) Solution Suite can provide to its customers. BIZ plans to      
pursue additional strategic alliances with other systems integrators for the    
delivery and joint marketing of the SSP(TM) Solution Suite to end users in the  
data security market.                                                           

INDUSTRY BACKGROUND                                                             

Data Security Market                                                  

   Consumers, businesses and government agencies are increasingly relying on
the Internet and Internet protocol-based networks to conduct electronic commerce
and communications. The increasing proliferation of, and reliance on, shared    
electronic data has caused data security to become a paramount concern of       
businesses, government, financial and educational institutions, health care     
providers and consumers. BIZ believes that the SSP(TM) Solution Suite will      
provide a comprehensive solution for entities and consumers seeking to provide  
protection for their transactions and proprietary data.                         

Increased Need for Data Security                                      

In addition to protecting against unauthorized access to proprietary  
information, data security enhances an enterprise's ability to conduct          
electronic commerce. Many companies have experienced growth in their online     
customer base and revenue as consumers execute an increasing number of          
transactions over the Internet, satellite and cable networks. The Internet's    
ease of use, 24-hour availability, speed of delivery, global reach and ability  
to simplify product and vendor comparisons are fueling this growth. However,    
consumer concerns about the trustworthiness and security of the Internet have   
been one of the main impediments to even faster growth of electronic commerce   
and other                                                                       

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communications. Hacking tools, such as password guessing and address spoofing   
programs, are freely available on the Internet and bulletin board systems.      
Merchants and consumers need assurances that consumers making electronic        
purchases are correctly identified and confirmed and that the confidentiality of
information such as credit card and bank account numbers is maintained.         

BIZ believes that continued expansion of electronic commerce and      
communication will require the implementation of improved security measures that
will irrefutably verify the identity of a party over the Internet and ensure the
confidentiality of the information being transmitted.                           

Requirements for End-to-End Data Security                             

     Today's client operating systems and Internet protocol-based networks often
lack fundamental, yet critical, Internet security features such as data privacy 
and integrity, identification, authentication, non-repudiation and auditing.    

   End-to-end data security concerns can be addressed by a variety of means.
Traditionally, enterprises relied heavily on passwords to restrict access to    
proprietary information and materials. However, because of the risk of loss or  
theft, more advanced protective measures have been developed to include         
combinations of passwords and tokens with message encryption and biometric      
devices.                                                                        

  The process of implementing Internet and Internet protocol-based network
solutions requires specialized skills not found in many corporate information   
technology departments. BIZ is currently designing and developing its SSP(TM)   
Solution Suite, which is a compilation of hardware, firmware and software       
products that it believes will provide a comprehensive solution to address      
security issues surrounding transactions and communications over the Internet   
and Internet protocol-based networks. The SSP(TM) Solution Suite will ensure    
that:                                                                           

-  all of the information being sent, received and stored, as well as 
     appropriate application programs, are protected cryptographically and
never available to unauthorized persons or programs;            

  -  one, two or three factor authentication is used to determine that the
user is authorized to perform the desired actions;              

     -  the stored digital content is safe from hacking and piracy, and that the
content has not been inappropriately altered; and               

-  digital content can be transported from point to point without     
compromise.                                                     

     BIZ believes that its products will offer the highest level of commercially
available security for e-mail, file transport, file protection, remote access,  
authentication and authorization in an open multi-platform standards-based      
framework. The open architecture of these products makes them compatible with   
virtually all commonly used network hardware and enables them to operate        
independently of algorithms, platforms, applications and tokens. BIZ believes   
that, as the use of the Internet and Internet-based networks continues to grow, 
there will be a significant increase in the demand for the data security        
products that it will offer.                                                    

