18.03.03

18.3.2003: Meldung: Trojan Technologies Announces Results

Trojan Technologies (TUV:TSX) today announced its operating and financial results for the four months ended December 31, 2002.

The Company announced in December 2002 that it would change its year-end from August 31 to December 31 to align the Company"s financial reporting periods with its industry peers to better enable investors, the financial community and Trojan"s management to make meaningful comparisons between the Company and its peers. The results being announced today reflect the four- month period from September 1, 2002 to December 31, 2002. In accordance with accepted accounting practice, the comparative financial statements are for the twelve months ended August 31, 2002.

"I am pleased to report continued revenue growth, strong gross margins and profitable results despite a short reporting period." said Allan Bulckaert, Trojan"s President and CEO. "We are confident that we can continue this momentum in 2003 and beyond as we continue to diversify our revenue streams and grow in all markets, both organically and through acquisition."

Financial highlights include:

- For the period ended December 31, 2002, revenues were $31.8 million
compared to $92.7 million in the year ended August 31, 2002 and
$18.6 million in the three months ended November 30, 2001. This
represents average monthly revenues during the four months of
$7.9 million, an increase of 28% over the average monthly revenues of
$6.2 million in the three-month period ended November 30, 2001.

- Consolidated gross margin for the 4 months was 41% or $13.0 million,
compared to 44% or $40.9 million in the prior full year and 37% in the
three months ended November 30, 2001.

- For the four month period, net income after tax was $0.2 million,
compared to $3.7 million for the fiscal year 2002. On a per share
basis, the Company reported basic earnings per share of $0.01 compared
to $0.19 per share in the prior fiscal year. During the 3 months ended
November 30, 2001, the Company reported a net loss of $0.4 million or
$0.02 per share.

- Shareholders" equity has grown to $84.5 million from $84.3 million at
August 31, 2002. Cash on hand and marketable securities at December 31,
2002 totalled $5.7 million.

- Order backlog increased by over 15% to $69.4 million at December 31,
2002 compared to $60.1 million at August 31, 2002.



During the four-month period ending December 31, 2002, marketplace highlights included:

- Municipal wastewater disinfection market - The municipal wastewater
market was by far the largest market for Trojan"s ultraviolet systems
during the period. Revenues in the four months were $18.7 million,
representing average monthly revenues of $4.7 million, an increase of
10% over the average monthly revenues in the three-month period ended
November 30, 2001. The percentage of total revenue from the municipal
wastewater market decreased to 59% of total revenue in the four months
compared to 78% in the fiscal year 2002. This reduction in percentage
reflects the Company"s strategy to diversify its business in other
markets and reduce its dependence on the wastewater market to maintain
growth and profitability.

Bid activity in this market arena continued to grow. During the four
months ended December 31, 2002, Trojan submitted bids totaling
$47.5 million, an average of $11.9 million per month. This represents
an increase of 21.4% per month from the average of $9.8 million per
month during the fiscal year 2002 for a total of $117 million. Total
order backlog at December 31, 2002 in municipal wastewater was
$30.6 million compared to $31.1 million at August 31, 2002.

- Municipal drinking water market - Revenues in this market arena
increased to $3.3 million in the four months exceeding revenues of
$3.1 million in the entire fiscal year ending August 31, 2002. Revenues
in the four months averaged $0.84 million per month, an increase of
231% over the average monthly revenue of $0.25 million in the
three-month period ended November 30, 2001. The percentage of total
revenue from the drinking water market increased to 11% in the four
months compared to 3% in the fiscal year 2002. Revenues in North
America increased to $3.0 million in the four months from $2.4 million
in the entire fiscal year 2002 reflecting the rapid development of the
market.

Bidding activity continues to grow in this market arena as
municipalities prepare multi-barrier solutions to their drinking water
treatment processes. During the four-month period, the Company
submitted bids on 32 projects in North America with a total bid value
of $6.1 million. Of these bids, 21 contracts totaling $4.4 million have
been awarded to date and of these Trojan has been awarded 16 (76%) with
a value of $3.7 million (84%). Total order backlog at December 31, 2002
in municipal drinking water was $15.7 million compared to $9.9 million
at August 31, 2002.

- Environmental contaminant treatment (ECT) - Revenues in the
environmental contaminant treatment market in the four-month period
were approximately $3.3 million compared to $4.4 million in the fiscal
year 2002. Revenues in the four months averaged $0.83 million per month
an increase of 41% over the average monthly revenue of $0.59 million in
the three-month period ended November 30, 2001. The percentage of total
revenue from the environmental contaminant treatment market increased
to 10% in the four months compared to 5% in the fiscal year 2002. Total
order backlog at December 31, 2002 in the environmental contaminant
treatment market arena was $23.1 million compared to $19.1 million at
August 31, 2002.

- Industrial and commercial process water treatment - Revenues in the
industrial and commercial market in the four months ended December 31,
2002 were approximately $4.6 million compared to $7.4 million in the
fiscal year 2002. Revenues in the four months average $1.14 million per
month, an increase of 60% over the average monthly revenues of
$0.71 million in the three-month period ended November 30, 2001. The
percentage of total revenue from the industrial and commercial market
increased to 14% in the four months compared to 8% in the fiscal year
2002.

