11.11.04

11.11.2004: Meldung: Trojan Technologies appoints new directors

Trojan Technologies (TSX:TUV) announced today that on November 9, 2004, several changes to the board of directors of the company were made.

Directors Stephen V. Ardia, Quincalee Brown, Marvin R. DeVries, D.S. Milton Haines, Robert K. Rae, Olaf Skorzewski, and Henry J. Vander Laan retired from the board pursuant to the terms of the recent acquisition of the company by Danaher Corporation.

The number of directors of the company was reduced to three, and Messrs. James H. Ditkoff and Ian J. Wick were appointed as directors of the company. Director George S. Taylor will continue to serve on the board pending the company ceasing to be a reporting issuer under applicable securities legislation. Mr. Ditkoff is Vice-President, Finance & Tax of Danaher Corporation and Mr. Wick is a partner in the law firm Keyser Mason Ball, LLP.

Trojan designs, manufactures and sells UV systems for municipal wastewater and drinking water facilities, as well as for the industrial, commercial and residential markets. The company also provides UV treatment for the removal of certain chemicals from water. With approximately 3800 municipal facilities in more than 50 countries using its technology, Trojan has the largest installed base of UV systems in the world. Headquartered in London, Ontario, Canada, the company also has offices in the U.K., Germany, Netherlands, Norway, Spain, and the U.S (www.trojanuv.com).

http://www.newswire.ca/en/releases/orgDisplay.cgi?okey=22790

For further information

Trojan Technologies Head Office (Canada): Diana Cunningham, Manager, Corporate Communications and Investor Relations, Trojan Technologies Inc., Tel: (519) 457-3400


Source: Trojan Technologies Inc.




Press Release Source: Trojan Technologies Inc.

Trojan Technologies announces record revenues and a profitable third quarter
Wednesday November 10, 8:36 am ET

LONDON, ON, Nov. 10 /CNW/ - Trojan Technologies (TSX:TUV - News) announced today its results for the three and nine months ended September 30, 2004.

"I am happy to present to you our results for the third quarter of 2004," said Marvin DeVries, Trojan"s President and CEO. "As anticipated, Trojan achieved record revenues, on-target margins and further improvement in operating expense management. Overall, this was a good quarter."

Financial highlights include:

- Revenue for the quarter was $39.3 million; an increase of 41% compared
to $27.9 million in the three-month period ended September 30, 2003.
For the nine months ended September 30, 2004, revenues grew 22% to
$102.5 million from $83.9 million in the nine months ended
September 30, 2003.

- For the quarter, consolidated gross margin was $15.5 million or 40%,
an improvement from $9.0 million or 32% in the three-month period
ended September 30, 2003. Consolidated gross margin for the nine-month
period was $41.2 million or 40%, compared to $30.8 million or 37% in
the nine-month period ended September 30, 2003.

- For the quarter, income before other income and expenses rebounded to
$3.5 million compared to a loss of $1.5 million in the third quarter
of 2003. Net income in the third quarter of 2003 was adversely
impacted by $2.4 million of costs associated with additional
provisions for warranty and start-up costs. On a year-to-date basis,
income before other income and expenses amounted to $7.6 million
compared to $0.6 million in the nine months ended September 30, 2003.

- Operating expenses, excluding amortization, totalled $10.7 million
representing 27% of revenue compared to $9.5 million or 34 % of
revenue in the third quarter of 2003. For the nine months ended
September 30, 2004, operating expenses, excluding amortization, were
$29.9 million or 29% of revenue compared to $27.6 million or 33% of
revenue in the nine months ended September 30, 2003.

- In the third quarter, Trojan reported net income after tax of
$2.0 million or $0.09 per share compared to an after-tax loss of
$1.0 million or $0.05 per share in the third quarter of 2003. For the
nine-month period, Trojan reported an after-tax profit of $4.8 million
or $0.22 per share compared to an after-tax loss of $7.3 million or
$0.33 per share in the same period of 2003. The results for the nine
months ended September 30, 2003 were negatively impacted by
$9.5 million of abandoned transaction costs recognized in the first
quarter and $0.6 million in the second quarter for costs associated
with management changes.

- Order backlog at September 30, 2004 stood at $61.1 million, compared
to $67.1 million at June 30, 2004 and $67.3 million at September 30,
2003.

- Cash and cash equivalents totalled $7.4 million at September 30, 2004
compared to $16.6 million at December 31, 2003. During the year, the
Company purchased 51% of U.S. Peroxide for cash of $7.0 million which
was paid in the first and second quarters. Net cash inflow from
operations was $8.2 million for the quarter compared to $5.6 million
in the same three-month period last year.

- Shareholders" equity was $83.8 million at September 30, 2004 compared
to $78.4 million at December 31, 2003.


More details about Trojan Technologies" financial performance are contained in the following Report to Shareholders.

REPORT TO SHAREHOLDERS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004

PRESIDENT"S MESSAGE


I am happy to present to you our results for the third quarter of 2004. As anticipated, Trojan achieved record revenues, on-target margins and further improvement in operating expense management. Overall, this was a good quarter.

Financial Results

Our financial results are examined in greater detail later in this Report to Shareholders but let me provide you with some highlights. Revenue for the quarter reached a record $39.3 million, increasing by 41% over the same period last year. The largest contributors to the revenue increase were the acquisition of U.S. Peroxide as well as revenue growth in the ECT, European municipal drinking water, and Asian/Pacific wastewater markets.

Municipal order backlog decreased to $61.1 million from $67.1 million in the previous quarter. Some large projects, awarded in prior periods, were produced and/or shipped to the customer in the quarter resulting in a net decline in order backlog. Bid activity in the municipal market strengthened in the quarter and was particularly strong in the North American and Asian/Pacific wastewater market regions.

Update on Danaher Corporation"s Offer to Purchase Trojan Technologies

Inc.

Earlier this year, I shared with you our strategic plan to deliver increased value for all our stakeholders over the longer term. In recent months, Trojan"s Board of Directors and I have determined that we will be in stronger position to deliver on our plan by aligning ourselves with a strong partner. On September 20th, we announced that Trojan Technologies and Danaher Corporation entered into a definitive acquisition agreement whereby Danaher offered to acquire all of the common shares of our Company for $10.65 per share.

We believe that this is a good offer for Trojan shareholders and employees. Both Trojan and Danaher are focused on providing innovative solutions for advanced water treatment. Our two companies share a common business philosophy of customer satisfaction, continuous improvement, leading edge innovation and a winning team. By joining forces, Trojan will have enhanced access to resources to accelerate its growth in the global water market.

The offer to shareholders expired on November 5, 2004, with more than 94% of Trojan"s outstanding common shares being tendered. We will continue to operate as Trojan Technologies, maintaining our well-known brand, and our headquarters will remain in London, Ontario. We will be a wholly-owned indirect subsidiary of Danaher, and will operate as a separate company within Danaher"s water quality operations.

2004 Strategy Update

I"d like to now provide you with an update on our 2004 Strategic plan which included five priorities. Our first of five priorities is to deliver innovative solutions that solve our customers" water treatment problems. During the quarter, progress has been made in designing drinking water treatment solutions for large flow customers and specifically for New York City which will be installing UV treatment systems to disinfect up to 2 billion gallons of drinking water each day. Since our last update to you on this project, we have completed the design of the system and delivered our technical submission to New York City"s engineers for their review and approval. We will be supplying the City with one unit for validation testing during the winter or spring of 2005. Supplier selection for the full water treatment system will follow with delivery of the units to commence in early 2008.

We are focused on expanding customer relationships to provide better service and deliver value beyond our core product offerings. We are offering U.S. Peroxide"s product to our existing client base and have completed training the majority of our North American representatives. We continue the implementation of our Global Service strategy by providing service training to our manufacturer"s representatives outside of North America. This training will enable our representatives to provide certified service to our customers at a local level on our behalf.

During the quarter, we have seen results from our efforts to globalize our business. Revenue from Asia/Pacific markets increased dramatically in the quarter compared to last year due to increased interest in UV for wastewater disinfection especially in China but also in Japan, Korea and Australia.

We have worked to accelerate demand for our products through initiatives to build awareness and acceptance of UV technology among regulators, customers and end-users. As a result of increased efforts and focus in Europe, we received our first order for our TrojanUVSwift(TM) disinfection system for municipal drinking water in the United Kingdom during the quarter. We were also prominent in our participation at the two major water industry trade shows, which took place in Amsterdam, the Netherlands and New Orleans, USA, to fuel future revenue growth.

And finally, we remain committed to improving our execution to achieve a level of excellence that enables us to grow the business quickly and efficiently. Through continued efficiency improvements, we will further reduce operating costs as a percentage of sales.