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SSP(TM) SOLUTION SUITE                                                          

Description                                                           

     By combining a series of separate technologies, BIZ is creating the SSP(TM)
Solution Suite addressing the full range of data security problems, from the    
Core-To-The-Edge(TM). A central foundation of the SSP(TM) Solution Suite is a   
silicon chip capable of hosting application processing and storing resources. In
what would be an otherwise hostile environment -- not safe from hackers and     
pirates of intellectual property -- this silicon chip platform provides an open 
standards-based, programmable hardware and software device capable of storing   
sensitive information, securely executing applications, performing electronic   
transactions and enabling protected communications. The platform includes a     
microprocessor, internal storage (ROM and RAM), elapsed time counter (or meter),
encryption modules, management for keys (or access codes), and a host system    
interface. The combination of these attributes will enable the SSP(TM) Solution 
Suite to communicate with any operating system (e.g., Windows, Linux, Unix). In 
addition, the SSP(TM) technology can be implemented on PCs, set-top boxes,      
personal digital assistants and other peripheral devices.                       

Advantages                                                            

    The SSP(TM) open standards, silicon embedded system provides the following
advantages: faster transaction processing speed than with software-only         
solutions; greater level of security than with software-only systems            
(hardware-based systems are less susceptible to intrusion); and content owners  
can select their own digital rights management, or DRM, versus requiring a      
single, worldwide DRM standard. The SSP(TM) Solution Suite allows for the       
preparation, protection and monetization of digital content, which may be data  
or intellectual property, such as music or video. BIZ believes that when the    
owners of the content or goods are assured of controlling the rules for access  
to, and the exchange value or payment for, the use or purchase of their content 
or goods, more content owners will be willing to make available to consumers a  
wider variety of content or goods. With wider variety and more content          
available, content usage should increase. BIZ believes that this, in turn, will 
increase the demand for its products in the future.                             

SSP(TM) Solution Suite: Core-To-The Edge(TM)                          

     The Internet, cable systems and other networks have users and providers, or
the edge, that communicate through one or more servers, or the core. The SSP(TM)
Solution Suite addresses the complete range of security issues from the         
Core-To-The-Edge(TM), with the core being trusted third parties such as digital 
certificate authorities and other intermediaries who verify identities and      
authorize transactions, and the edge being the providers and consumers of       
information, content and value.                                                 

     The diagram below shows how each product that makes up the SSP(TM) Solution
Suite will provide security from the Core-To-The-Edge(TM) of the Internet or    
other digital content delivery platform.                                        

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[Graphic depicting components of the SSP(TM) Solution Suite]

  The Core-To-The-Edge(TM) security to be provided by the SSP(TM) Solution
Suite is illustrated by the following examples:                                 

Case 1: EDS                                                                     

        -   For a business supplier selling inventory to a customer, EDS will be
      able to provide the supplier with the capability to verify the
            identity of the customer, be certain that the customer is authorized
         to place the order, and (if applicable, according to the terms of
       the customer's account), receive payment for goods shipped. The
           transaction will take place through the Trust Assurance Network, or
     TAN, operated by EDS that will serve as the neutral party for
        registration of EMBASSY devices. Registration of EMBASSY devices
         with the TAN will establish the identities of the parties, verify
          ability to pay prior to shipment and process payments according to
           the instruction of the supplier upon product delivery. Both EDS and
          BIZ will earn commissions from the transaction processing. EDS and
           BIZ also have the potential to earn revenue from applet development
and content preparation work.                           

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Case 2: HIPAA Compliance                                                        

       -   The Health Insurance Portability and Accountability Act of 1996, or
       HIPAA, improves the portability and continuation of health care
           coverage for workers. Other provisions of HIPAA impose requirements
           for security of patient medical information and stringent financial
            penalties for failure to comply with those requirements. The SSP(TM)
           Solution Suite will assist HIPAA compliance by providing protection
            of medical records and access control by the patient. Under HIPAA, a
         patient is the "provider" of the intellectual property or content
          which are the patient's medical records. The "consumer" could be a
    physician, research group, insurance carrier, etc. Using the
         extensible name service, or the XNS, applet and the XNS server, a
         patient could give permission for all or a portion of his records
          for each requesting consumer. Consumers and providers could use an
          identity token such as a smart card with an embedded XNS identity,
        and the authentication applet to gain authorization for specific
         access to the records. The core provides for an independent audit
trail of record access.                                 