Revenues in Europe for the four-month period were $2.5 million compared
to $1.6 million in the full fiscal year ending August 31, 2002. The
increase is attributable to contract wins in Scandinavia and revenue
from Ueberall GmbH acquired in May, 2002.

- Residential drinking water market - Revenues in the residential market
during the four-month period were approximately $1.8 million compared
to $5.5 million in the fiscal year 2002. Revenues in the four months
averaged $0.45 million per month, an increase of 19% over the average
monthly revenues of $0.38 million in the three-month period ended
November 30, 2001. The percentage of total revenue from the residential
market was unchanged at 6% in the four months compared the fiscal year
2002.

Review of Financial Results for the Four Months ended December 31, 2002

Gross Margin



In the four months ended December 31, 2002, gross margin was 41% compared to 44% in the fiscal year 2002 and 37% in the three months ended November 30, 2001. There are number of factors that have contributed to the sustained improvement in gross margin:

- Economies of scale - The increased level of production revenue in the
four-month period and the fiscal year 2002, were achieved without any
increase in the physical production facilities. As a result, fixed
overheads were spread over a larger business base and production
economies were achieved from the larger production volumes. At the same
time, changes have been introduced to the layout of the production
area, which are intended to increase the efficiency of the assembly and
testing processes.
- Warranty costs continued to decline as a percentage of revenue in the
four-month period. This reduction reflects the Company"s increased
emphasis on quality and reliability, the co-operation of suppliers and
product design improvements introduced in recent years.
- A number of business initiatives have contributed to improved margins
including an increased focus on quality processes, ensuring effective
management of suppliers as well as testing protocols on systems prior
to shipment.

Administration and Selling Expenses



In the four months ended December 31, 2002, administration and selling expenses were $9.9 million or 31% of revenue, compared to $28.0 million or 30% of revenue in the fiscal year 2002 and $5.4 million or 29% of revenue in the three months ended November 30, 2001.

In the four-month period, sales commissions paid were $1.3 million or 4% of revenue, compared to $5.4 million or 5.8% of revenue in the fiscal year 2002 and $0.8 million or 4% of revenue in the three months ended November 30, 2001. Sales commissions are paid primarily in the municipal wastewater and drinking water markets.

Selling and marketing expenses were $5.1 million or 16% of revenue, compared to $12.1 million or 13.1% of revenue in the full year ending August 31, 2002 and $2.6 million or 14.0% of revenue in the three months ended November 30, 2001. The increase is attributable to the inclusion of marketing costs of recently acquired companies that were not owned throughout the prior periods. Expenses also reflect efforts to position European operations for growth including participation at the major bi-annual trade show and other initiatives to increase presence in the market.

Administration expenses were $3.5 million or 11% of revenue compared to $10.5 million or 11.3% of revenue in the fiscal year 2002 and $2.0 million or 11% of revenue in the three months ended November 30, 2001. Administration expenses in the four months averaged $0.88 million per month, an increase of 31% over the average monthly expenses of $0.67 million in the three- month period ended November 30, 2001. Insurance costs increased significantly following policy renewals on October 1, 2001 and October 1, 2002. These increases reflect the general condition of global insurance markets, the growth in Trojan"s business and some limited coverage extensions initiated after a comprehensive review of Trojan"s insurance programs. Legal costs related to ongoing intellectual property matters also contributed to the increase.

Research and Development Expenses

Research and development expenses were $1.6 million or 5% of revenue compared to $4.2 million or 5% of revenue in the fiscal year ending August 31, 2002 and $1.0 million or 5% of revenue in the three months ended November 30, 2001. The research and development efforts are directed at both product and technology development. During the four months ended December 31, 2002, Trojan was focused on two important initiatives; the further development of Trojan"s range of drinking water products and the development of large systems in the environmental contaminant treatment market.

Amortization

In the four months ended December 31, 2002, amortization expense was $1.2 million compared to $3.3 million in the fiscal year 2002 and $0.7 million in the three months ended November 30, 2001. Amortization expense has increased because of validation costs incurred on new products introduced primarily in the municipal drinking water market and the amortization of intangibles acquired in acquisitions completed in 2002. These costs are amortized over periods of three to five years.

Other Income (Expenses)

During the four-month period, other income was $0.2 million compared to an expense of $0.7 million in the fiscal year 2002 and an expense of $0.4 million in the three months ended November 30, 2001. Net interest expense was $0.1 million for the four months compared to an expense of $1.0 million respectively in fiscal year 2002. After completing two equity issues in fiscal 2002, Trojan was able to repay all of its bank indebtedness and has cash and marketable securities invested to generate interest income. During the fiscal year 2002, Trojan sold 17 acres of undeveloped land deemed to be excess to the Company"s future needs at a loss of $0.64 million.