Conclusion

The market is changing rapidly. UV is becoming a widely accepted disinfection and water treatment technology, the projects are larger, and customers are looking for multi-barrier solutions. This means that the UV system providers will have to be bigger, have global capacity and capability and be able to meet complex needs. We look forward to the next step in our Company"s evolution as we join with Danaher Corporation.

Marvin DeVries
President and CEO


MANAGEMENT"S DISCUSSION AND ANALYSIS OF RESULTS


The following discussion and analysis is the responsibility of management. It should be read in conjunction with the accompanying consolidated interim financial statements and associated notes, and with the Management Discussion and Analysis in the Annual Report for fiscal 2003. The discussion in this report contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. The cautionary statements made in this report should be read as applying to all related forward-looking statements wherever they appear in this report. Our actual results could differ materially from those discussed here. Factors that could cause or contribute to these differences include those discussed in "Risk and Uncertainties" in the Annual Report for fiscal 2003. All amounts are in Canadian dollars unless otherwise shown.

This section of the Interim Report to Shareholders presents a discussion and analysis of the operating results and financial condition of Trojan Technologies Inc. for the period ended September 30, 2004. The results presented in this analysis cover the nine- and three-month periods ended September 30, 2004, the nine- and three-month periods ended September 30, 2003. The results for the nine- and three-month periods ended September 30, 2004 include the operations of U.S. Peroxide that was acquired effective January 5, 2004.

OVERVIEW

As shown in Table 1, revenue in the quarter was $39.3 million, an increase of 41% compared to $27.9 million in the third quarter of fiscal 2003. Year to date, revenue increased by 22% to $102.5 million from $83.9 million in the comparable period last year. The Company"s stated longer-term objective is to increase revenue by an average growth rate of over 20% per annum. It is anticipated that approximately 15% to 20% of annual growth can be derived organically and the balance will come through acquisitions. Growth in the quarter was driven primarily by the acquisition of the majority interest in U.S. Peroxide and an increase in production revenue in the Environmental Contaminant Treatment (ECT) and Wastewater arenas.

Gross margin for the nine months ended September 30, 2004 was $41.2 million or 40% of revenue compared to $30.8 million or 37% of revenue in the corresponding period last year. For the quarter, the margin increased to 40% from 32% last year. The margin increase reflects the economies of scale based on a higher level of revenue this year. As well, the margin in the third quarter of 2003 was significantly impacted by the additional provisions for warranty and startup expenses of $2.4 million, reflecting the costs of rectifying two separate component quality issues.

Net income before tax and non-controlling interest for the nine months ended September 30, 2004 increased to $7.7 million compared to a loss of $8.8 million for the same period last year. Last year, the Company recognized $9.5 million of costs associated with an abandoned business combination transaction. There continues to be a strong focus on cost management within the Company. Total expenses, including amortization, were $33.6 million compared to $30.2 million for the same nine-month period last year. For the quarter and on a year-to-date basis, the aggregate of administrative, selling, and research and development costs were 27% and 29% of revenue, respectively.

TABLE 1: Summary of Quarterly Results

(C$ thousands
except per share amounts)
-------------------------------------------------------------------------
Three Three Three Three Three Three Three
months months months months months months months
ended ended ended ended ended ended ended
Sept. June March Dec. Sept. June March
30 30 31 31 30 30 31
2004 2004 2004 2003 2003 2003 2003
-------------------------------------------------------------------------
Restated - see note 3 to
the financial statements

-------------------------------------------------------------------------
Revenue 39,296 34,728 28,503 29,124 27,899 29,428 26,599
-------------------------------------------------------------------------
Gross margin
- $ 15,534 14,337 11,374 10,809 8,973 11,503 10,289
-------------------------------------------------------------------------
- % 40% 41% 40% 37% 32% 39% 39%
-------------------------------------------------------------------------
Income (loss)
before taxes
and non-
controlling
interest 3,430 2,885 1,357 1,164 (1,422) 1,312 (8,654)
-------------------------------------------------------------------------

Net income
(loss) 1,953 1,890 1,001 919 (1,026) 845 (7,104)
-------------------------------------------------------------------------

Basic earnings
(loss)
per share 0.09 0.09 0.05 0.04 (0.05) 0.04 (0.32)
-------------------------------------------------------------------------

Fully diluted
earnings (loss)
per share 0.09 0.09 0.05 0.04 (0.05) 0.04 (0.32)
-------------------------------------------------------------------------

MUNICIPAL MARKETS

Financial Performance
Revenue in the municipal markets increased by 52% to $35.8 million for
the quarter ended September 30, 2004, and by 28% to $90.5 million for the nine
months year-to-date. The largest contributors to the revenue growth for the
quarter were the acquisition of U.S. Peroxide as well as revenue growth in the
ECT, European municipal Drinking Water, and Asian/Pacific Wastewater markets.
There were two significant ECT contracts resulting in increased revenue
in the quarter: partial production was completed on equipment valued at
approximately $11.3 million (US$8.9 million) for Orange County in California
and on equipment valued at approximately $4.1 million ((euro) 2.6 million)
installed after the end of the quarter at PWN"s drinking water treatment plant
in Andijk, the Netherlands. The ECT business is positioned for strong growth
in 2004 as the Company continues production in the fourth quarter for Orange
County.
Wastewater revenue posted an 8% year-over-year increase for the nine
months ended September 30, 2004. Wastewater revenues for the UV3000Plus
product line more than doubled in the quarter compared to the same quarter
last year, due in large part to the near completion of equipment valued at
$1.1 million (US$0.9 million) for the wastewater facility in Hangzhou, China.
Furthermore, our efforts to globalize the business have resulted in an
increase of $2.5 million in Wastewater revenue year-to-date from Asia.
The revenue in 2004 for Drinking Water was strong during the quarter, up
by $3.9 million or 95% from last year, down just 2% or $0.2 million from last
year on a year-to-date basis. Partial production on equipment valued at
approximately $6.9 million ((euro) 4.4 million) to be installed at the
drinking water treatment plant in Rotterdam, the Netherlands resulted in
revenue growth in the quarter. Year-to-date, Drinking Water revenues are
approximately the same as last year, since the first half of 2003 was
relatively strong with the production of systems for delivery to Seattle,
Washington, Lethbridge, Alberta and Victoria, British Columbia. Drinking Water
bidding is on track with expectations, in part driven by the expectation of
the proposed new regulations to be promulgated by the U.S. Environmental
Protection Agency in 2005.

TABLE 2: Municipal Markets Results

-------------------------------------------------------------------------
(C$ thousands) Nine Nine Three Three
months months months months
ended ended ended ended
September September September September
30, 2004 30, 2003 30, 2004 30, 2003
-------------------------------------------------------------------------

Revenue:
Wastewater systems 44,194 40,562 13,022 12,300
Drinking water systems 12,538 12,850 8,011 4,117
Environmental contaminant
systems 11,028 3,864 5,988 3,564
67,760 57,276 27,021 19,981

Parts, supplies and service 22,774 13,228 8,778 3,591
Total revenue 90,534 70,504 35,799 23,572

Net contribution 21,343 13,271 8,783 3,294
Order backlog 61,120 67,300
-------------------------------------------------------------------------

The total order backlog in municipal markets of $61.1 million is lower
compared to $67.1 million at June 30, 2004 and $67.3 at the end of the third
quarter last year. Backlog is recorded only for municipal project revenue and
excludes parts, supplies and service revenue.

INDUSTRIAL AND CONSUMER MARKETS

Financial performance

In the Industrial and Consumer business, revenue decreased by
$0.8 million or 19% for the quarter, or by 11% on a year-to-date basis,
compared to comparable periods last year.
Contribution year-to-date decreased only 4% resulting from higher gross
margins and a lower allocation of selling costs (European costs are allocated
by line of business based on revenue).
The recovery of the Industrial market continues to be slower than
anticipated, particularly in North America. The migration of the semi-
conductor business to Asia has affected revenue, but holds promise for the
Company as Trojan builds its capacity in southeast Asia.

TABLE 3: Industrial and Consumer Market Results
-------------------------------------------------------------------------
(C$ thousands) Nine Nine Three Three
months months months months
ended ended ended ended
September September September September
30, 2004 30, 2003 30, 2004 30, 2003
-------------------------------------------------------------------------
Revenue:
Industrial 7,482 8,966 1,926 2,829
Consumer 4,511 4,456 1,571 1,498
Total revenue 11,993 13,422 3,497 4,327

Net contribution 2,743 2,854 928 924
-------------------------------------------------------------------------

The Consumer market continued to be fairly weak throughout the last
quarter. Focused sales efforts helped the company achieve a slight increase in
revenues over the same periods last year.
On April 29, 2004, the Company announced a limited voluntary recall of
certain consumer units. The costs associated with this recall were within the
estimates provided for in the December 31, 2003 financial statements. No
additional provisions were required in the quarter.