BUSINESS STRATEGY                                                               

BIZ's objective is to become the leading provider of data security    
solutions for the growing Internet market. To achieve this objective, key       
elements of BIZ's strategy include:                                             

     -   Strengthen and Develop Strategic Relationships with EDS and Other
         Systems Integrators. Systems integrators design, compile, install
            and manage electronic communication and electronic commerce systems,
    using some of their own components along with those of third
     parties. BIZ believes that strategic relationships with large
           systems integrators represent its greatest opportunity to penetrate
         the data security market by providing the security components for
    large installations. BIZ intends to strengthen its strategic
        alliance with EDS and to aggressively pursue and develop similar
relationships with other systems integrators.           

      -   Establishing a Brand Name. BIZ believes that establishing a strong
       brand name is essential to attracting and expanding a broad and
            diverse customer base in both the commercial and government markets.
          It intends to build its brand by leveraging its relationships with
           well-known systems integrators such as EDS, through joint marketing
            efforts with such strategic partners, including major industry trade
            shows, and advertising in both VAR channel-related trade periodicals
        and end-user focused commercial periodicals. It is BIZ's goal to
   establish a brand name that is equated with an assurance of
security.                                               

       -   Expand its Targeted Customer Base. Through the merger, BIZ believes
           it will be able to significantly expand its targeted consumer base.
            While BIZ has commercial sales potential, Litronic has experienced a
significant level of governmental sales and has achieved
            technological credibility. BIZ intends to develop a strong sales and
    marketing force initially targeting healthcare companies and
        financial, insurance, educational and government institutions to
       build a strong customer base for the SSP(TM) Solution Suite and
          stand-alone components in both the commercial and government sales
markets.                                                

        -   Continue to Enhance the SSP(TM) Solution Suite. The SSP(TM) Solution
        Suite provides end-users with a comprehensive solution for their
   data security needs. BIZ continuously seeks to identify new
        components or technologies to add to its SSP(TM) Solution Suite,
         including, for example, biometric identification technologies. As
          BIZ identifies additional products which it believes would enhance
          its product line, it will seek to add them to the SSP(TM) Solution
          Suite either through internal development or through licenses with
third parties.                                          

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        -   Promote Sales of Stand-Alone Components. The SSP(TM) open standards,
     silicon embedded design enables the various components of the
      SSP(TM) Solution Suite to be sold as stand-alone products. For
           example, by connecting a smart card reader through a USB port, a PC
           user can incorporate a secure device for accessing records, payment
          of products or secure the transmission of information. In addition
        to its SSP(TM) Solution Suite, BIZ intends to promote and expand
      sales of its stand-alone components in both the commercial and
            government markets. BIZ intends to leverage on its installed base of
         customers through EDS and other systems integrators and its brand
         name recognition to expand the distribution of components through
value added resellers and hardware device manufacturers.

-   Widespread Deployment of Enabling Devices. To invoke the    
          capabilities of the SSP(TM) Solution Suite, an EMBASSY device (See
          -- "Technology, Products and Services") is required to be embedded
      at the point of access (consumer) and at the point of delivery
            (provider) and, therefore, the wide deployment of EMBASSY devices by
          BIZ and its strategic alliance partners is essential to widespread
       acceptance of the SSP(TM) Solution Suite. BIZ intends to market
           products and services through value added reseller channels and its
    strategic alliance partners, such as EDS, to deliver EMBASSY
enabling devices.                                       

ANTICIPATED REVENUE STREAMS                                                     

   BIZ's revenue model is primarily based on (i) the implementation and sale
of its SSP(TM) Solution Suite and (ii) the sale of the individual security      
products that comprise the SSP(TM) Solution Suite. BIZ anticipates that         
following the merger, it will generate its revenues through the sale of security
products primarily to the government and through third-party systems integration
consulting service companies such as EDS. BIZ believes that after the merger is 
consummated, the following product and service groups will generate the majority
of its revenues:                                                                