Income (Loss) before Taxes

Income before taxes in the four months ended December 31, 2002, was $0.4 million compared to $4.6 million in the fiscal year 2002 and a loss of $0.6 million in the three months ended November 30, 2001. The increase in production revenue and the improvement in gross margin were the primary reasons behind this improvement from the prior year. Compared to the fiscal year 2002, income before taxes was lower because of the levels of production revenue. Historically, revenues in the September to December period are lower than the remainder of the year as fewer wastewater systems, which represent the major part of Trojan"s business, are installed during the winter months.

Cash Flow

Cash Flow from Operating Activities



The net cash flow from operations was $0.5 million in the four months compared to an outflow $2.6 million in the fiscal year 2002. Net income for the four months was $0.2 million, compared to $3.7 million in the year ended August 31, 2002. Amortization is also a "non-cash" charge in the amount of $1.2 million in the four months compared to $3.3 million in the fiscal year 2002.

Net cash flow from operations is also impacted by changes in non-cash working capital balances. In the four months, operations consumed $0.6 million of cash compared to $9.0 million in the fiscal year 2002. As at August 31, 2002, $11.4 million of the unbilled revenue of $20.6 million represented a single contract. During the four months ended December 31, 2002, this contract was delivered to the customer and, once invoiced, the account was included in accounts receivable - trade. Subsequent to December 31, 2002, the account has been paid in full.

At December 31, 2002, trade accounts receivable were $34.4 million, including $8.1 million of customer holdbacks compared to $24.7 million, including approximately $8.1 million in customer holdbacks at August 31, 2002. The principal cause of the increase was the single large contract explained in the preceding paragraph.

Unbilled revenue decreased to $9.8 million at December 31, 2002 from $20.6 million at August 31, 2002. This account represents the value of contracts in progress, using percentage of completion accounting. The reduction is attributable to the delivery during the period of a single large contract of over $11.4 million that was in progress at August 31, 2002.

Cash Flow from Investing Activities

In the four months ended December 31, 2002, cash from investing activities totaled $4.5 million compared to being a use of $15.5 million in the fiscal year 2002. During the four-month period, Trojan realized $6.7 million net from the purchase and sale of marketable securities, compared to making a net investment of $10.4 million in fiscal year 2002.

Cash Flow from Financing Activities

Financing activities in the four months ended December 31, 2002 represented a net cash outflow of $6.6 million compared to a net cash inflow of $20.7 million. During the four month period, $2.8 million was applied to reduce bank indebtedness, $3.1 million was applied to repay long term debt and $1.3 million was used to make payments on the acquisition of intellectual property. During the fiscal year 2002, $36.4 million was raised through the successful completion of two equity issues of which $12.9 million was applied to the reduction of bank indebtedness and $2.1 million was applied to the repayment of long-term debt.

Credit Facilities

In the four months ended December 31, 2002, Trojan had a line of credit of $30 million available for operating purposes.

Outlook

The Company believes it is well positioned for growth. Order backlog is at record levels with $54.0 million of orders in hand for 2003 and $15.4 million already in place for 2004. The 2003 backlog represents approximately 83% of anticipated project revenue in the municipal wastewater, municipal drinking water and environmental contaminant businesses. In addition to the businesses in which the Company measures order backlog, revenue is derived from after market sales and service, as well as from the industrial and residential markets.

It is management"s objective to achieve an increase in revenues to over $110 million and basic earnings in the range of 40 cents per share for the year ended December 31, 2003, approximately double the performance achieved in the year ended August 31, 2002.

A conference call and webcast will be held for investors, analysts and media at 4:15 pm EST on March 17, 2003. The conference call will be hosted by Allan Bulckaert, President & CEO, and will include Douglas Alexander, Executive Vice President and Chief Financial Officer and Marvin DeVries, Executive Vice President. The phone number to call is (416) 640-4127 or (800) 814-4853. A taped version of the call will be available until midnight Monday, March 24, 2003 by calling (416) 640-1917 or (877) 289-8525 and dialing passcode number 243055(number sign). The live webcast and a rebroadcast will be available at www.trojanuv.com.

Trojan Technologies is a Canadian based, high technology environmental Company operating internationally. With over 25 years of experience, Trojan has the largest installed base of UV disinfection systems operating around the world. Trojan designs, manufactures and sells ultraviolet disinfection systems for municipal wastewater, drinking water systems for residential, municipal and commercial use, and industrial systems for food and beverage, pharmaceutical, and semiconductor applications. Its equipment destroys water- borne pathogens such as E.coli, Giardia and Cryptosporidium in a highly effective, cost efficient and environmentally safe manner. Trojan also designs and installs treatment technology for the environmental contaminant and micropollutant destruction market.

Trojan has over 350 employees around the world. Headquartered in London, Ontario, Trojan has offices in Germany, the U.K., Netherlands, Norway, Spain, and the U.S. Its shares are listed on The Toronto Stock Exchange under the trading symbol TUV.

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.