FINANCIAL PERFORMANCE PRIORITIES

The Company established four priority areas in 2004 to measure
improvement in its financial performance:
1. Revenue growth and diversification
2. Operating income improvement
3. Improved cash flow
4. Balance sheet strength

1. Revenue Growth and Diversification
The long-range plan developed in 2001 identified the opportunity to
diversify the business away from its strong focus on Wastewater. By better
understanding the opportunities in other markets and focusing on what was
required to be successful in these markets, the Company has enjoyed strong
growth in the Drinking Water, ECT and Industrial markets from 2001 to 2003,
and continued strong growth in the ECT market into 2004. As previously noted,
with the growth in Drinking Water revenue in the latter half of the year,
revenue in this market is expected to represent more than 10% of the total
revenue for 2004.

TABLE 4: Growth in Quarterly Revenue
-------------------------------------------------------------------------
(C$ Three Three Three Three Three Three Three
thousands) months months months months months months months
ended ended ended ended ended ended ended
Sept. June March Dec. Sept. June March
30 30 31 31 30 30 31
2004 2004 2004 2003 2003 2003 2003
-------------------------------------------------------------------------

Wastewater 18,312 20,716 18,905 20,463 15,891 19,487 18,412
Drinking
water 8,023 2,290 2,292 2,765 4,117 4,623 4,110
Environmental
contaminant 9,464 7,235 3,297 2,054 3,564 149 151
Industrial 1,926 2,975 2,581 2,475 2,829 3,593 2,544
Consumer 1,571 1,512 1,428 1,367 1,498 1,576 1,382
-------------------------------------------------------------------------

TABLE 5: Increased Diversification of Revenue by Arena
-------------------------------------------------------------------------
Three Three Three Three Three Three Three
months months months months months months months
ended ended ended ended ended ended ended
Sept. June March Dec. Sept. June March
30 30 31 31 30 30 31
2004 2004 2004 2003 2003 2003 2003
-------------------------------------------------------------------------

Wastewater 47% 60% 66% 70% 57% 66% 69%
Drinking
water 20% 6% 8% 9% 15% 16% 15%
Environmental
contaminant 24% 21% 12% 7% 13% 1% 1%
Industrial 5% 9% 9% 9% 10% 12% 10%
Consumer 4% 4% 5% 5% 5% 5% 5%
-------------------------------------------------------------------------

In addition to diversifying the business into areas of higher growth
opportunity, Trojan also has an objective to increase the percentage of
business being derived from "non-project" sources. This objective includes a
focus on a service strategy to increase our parts, supplies and service
business as well as grow our Industrial and Consumer businesses. In addition
to the organic growth in these non-project businesses, the acquisition of U.S.
Peroxide in early 2004 is aligned with this strategy and is expected to add
approximately $12 million of revenue in 2004.

TABLE 6: Growth in Parts, Supplies and Service Revenues

-------------------------------------------------------------------------
(C$ thousands) Nine months Nine months Three months Three months
ended ended ended ended
September September September September
30, 2004 30, 2003 30, 2004 30, 2003
-------------------------------------------------------------------------
Municipal:
Projects and
standard
systems $67,760 66% $57,276 68% $27,021 69% $19,981 72%

Parts, supplies
and service 22,774 22% 13,228 16% 8,778 22% 3,591 13%
Industrial
and consumer 11,993 12% 13,422 16% 3,497 9% 4,327 15%
Total 34,767 34% 26,650 32% 12,275 31% 7,918 28%

Total
Revenue $102,527 100% $83,926 100% $39,296 100% $27,899 100%
-------------------------------------------------------------------------

Industrial and Consumer revenues in the three and nine months ending
September 30, 2004 include $1.2 million and $3.2 million of parts, supplies
and service revenue, respectively.

2. Operating Income Improvement
It is management"s objective to improve operating income performance by
maintaining gross margins at 40% in the aggregate and by realizing the
benefits of economies of scale by restricting the growth in expenses to less
than the growth in revenue. Operating income has improved from last year: for
the three and nine months ended September 30, 2004, operating expenses
increased by only 15% and 11%, while revenue increased by 41% and 22%,
respectively, from comparable periods in 2003. As it did in the first half of
the year, the Company continues to tightly manage operating expenses.
The Company enjoyed strong margins in this quarter due to economies of
scale from a higher revenue base. Furthermore, our hedging program has
mitigated the impact from the strengthening Canadian dollar.

TABLE 7: Operating Income

-------------------------------------------------------------------------
(C$ thousands) Nine Nine Three Three Growth Growth
months months months months in in
ended ended ended ended September September
September September September September 2004 over 2004 over
30, 2004 30, 2003 30, 2004 30, 2003 September September
2003 - 2003 -
Restated Restated 9 months 3 months
- see - see
note 3 note 3
to the to the
financial financial
statements statements
-------------------------------------------------------------------------

Gross margin 41,245 30,765 15,534 8,973 34% 73%

Gross margin
(% of revenue) 40% 37% 40% 32%
Less:

Sales and
marketing 17,159 14,640 5,823 4,755 17% 22%

General and
administration 9,698 8,328 3,925 3,121 16% 26%

Research and
development,
net 3,061 4,588 958 1,635 (33)% (41)%

Amortization 3,724 2,656 1,338 954 40% 40%

Total operating
expenses 33,642 30,212 12,044 10,465 11% 15%

Income before
other (expenses)
income 7,603 553 3,490 (1,492) 1,275% (334)%
Income before
other (expenses)
income
(% of revenue) 7% 1% 9% (5)%


Sales commissions decreased by 17% from $1.4 million for the three months
ended September 30, 2003 to $1.2 million, and decreased by 26% or $1.3 million
to $3.5 million year-to-date, reflecting the sales mix: there was a relative
increase in ECT revenue and non-project revenue which are either sold directly
or attract a lower percentage of commission. Other selling expenses for the
three months ended September 30, 2004 increased by 39% or $1.3 million to
$4.6 million from the comparable period last year, or by 38% to $13.7 million
year-to-date. The largest single component contributing to the increase is the
selling expenses of U.S. Peroxide which was acquired in January 2004.
Relative to the percentage growth in revenue, the percentage increase in
general and administration expenses was lower, again, benefiting from
economies of scale. For the quarter, these expenses increased by $0.8 million
or 26% to $3.9 million from $3.1 million in the three months ended September
30, 2003; year-to-date, these expenses increased $1.4 million or 16%. The
increase in general and administration expenses is related mainly to the
acquisition of U.S. Peroxide in 2004 and to the foreign exchange loss on
unhedged foreign currency denominated balances resulting from the
strengthening of the Canadian dollar during the quarter.
The Research and Development (R&D) efforts are directed at core research,
new product development and technology development. Total expenses net of
grants in the three months ended September 30, 2004 were $1.0 million compared
to $1.6 million in the same period last year. On a year-to-date basis, R&D
expenses decreased by $1.5 million, or 33%, to $3.1 million. This year,
engineering resources have focused largely in two areas: delivery of custom
solutions on the Rotterdam, PWN and Orange County projects; and, the planning
phase of the initiatives on the development of technology for large municipal
Drinking Water systems and ECT market. When engineering staff members are
engaged in developing specific custom solutions, the costs are charged to cost
of goods sold and reflected in the calculation of gross margin. R&D expenses
are reduced as a consequence. For the balance of the year, R&D activities on
the prototyping and execution phases of product development are expected to
bring annual expenditures closer to management"s expectations.
The Company owns 49% of the issued and outstanding common shares of Abuma
Manufacturing Limited (Abuma). The investment is accounted for by the equity
method. Fair value information relating to the investment in this private
company has not been included as there has not been a recent valuation of
Abuma. Management believes that the fair value of the investment exceeds its
carrying value based on the positive operating cash flows of Abuma.
The Company subcontracts a component of its manufacturing process to
Abuma. Purchases for the quarter and year-to-date amounted to $1.0 million and
$4.8 million, respectively. At September 30, 2004, accounts payable include
approximately $0.6 million due to Abuma and inventory includes approximately
$0.3 million of components purchased from Abuma.