 Security Solution Suite. BIZ has designed and is developing the SSP(TM)
Solution Suite which will provide security from the Core-To-The-Edge(TM) of the 
Internet or any other digital platform for delivering highly sensitive data. BIZ
believes that its solution suite is the only end-to-end product offering to     
offer the highest level of security for Internet-based transactions. BIZ has    
partnered with EDS to deploy the SSP(TM) Solution Suite to companies operating  
in the financial, education, insurance and healthcare industries as well as     
governmental agencies. In June 2001, EDS concluded successful testing of the    
SSP(TM) components of the TAN network.                                          

 Security Components. BIZ has designed, licensed and is developing other
complementary stand-alone security products including its Internet application  
software, Maestro cryptographic library, security tokens, token readers and     
server accelerators. BIZ intends to leverage the branding that will be created  
by EDS' deployment of the SSP(TM) Solution Suite to increase the awareness and  
distribution of its security components to the commercial market.               

TECHNOLOGY, PRODUCTS AND SERVICES                                               

  The SSP(TM) Solution Suite will be a collection of intellectual property
providing information assurance products and services to protect, prepare and   
monetize content.                                                               

Hardware                                                              

-   EMBASSY Chip. EMBASSY is the basis of the trusted client    
    architecture. The EMBASSY chip provides the secure execution
environment within which to run applets. The chips will 

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            be embedded into edge devices by manufacturers or attached to legacy
           systems through various dongles, such as a smart card reader hooked
to the PC through a USB port.                           

        -   SSP CipherAccelerator 440. This product is a PCI board that executes
          440 Secure Socket Layer (SSL) transactions per second. Off loading
           PKI functions to on-board processors will free-up CPU resources and
provide nearly instant responses back to a customer. The
            CipherAcclerator handles multiple, simultaneous sessions for passing
information between the client and server.              

  -   G-Server. The G-Server is a transparent, dedicated server that
       continuously monitors and validates content being sent out of a
       protected web server by comparing the digital signatures of the
        content. When the signature is validated, the content is sent on
           with a 2ms delay. If the signature does not match, a cached copy of
       the content is sent to ensure that the user's experience is not
           corrupted. The device also alerts administrators if an intrusion is
in process.                                             

      -   EMBASSY Hardware Development Kit. The EMBASSY Hardware Development
       Kit is for hardware partners who want to design and manufacture
   their own EMBASSY devices incorporating EMBASSY technology.
       Embedding EMBASSY into hardware will make a dongle unnecessary.

Tokens                                                                

   -   SSP Forte Smart Card. The Forte Smart Card is a multi-function,
            secure token. All cryptographic functions will be processed securely
     on the card, ensuring that all sensitive information and data
         requiring protection and authentication will be processed without
           off loading cryptographic tasks to the user's PC. It is expected to
be commercially available in the fourth quarter of 2001.

     -   SSP NetSignia 210 Smart Card Reader. The NetSignia 210 Smart Card
Reader is an ISO 7816 compliant device featuring direct 
         communication between the host computer and the smart card. It is
           expected to be commercially available in the third quarter of 2001.

        -   SSP EMBASSY Smart Card Reader. The EMBASSY Smart Card Reader that is
        currently in development, is an EMBASSY enabled device featuring
       direct communication between the host computer and any existing
          smart card format. Since the reader will contain an EMBASSY device
  it will be able to run all applets available from the TAN.

Software                                                              

       -   EMBASSY Applet Development Kit. The EMBASSY Applet Development Kit,
       or ADK, enables a user to develop applications that utilize the
            resources of the EMBASSY system. A content provider will use the ADK
            to write an interface between the application and the EMBASSY device
           thereby allowing the required functions to be performed in a secure
environment.                                            

-   Commerce System Applet. The Commerce System Applet contains 
      functionality for the consumer relationship system, DRM, and a
         distributed transaction system. This allows the interface between
        the DRM used by a content provider and the EMBASSY architecture.

-   Authentication Applet. The Authentication Applet contains   
        functionality for access control, group membership and community
support. The applet registers the user's EMBASSY device 

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        within the TAN, which is the neutral third party facilitator for
secure transactions and value exchanges.                