<<

FINANCIAL HIGHLIGHTS
(Thousands of Canadian dollars, except for share and per share data and
percentages)


Four month
period ended Year ended
December 31 August 31
2002 2002
$ $
-------------------------------------------------------------------------

Revenue 31,755 92,677
Cost of Goods Sold 18,747 51,752
Gross Margin 13,008 40,925
Gross Margin percentage 41.0% 44.2%
Income before other income (expenses) 193 5,360
Net Income 172 3,675


Earnings per share
Basic 0.01 0.19
Fully diluted 0.01 0.18


Weighted Average Number of Shares
Basic 21,851,520 19,796,240
Fully diluted 22,217,390 20,036,832




As at As at
December 31 August 31
2002 2002
-------------------------
Working Capital 47,473 49,145
Shareholders" Equity 84,526 84,257
Per share Shareholders" Equity 3.87 3.86
Number of Shares Outstanding 21,855,382 21,840,057




TROJAN TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(Thousands of Canadian dollars)


As at December 31 August 31
2002 2002
-------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents 2,011 3,526
Marketable securities 3,688 10,366
Accounts receivable - trade 34,437 24,715
Accounts receivable - other 1,502 1,978
Unbilled revenue 9,842 20,613
Inventory 13,967 12,127
Prepaid expenses 1,289 584
Income taxes receivable - 1,055
-------------------------------------------------------------------------
Total current assets 66,736 74,964

Investment 2,683 2,375
Government incentives recoverable (note 4) 5,591 5,959
Future income taxes (note 4) 2,955 2,926
Capital assets, net 20,193 20,315
Patents and other intangible assets, net (note 5) 8,474 7,745
Goodwill (note 5) 5,923 5,923
-------------------------------------------------------------------------
112,555 120,207
-------------------------------------------------------------------------
-------------------------------------------------------------------------


LIABILITIES AND SHAREHOLDERS" EQUITY
Current
Bank indebtedness 386 3,183
Accounts payable and accrued charges 16,823 17,786
Income taxes payable 147 -
Current portion of long-term debt 528 3,460
Current portion of other long-term liabilities
(notes 2 and 3) 1,379 1,390
-------------------------------------------------------------------------
Total current liabilities 19,263 25,819
-------------------------------------------------------------------------

Long-term debt 3,060 3,230
-------------------------------------------------------------------------
Other long-term liabilities (notes 2 and 3) 5,706 6,901
-------------------------------------------------------------------------

Shareholders" equity
Share capital (note 6) 84,466 84,369
Retained earnings (deficit) 60 (112)
-------------------------------------------------------------------------
84,526 84,257
-------------------------------------------------------------------------
112,555 120,207
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See accompanying notes



TROJAN TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
(Thousands of Canadian dollars)

Four month
period ended Year ended
December 31 August 31
2002 2002
$ $
-------------------------------------------------------------------------
Deficit, beginning of period (112) (1,919)
Net income 172 3,675
Share issue costs, net of taxes (note 6) - (1,868)
-------------------------------------------------------------------------
Retained earnings (deficit), end of period 60 (112)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See accompanying notes



TROJAN TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Canadian dollars)

Four month
period ended Year ended
December 31 August 31
2002 2002
$ $


REVENUE 31,755 92,677
Cost of goods sold 18,747 51,752
-------------------------------------------------------------------------
Gross margin 13,008 40,925
-------------------------------------------------------------------------

EXPENSES
Administrative and selling expenses 9,998 28,046
Research and development, net 1,633 4,237
Amortization 1,184 3,282
-------------------------------------------------------------------------
12,815 35,565
-------------------------------------------------------------------------
Income before other income (expenses) 193 5,360

Other income (expenses)
Interest, net (140) (970)
Loss on sale of capital assets - (642)
Income from equity investment 308 878

-------------------------------------------------------------------------
Income before taxes 361 4,626
Income tax provision (note 4) 189 951
-------------------------------------------------------------------------

Net income 172 3,675
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Earnings per share
Basic 0.01 0.19
Fully diluted 0.01 0.18


See accompanying notes



TROJAN TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Thousands of Canadian dollars)

Four month
period ended Year ended
December 31 August 31
2002 2002
$ $

CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net income 172 3,675
Add (deduct) charges (credits) to operations
not involving cash
Amortization 1,184 3,282
Income from equity investment (308) (878)
Future income taxes (29) 852
Government incentives 29 (1,331)
Loss on sale of capital assets, net - 642
Interest on pension obligation 18 83
Foreign exchange loss 43 -
Net change in non-cash working capital
balances related to operations (620) (8,967)
-------------------------------------------------------------------------
489 (2,642)
-------------------------------------------------------------------------

INVESTING ACTIVITIES
Additions to capital assets (764) (2,200)
Additions to patents and other intangible assets (103) (972)
Purchase of marketable securities (2,731) (12,880)
Sale of marketable securities 9,409 2,514
Acquisitions, net of cash acquired (note 5) (1,265) (1,968)
-------------------------------------------------------------------------
4,546 (15,506)
-------------------------------------------------------------------------