TABLE 8: Summary of Cash Flows

-------------------------------------------------------------------------
(C$ thousands) Nine months Nine months Three months Three months
ended ended ended ended
September September September September
30, 2004 30, 2003 30, 2004 30, 2003

Restated - Restated -
see note 3 see note 3
to the to the
financial financial
statements statements
-------------------------------------------------------------------------

Cash flow from operating
activities:
Net income (loss) 4,844 (7,285) 1,953 (1,026)
Adjustment for items
not involving cash 5,644 179 2,171 344
Recognition of deferred
gain on forward foreign
exchange contracts (2,982) (1,737) (1,021) (1,737)
Net change in non-cash
working capital (1,106) 11,477 5,138 8,005
6,400 2,634 8,241 5,586

Cash flow from investing
activities:
Additions to capital
assets, patents and
intangible assets (3,886) (2,208) (1,574) (899)
Sale of marketable
securities, net - 2,549 - -
Acquisitions (6,975) (253) - (253)
(10,861) 88 (1,574) (1,152)

Cash flow from financing
activities:
Issues of common shares
(net of issue costs) 83 3,664 - 495
Repayment of debt, net (4,502) (729) (1,916) (70)
Purchase of common shares
for cancellation - (1,287) - (522)
Net cash proceeds on
forward foreign exchange
contracts - 8,018 - 8,018
Other (393) (312) (355) (1,014)
(4,812) 9,354 (2,271) 6,907

Net change in cash (9,273) 12,076 4,396 11,341

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

3. Improved Cash Flow
Management has placed a high priority on maximizing cash flows through
careful management of inventories, work in progress and accounts receivable.

Cash Flow from Operations
Cash flow from operations for the quarter was $8.2 million compared to
$5.6 million in the same period last year. The four components of cash flow
from operations are net income, the adjustment for items not involving cash,
the realized gain on forward foreign exchange contracts, and the net changes
in working capital. Net income changes have been fully discussed earlier in
the MD&A.
The adjustments for items not involving cash are mainly amortization,
taxes, and income from equity investment. Amortization has increased 40%, or
$1.1 million and $0.4 million, for the nine and three months ended September
30, 2004 from the prior year comparable periods, respectively. The increases
are due mainly to the inclusion of U.S. Peroxide operations in 2004 and the
amortization of the intangible assets acquired in that purchase (see Note 4 to
these consolidated interim financial statements).
The income taxes vary in relationship to changes in net income. Because
of losses in prior years, the Company is not currently paying cash income
taxes in Canada. Income from equity investment represents Trojan"s 49% share
in the net earnings of Abuma.
The recognition of the deferred gain on forward foreign exchange
contracts represents the realized portion of the $8.0 million deferred gain
resulting from last year"s termination and replacement of USD forward foreign
exchange contracts (see discussion under "Liquidity Analysis" and note 7 to
these consolidated interim financial statements).
Net cash flow from operations is also impacted by changes in non-cash
working capital balances. During the quarter, the Company"s investment in
working capital decreased by $5.6 million to $31.3 million compared to $36.9
million at the end of the second quarter due to a significant decrease in
unbilled revenue and increase in accounts payable, offset somewhat by an
increase in accounts receivable.
Investment in working capital increased by $1.6 million to $31.3 million
compared to $29.7 million as at December 31, 2003. An increase of $9.1 million
in accounts receivable is the single largest component contributing to the
increased investment in working capital. After removing the $1.8 million
increase in accounts receivable related to the acquisition of U.S. Peroxide,
the remaining $7.3 million increase is primarily attributable to the increase
in business reflected in billing activity at the end of the quarter for both
the delivery of systems as well as progress billings on other contracts in
accordance with their terms. Subsequent to the quarter end, three large
receivables amounting to $4.1 million were collected.

Cash Flow from Investing Activities
The cash outflow from investing activities was $1.6 million and
$10.9 million for the three and nine month periods ended September 30, 2004.
During the year, the Company acquired a 51% interest in U.S. Peroxide for
$7.0 million cash consideration.
Capital asset expenditures were $3.3 million for the nine months ended
September 30, 2004 compared to $1.6 million in the same period last year, or
$1.2 million and $0.6 million for the third quarter of 2004 and 2003,
respectively. These expenditures included pilot and computer equipment, and
equipment investment in U.S. Peroxide.

Cash Flow from Financing Activities
Financing activities in the nine months ended September 30, 2004
generated a net cash outflow of $4.8 million compared to a net cash inflow of
$9.4 million from the same period last year. The outflow was largely the
repayment of $3.9 million of long-term debt, primarily associated with the
U.S. Peroxide acquisition. The pre-acquisition debt of U.S. Peroxide was
refinanced to take advantage of the Company"s lower cost of funds. Last year
in the third quarter, the Company terminated and replaced US$48.0 million of
forward foreign exchange contracts that generated cash gain of $8.0 million
(see discussion under "Liquidity Analysis" and note 7 to these consolidated
interim financial statements).
For the quarter, financing activities generated a net cash outflow of
$2.3 million compared to a net cash inflow of $6.9 million for the same period
last year. In the third quarter of 2003, the Company benefited from the $8.0
million cash gain on the termination and replacement of the forward contracts.
During the third quarter of the current year, the Company repaid $1.7 million
of bank indebtedness.

4. Balance Sheet Strength
It is a financial priority to ensure the balance sheet has both the
strength and the liquidity to support the Company"s business plan. In recent
years, equity issues have strengthened the balance sheet and debt has been
repaid. Operating credit lines are more than adequate for business needs and
appropriate levels of liquidity have been maintained.

TABLE 9: Selected Balance Sheet Information

-------------------------------------------------------------------------
(C$ As at As at As at As at As at As at As at
thousands) Sept. June March Dec. Sept. June March
30 2004 30 2004 31 2004 31 2003 30 2003 30 2003 31 2003
-------------------------------------------------------------------------

Cash and
marketable
securities 7,352 2,956 2,251 16,625 14,087 2,746 5,679
Bank
indebtedness - 1,672 1,951 - - - 374
Current
assets 69,063 66,869 60,819 70,798 72,114 67,268 68,546
Total
assets 127,257 125,634 120,217 118,900 119,922 114,388 115,806
Current
liabili-
ties 34,134 33,617 30,425 31,075 31,797 25,214 29,725
Total
long-term
financial
liabilities 8,759 9,891 9,756 9,414 8,407 8,261 8,520
Shareholders"
equity 83,849 81,744 79,654 78,411 79,718 80,913 77,561
Long-term
financial
liabilities:
Shareholders"
equity 0.10:1 0.12:1 0.12:1 0.12:1 0.11:1 0.10:1 0.11:1

Current
assets:
current
liabili-
ties 2.02:1 1.99:1 2.00:1 2.28:1 2.27:1 2.67:1 2.31:1

Working
capital 31,287 36,851 35,998 29,655 32,832 41,048 35,348


Liquidity Analysis
During the quarter, the cash position increased by $4.4 million. The net
cash provided from non-cash working capital items was $5.0 million, with the
increase in accounts payable and decrease in unbilled revenue more than
offsetting the increase in accounts receivable. This, coupled with the
positive operating results for the quarter, resulted in a net cash inflow of
$8.2 million provided by operations, more than covering the use of cash in
investing and financing activities. Subsequent to the quarter end, three large
receivables amounting to $4.1 million were collected.
The Company"s cash position has declined by $9.3 million since December
31, 2003. The majority of the change from year end is attributable to the
acquisition of U.S. Peroxide (cash consideration of $7.0 million year-to-date)
and the refinancing of U.S. Peroxide"s pre-acquisition debt ($3.1 million).
The Company anticipates positive cash flow in the fourth quarter and has
$30 million of operating lines available in support of any short term
liquidity needs
The Company is in full compliance with all of its debt covenants.
In order to mitigate the loss related to the cash flows from future
export sales in U.S. dollars should the value of the U.S. dollar decline
relative to the Canadian dollar, the Company enters into forward foreign
exchange contracts that oblige it to sell specific amounts of U.S. dollars at
set future dates at predetermined exchange rates. Because of the significant
decline in the relative value of the U.S. dollar during the first half of
2003, significant "equity" had built up inside these contracts. In July, 2003,
the Company terminated and replaced US$48.0 million of forward foreign
exchange contracts at various rates from 1.5361 to 1.6220 maturing through to
September 2005. At the same time, the Company entered into a series of forward
foreign exchange contracts, extending the risk management program from July
2003 to December 2005, aggregating US$60.0 million at an exchange rate of
$1.40. The transaction generated a deferred gain of $8.0 million being the net
present value of the equity in the forward foreign exchange contracts that
were terminated and replaced. The gain was deferred, and has been, and will
continue to be, recognized in future income, consistent with the income
recognition had the original forward foreign exchange contracts been held to
maturity.

ACCOUNTING POLICIES AND ESTIMATES

The Company"s critical accounting estimates are outlined in the 2003
Annual Report. There were no changes in policies or methods for determining
estimates during the period ended September 30, 2004.

RISKS AND UNCERTAINTIES

Foreign Exchange
The Company"s results are reported in Canadian dollars. The majority of
the Company"s revenues and a portion of its purchases are transacted in
currencies other than the Canadian dollar, primarily in U.S. dollars.
Accordingly, any fluctuation in the value of the Canadian dollar relative to
the U.S. dollar or other foreign currencies will result in variations in the
sales and earnings of the Company. The exchange rates between Canadian dollars
and other foreign currencies have varied significantly over the last five
years. Trojan has entered into financial instruments with respect to foreign
exchange hedging in order to mitigate risks associated with exchange rate
fluctuations. The Company"s policy and use of hedge accounting is outlined in
note 6 to these consolidated interim financial statements.