   -   Extensible Name Service Applet. The XNS Applet will contain the
            functionality required to support secure XNS transactions. XNS is an
    open standard protocol for exchanging sensitive data between
        systems. XNS will provide the ability for an "entity" (a person,
            place, or thing) to "register" its identity and to store information
        about itself (in XML) on an XNS server. The entity then controls
        access to the information by third parties. The system has large
            implications in the healthcare field for meeting the requirements of
HIPAA.                                                  

   -   Profile Manager. This product can be used to deploy PKI through
          smart cards and smart card management with modification privileges
such as adding, deleting, or revoking a user's keys and 
            certificates. Profile Manager can operate as a stand-alone system or
     in conjunction with external certificate authorities and will
           integrate with other SSP(TM) smart card-enabled products to provide
a complete security solution for an enterprise.         

  -   NetSign. NetSign software is bundled with NetSignia Smart Card
      Readers and installed at computer workstations to bring secure
       Internet access to individual workstations. NetSign secures the
         Internet for communications by adding smart card functionality to
Microsoft and Netscape email/browser packages.          

        -   Network Auditor. TriStrata, Inc. has agreed to license this software
           package to BIZ. This package is a scalable infrastructure that will
    provide the capability to audit the access and activities of
 distributed services on Internet protocol-based networks.
    Additionally, TriStrata has agreed to grant BIZ an option to
purchase this technology.                               

      -   Palm and Handprint Reader. This patented technology will establish
        identity by taking photographic, topographical map of a person's
         subcutaneous tissue and comparing it with a stored, secure image,
  thereby controlling access. BIZ has signed a memorandum of
    understanding with Advanced Biometrics, Inc. to license this
          technology. The memorandum of understanding also provides that BIZ
will be granted an option to purchase this technology.  

Services                                                              

    -   Trust Assurance Network. Features of the TAN are: EMBASSY device
           registration and synchronization, applet publishing, certification,
          installation, revocation, upgrades, inventory and personalization.
          The TAN serves as the neutral third party for transactions between
providers and users.                                    

     -   WaveNet. WaveNet is the back-office infrastructure supporting the
        commerce system and authentication services. The system performs
   value exchanges according the rules embedded in the content
            providers DRM. WaveNet enables a provider to sell or rent content to
            users. WaveNet processes payment or value exchanges as instructed by
     the provider, which may include multiple payments to multiple
         parties such as may be required when commissions are due to third
parties.                                                

        -   Data Casting Services. Data Casting Services use broadcast and other
Internet protocol streams for distributing content.     

  BIZ plans to introduce its first products, the CipherAccelerator 440 and
the G-Server, in the third quarter of 2001. Sales of SSP(TM) Solution Suite will
require longer lead times together with consulting work as content providers    
will require applet development and content preparation work. Once completed,   
the TAN will verify the finished product. Sales of SSP(TM) Solution Suite are   
expected to occur in 2002; however, other stand-alone components are expected to
be available prior to that.                                                     

STRATEGIC ALLIANCES                                                             

BIZ intends to pursue and develop strategic relationships with systems
integrators for the marketing and sale of its products in the data security     
market. BIZ currently has a strategic relationship with EDS, one of the leading 
systems integrators, to provide BIZ with an installed base of customers for its 
products.                                                                       

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  In assembling the technology for its products, BIZ has also entered into
strategic relationships or partner agreements with the following companies:     

-   Wave Systems Corp. for EMBASSY based solutions and TAN;     

-   Litronic for OEM of PKI products;                           

-   OneName Corporation for implementation of XNS;              

-   Gilian Technologies for G-Server; and                       

-   Wave Express Corp. for data casting of digital content.     

These alliances assist BIZ in expanding its marketing and technical   
capabilities and are intended to increase the distribution and market acceptance
of its data security products and the SSP(TM) Solution Suite.                   