FINANCING ACTIVITIES
Decrease in bank indebtedness (2,797) (12,864)
Issuance of common shares 97 36,374
Share issue costs - (2,598)
Cash proceeds on sale of capital assets - 286
Repayable advances from TPC 519 1,567
Payment on intellectual property (1,267) -
Advances of long-term debt - 17
Repayment of long-term debt (3,102) (2,086)
-------------------------------------------------------------------------
(6,550) 20,696
-------------------------------------------------------------------------

Net increase (decrease) in cash and cash
equivalents, during the period (1,515) 2,548
Cash and cash equivalents, beginning of period 3,526 978
-------------------------------------------------------------------------
Cash and cash equivalents, end of period 2,011 3,526
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Trojan Technologies Inc.
December 31, 2002
(Thousands of Canadian dollars)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The Company changed its fiscal year-end from August 31 to December 31
effective December 31, 2002.

The accompanying audited consolidated financial statements have been
prepared by the Company in accordance with Canadian generally accepted
accounting principles. These audited condensed notes to the consolidated
financial statements should be read in conjunction with the audited
financial statements and notes included in the Company"s Annual Report
for the fiscal year ended August 31, 2002.

2. DEFERRED PAYMENTS FOR INTELLECTUAL PROPERTY

On March 6, 2001, the Company acquired the assets of Advanced Ultraviolet
Solutions (AUVS) for initial consideration of US$500 (CA$778) plus costs
of CA$138. The assets acquired included technology, know-how (in the form
of owned and licensed intellectual property) and market opportunity.
Under the original purchase agreement, additional consideration was
payable upon the achievement of certain sales and margin targets during a
specific time period. Consideration was payable as a percentage of
revenue up to a maximum of US$10,000 or for a period of 10 years
whichever came first. During the year ended August 31, 2002, this
agreement was renegotiated, resulting in a fixed purchase price of
US$4,000. The three remaining payments of US$860 (CA$1,356) each have
been discounted at a rate of 6%, and are included in other long-term
liabilities, net of the current portion of $1,304 ($1,340 at August 31,
2002).

3. DEFERRED TECHNOLOGY CREDIT

During 2001, the Company entered into an agreement with Technology
Partnerships Canada ("TPC"), which will provide funding from TPC 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
originally commencing in 2004 based upon the total revenue of the
Company. During the current period, the Company did not utilize all of
the available funding. Accordingly, TPC has granted an eleven-month
extension on the funding period. The repayment period has also been
extended by eleven months with payments commencing in December 2005. The
agreement contemplates that this royalty will have both a minimum and a
maximum amount.

At December 31, 2002, approximately $2,907 has been claimed under the TPC
agreement. Of this amount, $2,086, which approximates the minimum royalty
commitments, was reflected on the consolidated balance sheets under the
caption Other long-term liabilities, with the remainder having been
applied as a reduction of the applicable research and development
expenses. Of the $2,907 claimed, approximately $2,425 ($1,567 at August
31, 2002) has been received while the remaining amount of approximately
$482 ($519 at August 31, 2002) is reflected as Accounts receivable -
other.

The fair market value of the Deferred technology credit using a 6%
discount rate is $1,513.


4. INCOME TAXES

At December 31, 2002, the Company has approximately $267 of Federal and
$5,700 of Ontario non-capital losses as well as $484 of Ontario corporate
minimum tax that will start to expire in 2005. A future tax asset has
been recorded in respect of these losses carrying forward.

At December 31, 2002, the Company"s subsidiaries have approximately
$4,780 of net operating losses carrying forward. A future tax asset has
been recorded in respect of $3,280 of the losses carrying forward.

At December 31, 2002, unused Scientific Research and Experimental
Development (SRED) deductions of approximately $12,989 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 $5,591 of investment tax
credits available to reduce future Federal taxes payable that will start
to expire in 2005 which are included on the consolidated balance sheets
under the caption Government incentives recoverable.


Significant components of the Company"s future income tax liabilities and
assets are as follows:

December 31 August 31
2002 2002
$ $
-------------------------------------------------------------------------

Future Tax Assets
Net operating loss carryforwards 2,176 2,374
Current and capital scientific expenditures
available to reduce future years" taxable income 4,309 4,302
Reserves deductible in future periods 1,300 1,424
Undeducted finance costs 650 718
Ontario corporate minimum tax 484 484
-------------------------------------------------------------------------
8,919 9,302
Less valuation allowance related to
foreign subsidiary losses (461) (461)
-------------------------------------------------------------------------
8,458 8,841
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Future Tax Liabilities
Revenue holdbacks (2,743) (2,779)
Tax on future recognition of government incentives (1,884) (1,987)
Capital cost allowance in excess of
book amortization (847) (915)
Other (29) (234)
-------------------------------------------------------------------------
(5,503) (5,915)
-------------------------------------------------------------------------
Net future tax asset 2,955 2,926
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Provision for income taxes consists of the following amounts:

Four month Year
period ended ended
December 31 August 31
2002 2002
$ $
-------------------------------------------------------------------------

Current income taxes 218 99
-------------------------------------------------------------------------