TABLE 10: Forward Foreign Exchange Contracts as at September 30, 2004

Year Amount sold forward Forward rate
2004 $7.5 million 1.38
2005 $30.0 million 1.38
2006 $23.5 million 1.37
Total $61.0 million 1.38

Excluding foreign exchange, there are no changes to the key risks and
uncertainties facing the Company as outlined in our 2003 Annual Report.

OUTLOOK
On September 20, 2004, the Company announced that it had entered into a
definitive acquisition agreement with Danaher Corporation, a U.S. public
company trading on the New York Stock Exchange, whereby Danaher offered to
acquire all of the common shares of the Company for $10.65 per share by way of
a public take-over bid. This represented a premium of 36% to the Trojan"s
closing price of $7.85 per share on September 17, 2004. The equity value of
the acquisition, based on 100% of the 23.2 million Trojan common shares
(including options) being tendered to the offer, was approximately
$247.3 million. Completion of the offer was conditional upon at least 66 2/3%
of the Trojan common shares, calculated on a fully diluted basis, being
tendered to the offer as well as other customary conditions, including receipt
of all necessary regulatory approvals. The offer was to expire on November 5,
2004 unless extended or withdrawn. The Board of Directors of the Company
unanimously agreed to support the offer as it was in the best interests of
Trojan"s shareholders and unanimously recommended that Trojan shareholders
tender their shares. With more than 94% of the common shares tendered (on a
fully diluted basis) on November 5, 2004, this transaction closed subsequent
to the end of the third quarter.
Bank and professional fees and other expenses related to this transaction
amounted to approximately $4.5 million. Of that amount, approximately
$3.8 million represented bank fees of which $3.1 million was contingent upon
the successful completion of the transaction and, therefore, not incurred by
the Company until the closing date of November 5, 2004. As at September 30,
2004, $1.2 million of these transaction costs had been deferred and included
in "Prepaid expenses". Subsequent to the end of the quarter, the full amount
of transaction expenses was charged to income.
Danaher, a diversified technology leader, designs, manufactures and
markets process/environmental controls and tools and components. The Danaher
organization was founded in the early 1980"s and employs 37,000 people
worldwide. Their total revenue in 2003 was US$5.3 billion. Danaher"s Water
Quality Operations provide a wide range of instruments, related consumables
and services used to detect and measure chemical, physical and microbiological
parameters in drinking water, wastewater, groundwater and ultrapure water.
The world"s supply of clean water is under considerable stress due to
growing industrialization, increasing demand, and a shrinking supply due to
rising levels of biological and chemical contamination. This stress represents
a significant threat to world health, our environment, and economies around
the globe. Danaher shares a common vision of offering lasting solutions that
build the level of confidence people have in their water. Ultimately, by
aligning itself with a strong partner such as Danaher, Trojan will be in a
better position to fulfill its mission of reducing water stress and maximizing
this invaluable resource for current and future generations.

About Trojan Technologies
Trojan designs, manufactures and sells UV systems for municipal
wastewater and drinking water facilities, as well as for the industrial,
commercial and residential markets. The company also provides UV treatment for
the removal of certain chemicals from water. With approximately 3800 municipal
facilities in more than 50 countries using its technology, Trojan has the
largest installed base of UV systems in the world. Headquartered in London,
Ontario, Canada, the company also has offices in the U.K., Germany,
Netherlands, Norway, Sweden, Spain, and the U.S. More information is available
on the company website at www.trojanuv.com.

This document contains certain statements that are forward-looking
relative to the Company"s future strategy and performance. They involve known
and unknown risks and uncertainties that may cause the Company"s actual
results in future periods to be materially different from any future
performance suggested in this document. Further, the Company operates in an
industry where it may be influenced by economic and other factors beyond the
Company"s control.


Trojan Technologies Inc.
Incorporated under the laws of Ontario

CONSOLIDATED BALANCE SHEETS

Unaudited - see Note 1



(Thousands of Canadian dollars) As at As at
September 30 December 31
2004 2003
$ $
-------------------------------------------------------------------------

ASSETS
Current
Cash and cash equivalents 7,352 16,625
Accounts receivable - trade 34,605 25,537
Accounts receivable - other (note 8(b)) 832 17
Deferred foreign exchange asset (note 6) 1,323 1,059
Unbilled revenue 10,275 11,829
Inventory 12,991 14,435
Prepaid expenses (note 16) 1,685 1,296

-------------------------------------------------------------------------
Total current assets 69,063 70,798

Investment 3,947 3,346
Government incentives recoverable (note 12) 5,595 4,900
Future income taxes (note 12) 3,112 5,743
Capital assets, net (note 5) 24,806 19,496
Patents and other intangible assets, net 10,387 8,694
Goodwill (note 4) 10,347 5,923
-------------------------------------------------------------------------
127,257 118,900
-------------------------------------------------------------------------
-------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS" EQUITY
Current
Accounts payable and accrued charges 28,222 20,426
Deferred revenue 2,202 4,092
Current portion of long-term debt 952 982
Current portion of other long-term liabilities
(note 7) 2,758 5,575
-------------------------------------------------------------------------
34,134 31,075
Long-term
Long-term debt 3,996 4,866
Other long-term liabilities (note 8) 4,763 4,548
-------------------------------------------------------------------------
42,893 40,489
-------------------------------------------------------------------------

Commitments and contingencies (notes 18 and 19)
Non-controlling interest (note 4) 515 -
-------------------------------------------------------------------------

Shareholders" equity
Share capital (note 10) 86,022 85,939
Contributed surplus (note 10(b)) 1,004 493
Deficit (3,177) (8,021)
-------------------------------------------------------------------------
Total shareholders" equity 83,849 78,411
-------------------------------------------------------------------------
127,257 118,900
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See accompanying notes

On behalf of the Board: On behalf of the Board:

H.J. (Hank) Vander Laan George S. Taylor



Trojan Technologies Inc.

CONSOLIDATED STATEMENTS OF
RETAINED EARNINGS (DEFICIT)

Unaudited

(Thousands of Canadian dollars)

Nine months Nine months Three months Three months
ended ended ended ended
September September September September
30, 2004 30, 2003 30, 2004 30, 2003
$ $ $ $
-------------------------------------------------------------------------
(Restated (Restated
- see note 3) - see note 3)

Retained earnings
(deficit), beginning
of period
As originally stated (8,021) 60 (5,130) (6,344)
Retroactive adjustment
(note 3) - - - (242)
-------------------------------------------------------------------------
As restated (8,021) 60 (5,130) (6,586)
Net income (loss) 4,844 (7,285) 1,953 (1,026)
Premium on common shares
purchased for cancellation
(note 10(c)) - (657) - (270)
-------------------------------------------------------------------------
Deficit, end of period (3,177) (7,882) (3,177) (7,882)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes




Trojan Technologies Inc.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)


Unaudited


(Thousands of Canadian dollars except for per share data)

Nine months Nine months Three months Three months
ended ended ended ended
September September September September
30, 2004 30, 2003 30, 2004 30, 2003
$ $ $ $
-------------------------------------------------------------------------
(Restated (Restated
- see note 3) - see note 3)

REVENUE (note 15) 102,527 83,926 39,296 27,899
Cost of goods sold 61,282 53,161 23,762 18,926
-------------------------------------------------------------------------
Gross margin 41,245 30,765 15,534 8,973
-------------------------------------------------------------------------

EXPENSES
Administrative and selling
(note 10(b)) 26,857 22,968 9,748 7,876
Research and development,
net 3,061 4,588 958 1,635
Amortization 3,724 2,656 1,338 954
-------------------------------------------------------------------------
33,642 30,212 12,044 10,465
-------------------------------------------------------------------------
Income (loss) before other
income (expenses) 7,603 553 3,490 (1,492)

Other income (expenses)
Interest, net (532) (293) (199) (31)
Income from equity
investment 601 476 139 101
Abandoned transaction costs
(note 11) - (9,500) - -
-------------------------------------------------------------------------
Income (loss) before
income taxes and
non-controlling interest 7,672 (8,764) 3,430 (1,422)
Income tax provision
(recovery) 2,804 (1,479) 1,345 (396)
-------------------------------------------------------------------------
Income (loss) before
non-controlling interest 4,868 (7,285) 2,085 (1,026)
Non-controlling interest
(note 4) (24) - (132) -
-------------------------------------------------------------------------

Net income (loss) 4,844 (7,285) 1,953 (1,026)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) per share
(note 10)
Basic and fully diluted 0.22 (0.33) 0.09 (0.05)

Number of common shares
Basic 21,816,864 22,027,326 21,820,532 22,152,167
Fully diluted 21,942,973 22,027,326 21,951,662 22,152,167