BIZ believes that strategic alliances allow it to cost-effectively    
incorporate its products into third parties' products thereby accelerating the  
deployment of its products into the market and the establishment of its brand   
name.                                                                           

SALES AND MARKETING                                                             

    BIZ intends to strengthen its existing relationship with EDS and to pursue
additional strategic alliances with other systems integrators in order to       
promote its products and establish a strong brand name. In addition, BIZ intends
to launch an advertising campaign and jointly market its products with EDS and  
other technology partners at trade shows and otherwise.                         

 BIZ's initial sales and marketing efforts will focus on the stand-alone
components of the SSP(TM) Solution Suite and distribution of the products in    
three primary channels: (i) sales directly to the value added reseller, or VAR, 
channel and generate demand for major commercial distributors; (ii) the         
development of EMBASSY enabled devices with original equipment manufacturers or 
vendors of branded end-use hardware; and (iii) the delivery/joint marketing     
through third parties, such as EDS and other systems integrators to end users.  
BIZ will promote awareness of the SSP(TM) brand through participation with its  
strategic partners such as EDS in major industry trade shows and through        
advertising in both VAR channel related trade periodicals and end-user focused  
commercial periodicals.                                                         

     The next stage of BIZ's sales and marketing efforts will target the largest
of the providers, the consumers and the core for delivery of custom-made        
solution suites to achieve critical mass and generate revenue on a per          
transaction basis. At the same time, BIZ will focus on new opportunities created
by legal and social policies covering digital rights, copyrights, fair use,     
medical, voting and consumer privacy issues. The target markets for SSP(TM)     
Solution Suite products include the following:                                  

-   financial services and banking;                             

-   government;                                                 

-   education;                                                  

  -   healthcare (providers, insurers, processors and patients); and

-   entertainment, audio and video.                             

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COMPETITION                                                                     

 The market for digital communication security products is worldwide and
highly competitive. BIZ expects competition for the products that it is         
developing to intensify in the future. There are few substantial barriers to    
entry, and additional competition from existing competitors and new entrants is 
expected. Competitors in the markets which BIZ is planning to enter include, but
are not limited to the following, all of which sell worldwide and/or have a     
presence in most of the major markets for such products:                        

  -   Crypto accelerator hardware vendors such as: The Idea Group of
        Rainbow Technologies, nCipher, Sonic Wall, Check Point Software,
Andes Networks and Intel.                               

     -   PKI solution vendors such as: RSA Data Security, IMB and Entrust.

   BIZ believes that no one in the data security industry currently offers a
complete end-to-end solution. Others may begin offering a complete solution     
similar to the SSP(TM) Solution Suite since the barriers to entry are low. BIZ  
believes, however, that its relationship with EDS and the relationships which it
intends to pursue with other systems integrators provides it with an important  
competitive advantage in the data security industry.                            

PROPRIETARY RIGHTS                                                              

BIZ currently relies on a combination of copyright and trademark laws,
trade secrets, licensed patents, confidentiality provisions and other           
contractual provisions to protect proprietary rights. Despite efforts to protect
proprietary rights, unauthorized parties may misappropriate or infringe on BIZ's
trade secrets, copyrights, licensed patents, trade marks, service marks and     
similar proprietary rights. Although BIZ is currently investigating additional  
patent protection for some of its proprietary technology, it has not received   
any additional patent protection for technology or licensed technology or       
products. Even if BIZ obtains such patents, there is no guarantee that the      
patent rights will be of any value, create a competitive barrier, or will be    
free from infringement. BIZ faces additional risks when conducting business in  
countries that have poorly developed or inadequately enforced intellectual      
property laws. In any event, competitors may independently develop similar or   
superior technologies or duplicate the technologies that BIZ has developed      
and/or licensed, which could substantially limit the value of its intellectual  
property. In addition, BIZ depends heavily on third party technology and third  
partys' efforts to protect its proprietary rights, and, therefore, BIZ has no   
control over the patent protection of the technology on which it depends.       

RESEARCH AND DEVELOPMENT                                                        

   BIZ's research and development activities are conducted by its technology
partners at its request and payments for research and development are made to   
them. In 2000, BIZ incurred expenses of $708,500 for research and development.  