Future income tax provision (recovery) relating to
origination and reversal of temporary differences (29) 1,212
Future income tax benefit resulting from rate changes - (360)
-------------------------------------------------------------------------
Future income taxes (29) 852
-------------------------------------------------------------------------
Income tax provision 189 951
-------------------------------------------------------------------------
-------------------------------------------------------------------------


The reconciliation of income tax computed at the statutory tax rates to
the provision for income taxes is as follows:

Four month Year
period ended ended
December 31 August 31
2002 2002
$ $
-------------------------------------------------------------------------

Combined Federal and Provincial income tax rate 38.6% 39.4%
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Income before taxes 361 4,626
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Income tax provision computed at statutory rates 139 1,823
Increase (decrease) in taxes payable resulting from:
Income from equity investment (119) (346)
Manufacturing and processing deduction (20) (215)
Tax benefit based on future rate decreases - (360)
Federal large corporations tax 49 185
Non-deductible expenses 36 93
Other 104 (229)
-------------------------------------------------------------------------
Income tax provision 189 951
-------------------------------------------------------------------------
-------------------------------------------------------------------------


5. ACQUISITIONS

Four month period ended December 31, 2002
Eisenwerk Fried Wilh. Duker AG & Co. KgaA (Duker)

Effective November 15, 2002, the Company acquired the assets of Duker for
consideration and related costs of (euro) 797 (CA $1,265). Consideration
consisted of cash of (euro) 755 (CA $1,199) and related costs of (euro)
42 (CA $66).

Duker, established in Laufach, Germany, provides UV equipment to the
municipal drinking water market.

These consolidated financial statements include the results of
operations of Duker from the date of acquisition.

The fair values of the assets acquired were as follows:

$
------------------------------------------------------------------------

Inventory 341
Capital assets 64
Customer list 860
-------------------------------------------------------------------------
Net cash paid on purchase 1,265
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Year ended August 31, 2002

(a) Pureflow Ultraviolet Inc.

Effective September 1, 2001, the Company purchased 100% of the issued
shares of Pureflow Ultraviolet Inc. (Pureflow) for consideration and
related costs of $5,860.

Pureflow, established in 1978, is a distributor of ultraviolet
equipment to the industrial and commercial market in North America.

Consideration consisted of 479,040 shares of the Company valued at
$4,637 and cash of $1,223, including expenses. The value of the
479,040 shares was determined based on the average market price of
the company"s common shares over the two day period before and after
the terms of the acquisition were agreed to and announced.

(b) Ueberall Umweltschutz UV-Desinfection and Wasseraufbereitung GmbH
(Ueberall)

Effective May 8, 2002, the Company purchased 100% of the issued
shares of Ueberall for cash consideration and related costs of
$1,819.

Ueberall, located in Germany, was established in 1967 and provides UV
equipment for purifying drinking water aboard ships, including UV
disinfection systems for the treatment of ballast water and marine
wastewater.

During the current period, the company name Ueberall Umweltschutz
UV-Desinfection and Wasseraufbereitung GmbH was changed to Ueberall
Gmbh.

Both of these acquisitions have been accounted for as purchase
transactions, and accordingly, these consolidated financial
statements include the results of operations of both entities from
the date of acquisition.

The fair values of the assets acquired and liabilities assumed in
these two acquisitions were as follows:

Pureflow Ueberall TOTAL
$ $ $
---------------------------------------------------------------------

Cash (bank indebtedness) 1,241 (167) 1,074
Total assets other than cash,
including intangibles 642 420 1,062
Total liabilities (93) (204) (297)
Excess of purchase price over fair
value of net assets (goodwill) 4,070 1,770 5,840
---------------------------------------------------------------------
Total purchase price 5,860 1,819 7,679
(Less cash acquired) add bank
indebtedness assumed (1,241) 167 (1,074)
---------------------------------------------------------------------
Purchase price paid net of
cash acquired 4,619 1,986 6,605
Less consideration paid
through share issuance (4,637) - (4,637)
---------------------------------------------------------------------
Net cash paid (acquired) on purchase (18) 1,986 1,968
---------------------------------------------------------------------
---------------------------------------------------------------------

6. SHARE CAPITAL

Authorized
Unlimited number of common shares

Issued
No. $
-------------------------------------------------------------------------

Balance, August 31, 2001 17,168,392 43,358
Issued pursuant to public offerings 4,110,000 35,825
Issued pursuant to acquisition of Pureflow
(note 5) 479,040 4,637
Issued pursuant to exercise of options 58,000 346
Issued pursuant to exercise of warrants 24,625 203
-------------------------------------------------------------------------
Balance, August 31, 2002 21,840,057 84,369
Issued pursuant to exercise of options 15,000 94
Issued pursuant to exercise of warrants 325 3
-------------------------------------------------------------------------
Balance, December 31, 2002 21,855,382 84,466
-------------------------------------------------------------------------
-------------------------------------------------------------------------

On December 17, 2001, the Company issued 2,110,000 units at a price of
$7.50 per unit, for total gross proceeds of $15,825. Each unit consisted
of one common share of the Company and one-half of one warrant to
purchase a common share. Each whole warrant is exercisable for a period
of 18 months from its date of issue and entitles the holder to purchase
one common share at a price of $8.25. The net proceeds after costs were
used to repay the bank indebtedness.