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

See accompanying notes



Trojan Technologies Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

(Thousands of Canadian dollars)

Nine months Nine months Three months Three months
ended ended ended ended
September September September September
30, 2004 30, 2003 30, 2004 30, 2003
$ $ $ $
-------------------------------------------------------------------------
(Restated (Restated
- see note 3) - see note 3)

CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net income (loss) 4,844 (7,285) 1,953 (1,026)
Realized gain on forward
foreign exchange contracts
(note 7) (2,982) (1,737) (1,021) (1,737)
Add (deduct) charges
(credits) to operations
not involving cash
Amortization 3,724 2,656 1,338 954
Income from equity
investment (601) (476) (139) (101)
Future income taxes 2,631 (1,684) 1,309 (452)
Government incentives (695) (275) (367) (145)
Non-controlling interest
(note 4) 24 - 132 -
Interest on Technology
Partnerships Canada
funding 40 - 18 -
Interest on pension
obligation 68 67 22 23
Interest on deferred
intellectual property
payments 95 129 32 16
Stock-based compensation
expense (notes 3 and
10(b)) 511 352 152 110
Foreign exchange gain (153) (590) (326) (61)
Net change in non-cash
working capital items
(note 13(a)) (1,106) 11,477 5,138 8,005
-------------------------------------------------------------------------
6,400 2,634 8,241 5,586
-------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to capital
assets (3,262) (1,610) (1,249) (639)
Additions to patents and
other intangible assets (624) (598) (325) (260)
Sale of marketable securities - 2,549 - -
Acquisition (note 4) (6,975) (253) - (253)
-------------------------------------------------------------------------
(10,861) 88 (1,574) (1,152)
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Decrease in bank
indebtedness (635) (386) (1,672) -
Issuance of common shares
(note 10(a)) 83 3,664 - 495
Purchase of common shares
for cancellation (note 10(c)) - (1,287) - (522)
Net cash proceeds on forward
foreign exchange contracts
(note 7) - 8,018 - 8,018
Advances from Technology
Partnerships Canada
(note 8(b)) 770 896 770 166
Payment on pension
obligation (55) (48) (17) (20)
Payment on intellectual
property (1,108) (1,160) (1,108) (1,160)
Increase in long-term debt - 3,316 - 3,316
Repayment of long-term
debt (3,867) (3,659) (244) (3,386)
-------------------------------------------------------------------------
(4,812) 9,354 (2,271) 6,907
-------------------------------------------------------------------------

Net increase (decrease)
in cash and cash equivalents
during the period (9,273) 12,076 4,396 11,341
Cash and cash equivalents,
beginning of period 16,625 2,011 2,956 2,746
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period 7,352 14,087 7,352 14,087
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See accompanying notes



Notes to Consolidated Financial Statements - Unaudited
September 30, 2004 (Thousands of Canadian Dollars, Except for Per Share
Data)

1. BASIS OF PRESENTATION

The accompanying consolidated financial statements of
Trojan Technologies Inc. ("the Company") have been prepared by management
in accordance with Canadian generally accepted accounting principles on a
consistent basis. These condensed notes to the consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements and notes included in the Company"s Annual Report to
Shareholders for the fiscal year ended December 31, 2003.

2. PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of all the
Company"s subsidiaries, with intercompany transactions and balances
eliminated. At September 30, 2004, all but one of the Company"s
subsidiaries are wholly-owned. The Company owns 51% of U.S. Peroxide, LLC
("U.S. Peroxide") (note 4).

3. STOCK-BASED COMPENSATION

The Canadian Institute of Chartered Accountants amended Section 3870,
"Stock-based Compensation and Other Stock-based Payments", recommending
the recognition of an expense for option awards using the fair value
method of accounting. As reported in its 2003 Annual Report, the Company
adopted the recommendations of Section 3870 prospectively for new awards
granted on or after January 1, 2003. The fair value compensation expense
recorded for options granted for the year ended December 31, 2003 was
$493 and was charged to administrative and selling expenses with a
corresponding credit to contributed surplus. Of the $493 expense for
fiscal 2003, $242, $110 and $141 related to the second, third and fourth
quarters respectively.

Accordingly, for the nine months ended September 30, 2003, the
administrative and selling expenses have been increased by $352 with a
corresponding credit to contributed surplus. As a result of this change,
the net loss for the nine months ended September 30, 2003 increased by
$352, and the basic and fully diluted loss per share increased by $0.02,
from $(0.31) to $(0.33).

For the three months ended September 30, 2003, the administrative and
selling expenses have been increased by $110, thereby increasing the net
loss by the same amount, and increasing the basic and fully diluted loss
per share by $0.01, from $(0.04) to $(0.05).

Pro forma disclosure of net income (loss) and net earnings (loss) per
share is provided for options granted to employees and directors prior to
January 1, 2003 for which fair value compensation expense has not been
recorded (note 10(b)).

4. ACQUISITION

On January 5, 2004, the Company purchased 51% of the issued units in the
capital of U.S. Peroxide for cash consideration of US$5,231 (CA$6,707),
plus related costs of CA$268, for a total purchase price of CA$6,975. In
2007 and 2009, the Company will purchase a further 34% and the remaining
15% interest, respectively, provided certain performance targets are
achieved. The valuation of these subsequent purchases will be based on
U.S. Peroxide"s performance.

U.S. Peroxide, founded in 1997 in Laguna Niguel, California, is an
environmental technology and service provider, delivering cost-saving
environmental solutions to both the municipal and industrial markets, and
is the single largest North American direct supplier of hydrogen peroxide
for environmental service applications.

The acquisition has been accounted for as a purchase transaction, and
accordingly, these consolidated financial statement include the Company"s
51% interest in the results of operations of U.S. Peroxide from the date
of acquisition.

At the date of purchase, the fair values assigned to the Company"s
interest in assets acquired and liabilities assumed were as follows:

$
-------------------------------------------------------------------------
Current assets 2,045
Capital assets 4,801
-------------------------------------------------------------------------
6,846
Liabilities other than bank indebtedness (5,210)
Bank indebtedness (635)
-------------------------------------------------------------------------
Book value of U.S. Peroxide"s net assets 1,001
Interest in net assets acquired 51%
-------------------------------------------------------------------------
Book value of net assets acquired 511
-------------------------------------------------------------------------
-------------------------------------------------------------------------


$
-------------------------------------------------------------------------
Total purchase price 6,975
Less book value of net assets acquired (511)
-------------------------------------------------------------------------
Excess of purchase price over book value of net assets acquired 6,464
Fair value assigned to intangible assets:
Patent 1,530
Supplier agreement 510
-------------------------------------------------------------------------
Goodwill 4,424
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The excess of purchase price over the fair value of the identifiable net
assets charged to goodwill is not amortized, but is subject to an annual
two-step impairment test performed at the Environmental Contaminant
Treatment reporting unit level. The patent and supplier agreement are
amortized on a straight-line basis over their estimated useful lives of
17 years and five years, respectively.

5. CAPITAL ASSETS

Capital assets at September 30, 2004 include $5,217 of hydrogen peroxide
storage and feed systems equipment. This equipment is amortized on a
straight-line basis over its estimated useful life of ten years with a
20% salvage value.

Amortization expense on capital assets for the nine and three months
ended September 30, 2004 amounted to $2,753 and $924, respectively
(2003 - $2,244 and $725).

6. DERIVATIVE FINANCIAL INSTRUMENTS

The Company has only limited involvement with derivative instruments that
are used to manage well-defined foreign exchange risk in the normal
course of business. The Company"s policy is not to utilize derivative
financial instruments for trading or speculative purposes.

The Company applies hedge accounting to forward foreign exchange
contracts designated as hedges. Foreign exchange contracts that are
determined to be effective hedges of the future settlement of U.S. dollar
denominated accounts receivable and unbilled revenue are recorded on the
consolidated balance sheets at the time the related revenue is
recognized. The deferred foreign exchange asset represents the difference
between the monetary asset balances that are considered to be effectively
hedged at the balance sheet date translated at the foreign exchange
contract, or "hedge", rate and the same monetary asset balances
translated at the "spot" rate. The related revenue transactions are
translated at the hedge rate.

The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk management objective
and strategy for undertaking various hedge transactions. This process
includes linking all derivatives to specific assets and liabilities on
the consolidated balance sheets or to specific firm commitments or
forecasted transactions. The Company also formally assesses, both at the
hedge"s inception and on an ongoing basis, whether the derivatives
designated as hedges are effective in offsetting changes in the fair
values of hedged items.

The Company applies the fair value method to forward foreign exchange
contracts not designated as hedges. Gains and losses associated with
derivative financial instruments not designated as hedges are reported in
income in the current period.