EMPLOYEES                                                                       

   As of July 19, 2001, BIZ had 21 employees. Of these, six were employed in
sales and marketing, eight in finance and administration and seven in research  
and development. BIZ is not a party to any collective bargaining agreements with
its employees and has not experienced any work stoppages. BIZ believes it has   
good relations with its employees.                                              

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS OF BIZ

   The following discussion should be read in conjunction with BIZ's audited
financial statements and unaudited interim financial statements and related     
notes and the other financial information included elsewhere in this proxy      
statement. This discussion contains forward-looking statements that involve     
risks and uncertainties. BIZ's actual results could differ materially from the  
results contemplated by these forward-looking statements as a result of certain 
factors, including those discussed below and elsewhere in this proxy statement, 
particularly under the heading "Risk Factors."                                  

     BIZ commenced operations on April 30, 2000 and was incorporated on July 21,
2000 in the state of Delaware. BIZ was formed to develop, deploy and grow the   
worldwide industry standard for processing real-time, secure transactions over  
the Internet and other digital communication delivery platforms. The standard   
will support both authenticated financial and intellectual property transactions
in a platform agnostic environment.                                             

    BIZ is a development stage enterprise and is devoting substantially all of
its efforts towards conducting research and development, advertising and        
promotion, raising capital and building infrastructure. In the course of such   
activities, BIZ has sustained aggregate net operating losses and expects such   
losses to continue for the foreseeable future. BIZ has not generated any        
revenues or product sales and has not achieved profitable operations or positive
cash flows from operations. No assurance can be given that additional capital,  
if needed, will be available when required or upon terms acceptable to BIZ.     

RESULTS OF OPERATIONS -- THREE MONTHS ENDED MARCH 31, 2001                      

BIZ's operations commenced in April 2000 and there is no comparable   
quarterly period in the prior year. As a result, the following discussion does  
not include comparisons to prior periods.                                       

Total Revenue                                                         

BIZ generated no revenues in the three months ended March 31, 2001.   

Research and Development                                              

   Research and development expenses totaled $1,435,000 for the three months
ended March 31, 2001. Expenses included payments to technology partners for     
development work, salaries of staff developing software interfaces for BIZ      
products, along with hardware and firmware expenses. These expenses included    
payments to outside service providers engaged to develop such products. From    
April 30, 2000 (inception) until December 31, 2000, research and development    
expenses totaled $709,000. In May 2001, BIZ signed a development agreement with 
Wave Systems Corp., or Wave, for the integration of EMBASSY based systems with  
set-top box master reference designs of Broadcom Corporation. Under this        
agreement, BIZ is required to pay Wave $278,000 per month beginning June 1, 2001
through December 1, 2002.                                                       

Payroll and Related                                                   

     The expense of executives and staff salaries not classified as research and
development expenses totaled $276,000. These amounts include the cost of        
salaries and related benefits.                                                  

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Advertising and Promotion                                             

In the three months ended March 31, 2001, costs for advertising and   
promotion totaled $24,000. These expenses related mainly to sales and marketing 
presentations and development of BIZ's website materials.                       

Professional Fees                                                     

    BIZ incurred a total of $224,000 in professional fees. Of that total cost,
legal fees totaled $105,000, public relations fees totaled $107,000 and         
accounting fees totaled $12,000.                                                

Other Operating Expenses                                              

Other operating expenses totaled $124,000 and included the costs of   
recruiting qualified staff, postage, equipment rental and other miscellaneous   
operational activities.                                                         

Rent, Utilities and Insurance                                         

    Rent, utilities and insurance costs totaled $72,000. BIZ maintains a 6,000
square foot office in Irvine, California, which it subleases from Litronic. The 
total rent, parking fees and equipment rental related to the office site        
included in such expense was $43,000 for the fiscal quarter ended March 31,     
2001. Additionally, insurance and related expenses totaled $19,000, and         
utilities expense relating primarily to telephones totaled $10,000.             