On April 30, 2002, the Company issued 1,800,000 common shares at $10.00
per common share for aggregate proceeds of $18,000. On May 30, 2002, the
Company issued an additional 200,000 common shares at $10.00 per common
share for aggregate proceeds of $2,000 to cover over-allotments. The net
proceeds will be used to pursue the Company"s growth strategy and for
general corporate purposes.

The costs of the above share issues, net of tax, have been charged to
retained earnings.

As at December 31, 2002, there are 1,030,050 warrants outstanding to be
exercised by June 16, 2003.

Stock options

(a) Option Plans

At December 31, 2002, the Company has four stock-based compensation plans
with options outstanding.

(a) During the year ended August 31, 2002, the 1995 Employee Profit
Sharing and Stock Option Plan (the "1995 Plan") and the Sunwater
Limited 1998 Employee Profit Sharing and Stock Option Plan (the
"Sunwater Plan") were terminated. Options to purchase 170,124 and
3,200 shares of common stock under the 1995 Plan and the Sunwater
Plan, respectively, are currently outstanding and will remain valid
until they are exercised or expire in accordance with their terms.
No further distributions will be made under either plan.

(b) Under the 1997 Stock Option Plan (the "1997 Plan"), the Company may
grant options to purchase shares of common stock to its employees
and directors. During the year ended August 31, 2002, the 1997 Plan
was amended to limit its future application to full-time employees
and full-time contractors, and to increase the cumulative maximum
number of shares for which options may be granted under the plan to
1,987,192.

(c) During the year ended August 31, 2002, the Directors" Stock Option
Plan (the "Directors" Plan") was established. Under the Directors"
Plan, the Company may grant options to directors for up to 250,000
shares of common stock.

Under all four plans, the exercise price of each option is set at the
weighted average trading price of the Company"s common shares for the
five trading days immediately preceding the date on which such option is
granted. Options become exercisable at a date specified at the time each
option is granted.

Options granted under the 1995 Plan, the 1997 Plan and the Sunwater Plan
expire five years after the date of grant and are subject to early
termination if the option holder ceases to be an employee or director.
The average vesting period under these three plans is eighteen months.
Under the 1997 Plan, 131,000 of the options granted to employees
excluding senior management were cancelled in the current period.
Following amendments to the 1997 Plan, and with the approval of the
Toronto Stock Exchange, the 131,000 options were reissued with a revised
exercise price of $9.77. These new options vest one-third on each of the
first three anniversary dates from the date of reissuance and will expire
five years after the date of reissuance.

Options granted under the Directors" Plan will vest one year after the
date of grant, and will expire ten years after the date of grant.

A summary of the status of the Company"s four stock option plans with
outstanding options and changes during the periods ending on those dates
is presented below:

Four month
period ended Year ended
December 31, 2002 August 31, 2002
------------------------ ------------------------
Weighted Weighted
average average
Options exercise Options exercise
price price
$ $ $ $
-------------------------------------------------------------------------

Outstanding,
beginning of period 1,334,298 10.16 998,188 10.78
Granted 117,500 9.74 507,000 9.07
Cancelled (131,000) 11.54 -- --
Reissued 131,000 9.77 -- --
Exercised (15,000) 6.30 (58,000) 5.97
Expired (171,770) 13.37 (112,890) 12.94
-------------------------------------------------------------------------
Outstanding,
end of period 1,265,028 9.55 1,334,298 10.16
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The following table summarizes information about fixed stock options
outstanding at December 31, 2002:

Options outstanding Options exercisable
------------------------------------ ---------------------
Weighted-
Number average Weighted- Number Weighted-
Range of outstanding at remaining average exercisable average
exercise prices December contractual exercise at December exercise
31, 2002 life price 31, 2002 price
(years) $ $
-------------------------------------------------------------------------

$ 4.50 to $ 6.50 509,900 2.9 5.98 400,900 5.88
$ 7.50 to $10.00 439,500 4.5 9.15 25,000 9.13
$11.00 to $14.50 74,000 3.3 12.14 24,000 13.38
$16.50 to $20.00 241,628 0.9 17.02 241,628 17.02


b) Compensation expense

The Company does not recognize compensation expense for stock options
granted to employees and directors. The table below presents pro forma
net income and basic and fully diluted income per common share as if
compensation expense for stock options granted to employees and directors
had been determined based on the fair value method. The table includes
all stock options granted by the Company on or after September 1, 2001.