7. FORWARD FOREIGN EXCHANGE CONTRACTS

During the third quarter of fiscal 2003, the Company terminated and
replaced US$48,000 of forward foreign exchange sale contracts maturing at
various rates through to September 2005. At the same time, the Company
entered into a series of forward foreign exchange sale contracts from
July 2003 to December 2005 aggregating US$60,000 at an exchange rate of
$1.40. The net effect of this transaction was an immediate cash receipt
of approximately $8,018 and an extension of the Company"s risk management
program to December 2005. The transaction generated a deferred gain of
$8,018 being the net present value of the equity in the forward foreign
exchange contracts that were terminated and replaced. The gain was
deferred, to be recognized in future periods, consistent with the income
recognition had the forward foreign exchange contracts been held to
maturity. During the three and nine months ended September 30, 2004,
$1,021 and $2,982 were recognized in income, respectively. During the
year ended December 31, 2003, $3,376 was recognized in income. The
remaining balance of $1,660 is included in the "Current portion of other
long-term liabilities".

8. DEFERRED TECHNOLOGY CREDITS

In 2001 and 2004, the Company has been successful in obtaining two
contracts for government funding to advance its research and development
of innovative and efficient ultraviolet water treatment solutions. The
government funding from Technology Partnerships Canada ("TPC") amounts to
approximately $12,660 relating to specific research projects having a
total estimated cost of $41,200:

(a) Contract 1

During 2001, the Company entered into its first agreement with TPC, which
provided funding for a three-year period up to a maximum of approximately
$3,300 relating to specific research projects having a total estimated
cost of $10,000. The Company is obligated under its agreement to pay TPC
by way of a royalty commencing in 2005 based upon the total revenue of
the Company. The agreement contemplates that this royalty will have both
a minimum and a maximum amount.

At December 31, 2003, $3,300 had been claimed and received under the TPC
agreement. Of this amount, $2,086, which approximates the minimum royalty
commitments, has been reflected on the consolidated balance sheets under
the caption "Other long-term liabilities" as at September 30, 2004 and
December 31, 2003, with the remainder having been applied as a reduction
of the applicable research and development expenses.

(b) Contract 2

On March 31, 2004, the Company entered into its second agreement with
TPC, which will provide funding from TPC for a five-year period up to a
maximum of approximately $9,360 relating to specific research projects
having a total estimated cost of $31,200. The Company is obligated under
its agreement to pay TPC by way of a royalty commencing in 2009 based
upon the total revenue of the Company. The agreement contemplates that
this royalty will have both a minimum and a maximum amount. The minimum
repayment amount is $13,750.

At September 30, 2004, approximately $1,376 has been claimed in funding
for periods eligible for funding under the new agreement. This amount has
been reflected on the consolidated balance sheets under the caption
"Other long-term liabilities" as at September 30, 2004. During the
quarter, $770 cash was received, leaving the balance of $606 included in
"Accounts receivable - other". In addition, an interest charge of $40 on
the claims totalling $1,376 has been included in "Interest, net".

9. CONTINGENCY AND MEASUREMENT UNCERTAINTY

(a) Contingency

The Company is engaged in patent infringement litigation against Suntec
Environmental Inc. ("Suntec"), an Ontario-based competitor. In July,
2003, the Company obtained summary judgment against Suntec. The summary
judgment was overturned on technical grounds by the Federal Court of
Appeal. The Company"s subsequent application for leave to appeal to the
Supreme Court of Canada was denied. The Company intends to continue to
assert its legal rights in this matter and seek all available remedies.
It is management"s opinion that the Company will ultimately be successful
in pursuing its claim.

(b) Measurement Uncertainty

The Company offers its customers a warranty on the performance of its
products. In addition, as part of its contractual agreement with its
municipal customers, the Company provides for the startup of its systems
subsequent to their delivery to customers. The Company has estimated
warranty and startup provisions of $6,059 ($4,769 at December 31, 2003)
for its products based on its experience with its products and within the
industry. However, given these product lines represent an innovative
application of technology, it is reasonably possible that the amounts
established as warranty and startup provisions could change by a material
amount in the near term.

10. SHARE CAPITAL

(a) Share Issuances

During the three months ended September 30, 2004, no common shares or
options were issued. During the nine months ended September 30, 2004, the
Company issued 15,000 common shares for aggregate proceeds of
$83 pursuant to the exercise of options.

During the three months ended September 30, 2003, the Company issued
60,000 common shares for aggregate proceeds of $495 pursuant to the
exercise of warrants. No options were exercised during that quarter.
During the nine months ended September 30, 2003, the Company issued
439,550 common shares for aggregate proceeds of $3,626 pursuant to the
exercise of warrants and 6,000 common shares for aggregate proceeds of
$38 pursuant to the exercise of options.

Outstanding shares and options are as follows:

September December September
30, 2004 31, 2003 30, 2003
No. No. No.
-------------------------------------------------------------------------
Shares 21,820,532 21,805,532 22,141,332
Options 1,404,816 1,267,816 1,492,844
Warrants - - 590,500

(b) Stock Options

A summary of the changes in options during the nine and three months
ended September 30 is presented below:

Nine months Nine months Three months Three months
ended ended ended ended
September September September September
30, 2004 30, 2003 30, 2004 30, 2003
No. No. No. No.
-------------------------------------------------------------------------

Outstanding,
beginning of period 1,267,816 1,265,028 1,405,816 1,391,369
Granted 187,000 259,416 - 122,875
Exercised (15,000) (6,000) - -
Expired (35,000) (25,600) (1,000) (21,400)
-------------------------------------------------------------------------
Outstanding,
end of period 1,404,816 1,492,844 1,404,816 1,492,844
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Using the fair value method for stock options granted to employees and
directors after January 1, 2003, the fair value compensation expense for
the nine and three months ended September 30, 2004 was $511 and $152,
respectively, ($352 and $110 for the nine and three months ended
September 30, 2003 - see note 3). These amounts were charged to
administrative and selling expenses with corresponding credits to
contributed surplus.

The table below presents pro forma net income (loss) and pro forma basic
and diluted earnings (loss) per common share as if compensation expense
based on the fair value method had been recorded for all stock options
granted by the Company between September 1, 2001 and December 31, 2002 to
employees and directors.

Nine months Nine months Three months Three months
ended ended ended ended
September September September September
30, 2004 30, 2003 30, 2004 30, 2003
$ $ $ $
-------------------------------------------------------------------------
(Restated (Restated
- see note 3) - see note 3)
-------------------------------------------------------------------------
Net income (loss) 4,844 (7,285) 1,953 (1,026)
Compensation expense (187) (862) (60) (160)
-------------------------------------------------------------------------
Pro forma net income
(loss) 4,657 (8,147) 1,893 (1,186)
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Basic and diluted earnings
(loss) per common share:
As reported 0.22 (0.33) 0.09 (0.05)
Pro forma 0.21 (0.37) 0.09 (0.05)

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

The fair value of the options granted during the following periods was
estimated at the date of grant using the Black-Scholes option pricing
model with an expected dividend yield of 0%, and the following weighted-
average assumptions:

-------------------------------------------------------------------------
Expected Weighted-
Risk-free Expected weighted- average
interest weighted- average fair value
rate average option of options
(%) volatility life granted
(%) (Years) $
-------------------------------------------------------------------------

Three months ended
June 30, 2004 3.75 0.402 7.5 4.13
-------------------------------------------------------------------------
Three months ended
March 31, 2004 4.00 0.597 3.0 3.25
-------------------------------------------------------------------------
Three months ended
September 30, 2003 4.75 0.402 3.0 2.69
-------------------------------------------------------------------------
Three months ended
June 30, 2003 5.00 0.492 5.3 3.97
-------------------------------------------------------------------------

The Black-Scholes option pricing model, used by the Company to calculate
option values, as well as other accepted option valuation models, were
developed to estimate fair value of freely tradable, fully transferable
options without vesting restrictions, which significantly differ from the
Company"s stock option awards. These models also require four highly
subjective assumptions, including future stock price volatility and
expected time until exercise, which greatly affect the calculated values.
Accordingly, management believes that these models do not necessarily
provide a reliable single measure of the fair value of the Company"s
stock option awards.

(c) Normal Course Issuer Bid

In the second quarter of fiscal 2003, the Toronto Stock Exchange (the
"TSX") approved of the Company"s normal course issuer bid effective
June 6, 2003. The Company was authorized to purchase up to 5% of its
public float in the twelve-month period following the bid"s effective
date. The Company, in accordance with the rules and by-laws of the TSX,
purchased its common shares at the market prices of such shares. This
approval expired during the quarter.

During the nine months ended September 30, 2004, no shares were purchased
for cancellation.

During the nine months ended September 30, 2003, the Company purchased
for cancellation 159,600 of its common shares for $1,287, representing an
average price of $8.06. Of the $1,287, $630 represents the average book
value per share at the time of repurchase and was charged to share
capital. The balance of $657 was charged to retained earnings as the
premium on common share purchase for cancellation.