Other Income and Expenses                                             

  Other expense of $3,613,000 consisted of a valuation adjustment totaling
$3,620,000 to the carrying cost of trading securities and interest expense      
offset by interest income totaling $7,000. During the quarter, BIZ issued       
3,600,000 shares of Series B Stock in exchange for 2,000,000 shares of Class A  
common stock, par value $.01 per share, of Wave, which is a publicly-traded     
company. The exchange was recorded at the fair value of the stock received,     
which was $16,000,000. Management intends to utilize 1,000,000 shares of Wave   
stock to fund near term operational expenses, and entered into a purchase and   
sale agreement on March 20, 2001, in accordance with which, BIZ sold 1,000,000  
shares of Wave common stock for net proceeds of $3,400,000 on June 5, 2001. BIZ 
recorded these shares as trading securities and incurred a realized loss of     
$3,620,000 during the quarter ended March 31, 2001. BIZ earned interest income  
from money market accounts maintained at banking institutions and notes         
receivable from related parties. BIZ holds a $500,000 note as part of the       
payment for stock purchased by Mr. Shah. The note bears interest at the rate of 
5%. BIZ previously extended a $10,000 loan to an executive as part of a hiring  
package, which accrues interest at the rate of 8%. BIZ also carries $370,000 in 
non-interest bearing notes due to a related stockholder for amounts advanced for
operating expenses.                                                             

RESULTS OF OPERATIONS -- YEAR ENDED DECEMBER 31, 2000                           

The fiscal year ended December 31, 2000 was the first year of BIZ's   
operations. BIZ commenced operations in April of that year. As a result, the    
following discussion does not include comparison to prior periods.              

Total Revenue                                                         

BIZ generated no revenues in the fiscal year ended December 31, 2000. 

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Research and Development                                              

Research and development expenses totaled $709,000 for the fiscal year
ended December 31, 2000. Expenses included salaries of staff and fees paid to   
consultants and strategic partners developing software interfaces for BIZ       
products, along with hardware and firmware expenses. These expenses included    
outside services engaged to develop the same products.                          

Payroll and Related                                                   

     The expense of executives and staff salaries not classified as research and
development expenses totaled $547,000. These amounts include the cost of        
salaries and related benefits.                                                  

Advertising and Promotion                                             

 In November 2000, BIZ introduced the SSP(TM) brand and product suite at
COMDEX in Las Vegas, Nevada. Nearly all of the $396,000 in costs spent in       
advertising and promotion relates to the introduction of SSP(TM) at COMDEX.     

Professional Fees                                                     

    BIZ engaged legal, accounting, financial, consulting and promotional firms
to assist in the establishment and development of the company. Of the total cost
of $323,000, legal fees totaled $145,000, public relations fees totaled         
$138,000, accounting fees totaled $37,000 and related reimbursable expenses     
totaled $3,000.                                                                 

Rent, Utilities and Insurance                                         

    Rent, utilities and insurance costs totaled $98,000. BIZ maintains a 6,000
square foot office in Irvine, California, which it subleases from Litronic. The 
total rent, parking fees and equipment rental related to the office site        
included in such expense was $72,000 for the fiscal year ended December 31,     
2000. Additionally, insurance expense for property and liability coverage       
totaled $12,000, and utilities expense relating primarily to telephones totaled 
$14,000.                                                                        

Other Operating Expenses                                              

Other operating expenses totaled $144,000 and included the cost of    
recruiting qualified staff, postage, equipment rental and other miscellaneous   
operational activities.                                                         

Other Income                                                          

   Other income of $13,000 consisted entirely of interest income. BIZ earned
interest income from money market accounts maintained at banking institutions   
and notes receivable from related parties. During the year, BIZ received a      
$500,000 note as part of the payment for stock purchased by Mr. Shah. The note  
bears interest at the rate of 5%. During the year, BIZ extended a $10,000 loan  
to an executive as part of a hiring package, which accrues interest at the rate 
of 8%. BIZ also carries $370,000 in non-interest bearing notes, due to a related
stockholder for amounts advanced for operating expenses.                        

LIQUIDITY AND CAPITAL RESOURCES                                                 

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