Four month Year
period ended ended
December 31 August 31
2002 2002
$ $
-------------------------------------------------------------------------

Income for the period 172 3,675
Compensation expense for the period (439) (506)
-------------------------------------------------------------------------
Pro forma income (loss) for the period (267) 3,170
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Four month Year
Period ended ended
December 31 August 31
2002 2002
$ $
-------------------------------------------------------------------------

Basic income (loss) per share:
As reported 0.01 0.19
Pro forma (0.01) 0.16

Diluted income (loss) per share:
As reported 0.01 0.18
Pro forma (0.01) 0.16


For the four month period ended December 31, 2002, the fair value of the
options granted and reissued was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions: risk free interest rate of 4.50%, expected dividend yield of
0%, expected volatility of 0.482 and expected option life of three years.
The weighted-average fair value of the options granted during the period
was $3.70.

For the year ended August 31, 2002, the following weighted average
assumptions were used: risk free interest rate of 4.25%, expected
dividend yield of 0%, expected volatility of 0.489 and expected option
life of three years. The weighted-average fair value of the options
granted during the year was $3.81.

The Black-Scholes 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 tradeable, 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.

7. SEGMENT INFORMATION

Trojan Technologies Inc. is a Canadian-based high technology company,
which provides technological solutions to the environmental problem of
microbial pollution in water. Trojan designs, manufactures and sells
ultraviolet ("UV") disinfection systems for municipal wastewater,
drinking water systems for residential, municipal and commercial use, and
industrial systems for food and beverage, pharmaceutical, and
semiconductor applications. Trojan also designs and installs treatment
technology for the environmental contaminant and micropollutant
destruction market.

Trojan operates worldwide in five strategic segments or arenas: Municipal
Wastewater, Municipal Drinking Water, Environmental Contaminant
Treatment, Industrial/Commercial and Residential. 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 microorganisms in water and other liquids used in many industrial
processes. The Residential arena sells UV products for disinfection of
private water supplies for homes, cottages, farms, rural commercial
establishments and resorts.

Business Segments - four month period ended December 31, 2002
-------------------------------------------------------------

Environ-
mental
Conta- Indus-
Municipal minant trial
Municipal Drinking Treat- Commer- Resi- Other
Wastewater Water ment cial dential (1) Total
$ $ $ $ $ $ $
-------------------------------------------------------------------------

Revenue (2) 18,727 3,348 3,305 4,573 1,802 - 31,755
Net
contribution (4) 3,118 1,144 1,138 830 307 - 6,537
Amortization 718 125 189 118 34 - 1,184
Additions to
capital
assets (3) 1,189 270 194 115 23 - 1,791
Segment
goodwill (3) - - - 5,923 - 5,923
Segment assets 15,250 2,704 8,284 7,722 632 77,963 112,555


Business Segments - year ended August 31, 2002
-----------------------------------------------

Environ-
mental
Conta- Indus-
Municipal minant trial
Municipal Drinking Treat- Commer- Resi- Other
Wastewater Water ment cial dential (1) Total
$ $ $ $ $ $ $
-------------------------------------------------------------------------

Revenue (2) 72,312 3,071 4,400 7,376 5,518 - 92,677
Net
contribution (4) 20,158 267 351 1,454 1,154 - 23,384
Amortization 2,611 120 225 203 123 - 3,282
Additions to
capital
assets (3) 2,639 119 5,076 6,001 99 - 13,934
Segment
goodwill (3) - - - 5,923 - - 5,923
Segment assets 18,418 800 6,819 7,112 834 86,224 120,207


Reconciliation of net contribution to net income:

Four month Year
period ended ended
December 31 August 31
2002 2002
$ $
-------------------------------------------------------------------------

Total net contribution (4) 6,537 23,384
Less
Administrative expenses 3,527 10,505
Research and development, net 1,633 4,237
Amortization 1,184 3,282
Interest, net 140 970
Loss on capital transactions - 642
Income from equity investment (308) (878)
-------------------------------------------------------------------------
Income before taxes 361 4,626
Income tax provision 189 951
-------------------------------------------------------------------------
Net income 172 3,675
-------------------------------------------------------------------------


Geographic Information
----------------------

December 31 August 31
2002 2002
----------------------- -----------------------
Capital Capital
Revenue (5) Assets (3) Revenue (5) Assets (3)
$ $ $ $
-------------------------------------------------------------------------
Canada 3,087 22,381 9,472 21,416
United States 19,708 9,825 71,639 10,317
Europe 6,812 2,384 8,603 2,250
Other 2,148 - 2,963 -
-------------------------------------------------------------------------
31,755 34,590 92,677 33,983
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>

(1) Other segment assets include all current assets, investment in other
company, government incentives and future income taxes.

(2) In the year ended August 31, 2002, a single customer in the municipal
wastewater segment represented more than 10% of consolidated revenue.

(3) Capital assets include capital assets, patents and other intangible
assets, and goodwill. In the year ended August 31, 2002, additions to
goodwill in the Industrial/Commercial segment include $4,070 in the
United States and $1,770 in Germany.

(4) Net contribution is defined as gross margin less selling expenses
directly attributable to the segment.

(5) Revenue is based on geographic location of the external customer.


For further information

contact: Allan Bulckaert, President and CEO
Douglas Alexander, Executive Vice President and CFO
Trojan Technologies, (519) 457-3400, www.trojanuv.com
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