During the three months ended September 30, 2003, the Company purchased
for cancellation 63,600 of its common shares for $522, representing an
average price of $8.21. Of the $522, $252 represents the average book
value per share at the time of repurchase and was charged to share
capital. The balance of $270 was charged to retained earnings as the
premium on common shares purchased for cancellation.

11. ABANDONED TRANSACTION COSTS

On May 7, 2003, the Company announced that negotiations to acquire 100%
of the shares of a publicly traded, European-based water treatment
company had been called off after several months of negotiations. The
Company had prepared and negotiated extensive documentation including
draft business combination and other legal agreements. Because of the
complexity of acquiring a public company under the applicable takeover
code, the Company incurred advisor fees and expenses amounting to
approximately $9,500 that was charged to income in the first quarter of
fiscal 2003.

12. INCOME TAXES

At September 30, 2004, the Company has approximately $19 of Federal and
$4,849 of Ontario non-capital losses that will start to expire in 2006,
as well as $54 of Ontario corporate minimum tax credits that will expire
in 2007. A future tax asset has been recorded in respect of these loss
carryforwards.

At September 30, 2004, the Company"s subsidiaries have approximately
$3,181 of net operating losses available for carryforward. A future tax
asset has been recorded in respect of $1,714 of the loss carryforwards.

At September 30, 2004, unused Scientific Research and Experimental
Development deductions of approximately $15,971 are available for
carryforward indefinitely for Federal and Ontario tax purposes. A future
tax asset has been recorded in respect of these deductions.

In addition, the Company has approximately $5,595 of investment tax
credits available to reduce future Federal taxes payable that will start
to expire in 2007 which are included on the consolidated balance sheets
under the caption "Government incentives recoverable".

13. SUPPLEMENTAL CASH FLOW INFORMATION

(a) Net change in non-cash working capital items

Nine months Nine months Three months Three months
ended ended ended ended
September September September September
30, 2004 30, 2003 30, 2004 30, 2003
$ $ $ $
-------------------------------------------------------------------------
Accounts receivable
- trade (7,268) 6,575 (3,046) 2,746
Accounts receivable
- other (67) (9) 121 48
Deferred foreign exchange
asset (264) (936) (688) 1,647
Unbilled revenue 1,554 (1,842) 4,922 961
Inventory 1,444 (1,362) 1,270 656
Prepaid expenses (286) 827 (808) 271
Accounts payable and
accrued charges 5,671 2,337 5,259 (2,300)
Deferred revenue (1,890) 5,887 (1,892) 3,976
-------------------------------------------------------------------------
(1,106) 11,477 5,138 8,005
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(b) Interest and income taxes (paid) received


Nine months Nine months Three months Three months
ended ended ended ended
September September September September
30, 2004 30, 2003 30, 2004 30, 2003
$ $ $ $
-------------------------------------------------------------------------
Interest paid (537) (426) (306) (173)
Income taxes paid (357) (380) (83) (125)
Income taxes received 43 - 66 -
-------------------------------------------------------------------------

14. PENSION PLAN AND OBLIGATION

The Company has a defined contribution pension plan. The Company"s
contributions include a fixed amount for each qualifying employee, a
limited matching of employee contributions and a fixed amount for each
qualifying employee"s years of past service with the Company. The Company
also has a pension obligation to its founder and former Chief Executive
Officer.

The pension expense for the nine and three months ended September 30,
2004 was $691 and $228, respectively. (2003 - $571 and $196,
respectively).

15. SEGMENT INFORMATION

The Company operates worldwide in five strategic segments or arenas:
Municipal Wastewater, Municipal Drinking Water, Environmental Contaminant
Treatment, Industrial/Commercial and Consumer. The reportable segments
are strategic operating segments whose operating results are reviewed
regularly by management. The Municipal Wastewater arena sells and
services UV systems that serve as the final step in municipal wastewater
treatment that destroy potentially harmful bacteria and viruses prior to
discharge into the environment. The Municipal Drinking Water arena sells
UV systems for use in potable water treatment prior to release into
public water distribution networks. The Environmental Contaminant
Treatment arena sells optimized UV light treatment systems to destroy
certain chemicals in contaminated groundwater supplies and to provide an
additional barrier against organic micropollutants. The
Industrial/Commercial arena sells UV products that destroy
micro-organisms in water and other liquids used in many industrial
processes. The Consumer arena sells UV products for disinfection of
private water supplies for homes, cottages, farms, rural commercial
establishments and resorts.

-------------------------------------------------------------------------
Environ-
Municipal mental
Municipal Drinking Contaminant Industrial/
Wastewater Water Treatment Commercial Consumer Total
$ $ $ $ $ $
-------------------------------------------------------------------------

Nine months ended September 30, 2004
-------------------------------------------------------------------------
Revenue 57,933 12,605 19,996 7,482 4,511 102,527
-------------------------------------------------------------------------
Net contri-
bution 16,160 1,922 3,261 1,467 1,276 24,086
-------------------------------------------------------------------------


Nine months ended September 30, 2003
-------------------------------------------------------------------------
Revenue 53,790 12,850 3,864 8,966 4,456 83,926
-------------------------------------------------------------------------
Net contri-
bution 11,599 1,442 230 1,513 1,341 16,125
-------------------------------------------------------------------------


Three months ended September 30, 2004
-------------------------------------------------------------------------
Revenue 18,312 8,023 9,464 1,926 1,571 39,296
-------------------------------------------------------------------------
Net contri-
bution 5,857 1,238 1,688 484 444 9,711
-------------------------------------------------------------------------


Three months ended September 30, 2003
-------------------------------------------------------------------------
Revenue 15,891 4,117 3,564 2,829 1,498 27,899
-------------------------------------------------------------------------
Net contri-
bution 2,738 278 278 430 494 4,218
-------------------------------------------------------------------------

Net contribution is defined as gross margin less selling expenses.

Reconciliation of net contribution to income (loss) before income taxes
and non-controlling interest:


Nine months Nine months Three months Three months
ended ended ended ended
September September September September
30, 2004 30, 2003 30, 2004 30, 2003
$ $ $ $
-------------------------------------------------------------------------
(Restated (Restated
- see note 3) - see note 3)
-------------------------------------------------------------------------
Total net contribution 24,086 16,125 9,711 4,218
Less
Administrative expenses 9,698 8,328 3,925 3,121
Research and development,
net 3,061 4,588 958 1,635
Amortization 3,724 2,656 1,338 954
Interest, net 532 293 199 31
Income from equity
investment (601) (476) (139) (101)
Abandoned transaction
costs - 9,500 - -
-------------------------------------------------------------------------
Income (loss) before
income taxes and
non-controlling interest 7,672 (8,764) 3,430 (1,422)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

16. ACQUISITION AGREEMENT

On September 20, 2004, the Company announced that it had entered into a
definitive acquisition agreement with Danaher Corporation ("Danaher"), a
U.S. public company trading on the New York Stock Exchange, whereby
Danaher offered to acquire all of the common shares of the Company for
$10.65 per share by way of a public take-over bid. This represented a
premium of 36% to the Company"s closing price of $7.85 per share on
September 17, 2004. The equity value of the acquisition, based on 100% of
the 23.2 million common shares (including options) being tendered to the
offer, was approximately $247,350. Completion of the offer was
conditional upon at least 66 2/3% of the Company"s common shares,
calculated on a fully diluted basis, being tendered to the offer as well
as other customary conditions, including receipt of all necessary
regulatory approvals. The offer was to expire on November 5, 2004 unless
extended or withdrawn. The Board of Directors of the Company unanimously
agreed to support the offer as it was in the best interests of the
Company"s shareholders and unanimously recommended that the shareholders
tender their shares. With more than 94% of the common shares tendered (on
a fully diluted basis) on November 5, 2004, this transaction closed
subsequent to the end of the third quarter.

Bank and professional fees and other expenses related to this transaction
amounted to approximately $4,500. Of that amount, approximately $3,750
represented bank fees of which $3,130 was contingent upon the successful
completion of the transaction and, therefore, not incurred by the Company
until the closing date of November 5, 2004. As at September 30, 2004,
$1,176 of these transaction costs had been deferred and included in
"Prepaid expenses". Subsequent to the end of the quarter, the full amount
of transaction expenses was charged to income.

17. COMPARATIVE AMOUNTS

Certain comparative amounts have been reclassified to conform with the
current period presentation.



http://www.newswire.ca/en/releases/orgDisplay.cgi?okey=22790

Contact:
Marvin DeVries, President and CEO
Douglas Alexander, Executive Vice President and CFO
Diana Cunningham,
Corporate Communications/Investor Relations
Trojan Technologies Inc.
Phone: (519) 457-3400

Source: Trojan Technologies Inc.
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