30.10.02

30.10.2002: Meldung: Trojan Technologies Announces Year End Results

Trojan Technologies (TSX:TUV - News) today announced its operating and financial results for the fiscal year ended August 31, 2002.

"I am delighted to tell you that we have made solid progress in achieving and, in some cases, exceeding the objectives I presented to you one year ago." said Allan Bulckaert, Trojan"s President and CEO. "I am thrilled that we have turned the corner by delivering profits of $3.7 million or $0.19 per sha?nd exceeding our revenue objective. In addition, our balance sheet has never been stronger due to the return to profitability and the successful completion of two equity issues."

Financial highlights include:

- For the year ended August 31, 2002, revenues grew 26.5% to
$92.7 million from $73.3 million in the prior year. Revenue for the
quarter was $26.2 million, an increase of 37.9% compared to
$19.0 million in the fourth quarter of fiscal 2001.

- Consolidated gross margin for the year increased to 44.2% or
$40.9 million, compared to 37.3% or $27.3 million in the prior year.
Consolidated gross margin for the quarter increased to 48.1% or
$12.6 million from 36.8% or $7.0 million, in comparison to the same
quarter last year.

- On a year-to-date basis, income (loss) before other expenses (income)
amounted to $5.4 million compared to a loss of $1.5 million in
fiscal 2001. For the quarter, the earnings amounted to $1.2 million
compared to a loss of $0.7 million in the same quarter last year.

- For the year, the net income after tax was $3.7 million, compared to
a loss of $5.1 million in the prior year. On a per share basis, the
Company reported basic earnings per share of $0.19 compared to a loss
of $0.30 per share in the last fiscal year. For the fourth quarter,
Trojan reported net income after tax of $1.7 million, compared to a
loss of $3.4 million in the same quarter last year. On a per share
basis, the Company reported basic net earnings of $0.08, compared to
a loss of $0.20 per share last year.

- Shareholders" equity has grown to $84.3 million from $41.4 million at
August 31, 2001. Proceeds from equity issues completed in December
2001 and April 2002 have allowed the Company to repay all of its
short-term indebtedness. Cash on hand and marketable securities at
August 31, 2002 total $13.9 million.

During 2002, marketplace highlights included:

- Municipal wastewater disinfection market -- Revenues in 2002, which
increased 18% to $72.3 million, were impacted very positively by
production of the two largest orders in the Company"s history.
Revenue of $17.9 million was recognized on these projects in 2002 in
addition to $10.8 million recognized in 2001. The first project was
shipped in June 2002 and the second project was shipped after the
year-end in September 2002.

Trojan was also selected to supply and install wastewater
disinfection systems to four municipalities in China - the Company"s
first municipal contracts in China.

Bid activity in this market arena continued to grow. Total order
backlog in municipal wastewater was $31.1 million compared to
$38.0 million at the beginning of the year. Excluding the impact of
the two large projects discussed above, backlog at the end of 2002
was $ 30.0 million compared to $19.4 million, one year earlier,
indicating an encouraging growth in anticipated revenue from
"regular" system sales.

- Municipal drinking water market -- Revenues in this new market arena
increased to $3.1 million compared to $3.0 million in 2001. Revenues
in North America increased to $2.4 million from $0.1 million last
year reflecting the rapid initial development of the market, but
revenues in Europe were adversely impacted by delays in the
introduction of validated or certified product. Validation was
received late in the fiscal year. Including large contract wins in
Seattle, Washington, Lethbridge, Alberta and Victoria, British
Columbia, order backlog at August 31, 2002 was $9.9 million.
Subsequent to the end of the year, the Company was awarded the
contract to deliver municipal disinfection systems to the City of
Rotterdam, The Netherlands valued at over $5 million. The Company now
has orders from coast to coast in Canada, from Victoria to
St. John"s, as well as the largest orders ever placed in each of the
United States, Canada and Europe.

- Environmental contaminant treatment (ECT) -- Revenues in 2002 were
approximately $4.4 million compared to $1.3 million in the prior
year. The acquisition of Advanced UV Solutions in May 2001 was
intended to provide Trojan with "first mover" advantage in this
market place. In 2002, the Company was successful in winning projects
valued at $21.7 million. Because of the superior performance and
efficiency of its processes, Trojan has been able to translate its
technology leadership into an effective customer solution and, at the
same time, earn attractive returns on its products. Significant
contract wins including Orange County, California, valued at over
$15 million, contributed to an order backlog of $19.1 million at
August 31, 2002. In addition, Orange County will become a very
important reference site to generate future business in this market.

- Industrial and commercial process water treatment -- Revenues for the
year increased dramatically to $7.4 million from approximately
$3.1 million in 2001. The industrial and commercial market has been
identified as an attractive growth opportunity. During the year, the
Company completed the acquisition of Pureflow Ultraviolet Inc. in
Atlanta, Georgia, an established distributor of ultraviolet systems
to the industrial market, and Ueberall GmbH, a German company which
specializes in providing ultraviolet technology to the marine
drinking water sector. The Company also entered into a distribution
alliance with Ecolab Inc. (NYSE:ECL - News), specifically the North American
Food and Beverage Division to market Trojan"s UV products for the
industrial and commercial sector.

- Residential drinking water market -- Revenue for the residential
market increased to $5.5 million from $4.3 million, an increase of
28%. During the year efforts continued to broaden the distribution
reach with specific initiatives to increase retail sales as well as
establishing an increased presence in the United States market.


Review of Financial Results for the Year ended August 31, 2002

Gross Margin



Gross margin improved to 44% from 37% in 2001. There are a number of factors that contributed to the increase in margin:

- Economies of scale -- the increase of 26.5% in production revenue was
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.

- Warranty costs continued to decline as a percentage of revenue. 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.

- During the year, the Company produced two of the largest systems in
its history. Some of the early design and piloting costs were
incurred and expensed in earlier years resulting in stronger margins
in the current year.

- A number of business initiatives have contributed to improved
margins. These include an increased focus on quality processes,
ensuring effective management of suppliers as well as testing
protocols on systems prior to shipment. In addition, initiatives are
in progress to increase efficiency by producing a more standard or
standardized product offering where that meets the needs of the
customer, permitting lower manufacturing costs as well as faster
delivery times.

Administration and Selling Expenses



Administration and selling expenses were $28.0 million, an increase from $21.6 million in 2001.

Sales commissions paid increased from $4.4 million to $5.4 million, reflecting the 26.5% growth in production revenue. Other selling expenses increased by 21% to $12.1 million. The increase is attributable to sales and marketing expenses in the fast growing environmental contaminant and industrial and commercial markets, including the effect of acquisitions in these markets made in the last 18 months. Expenses were also increased by amounts earned by our sales people under variable pay incentive contracts, reflecting the increased sales order activity and backlog at the end of the year.

Administration expenses increased to $10.5 million from $7.2 million in 2001, an increase of 46%. Insurance costs more than doubled during the year reflecting the general condition of global insurance markets, the growth in the Company"s business and some limited coverage extensions initiated after a comprehensive review of the Company"s insurance programs. Additional costs were incurred as a result of restructuring the Company"s activities in Europe to more effectively integrate operations and simplify the legal structure. Legal costs related to ongoing intellectual property matters and provisions against some doubtful trade accounts receivable also contributed to the increase.

The Company has chosen to adopt early the recommendations of the Institute of Chartered Accountants with respect to disclosure of stock-based compensation. The value of the compensation is disclosed in the notes to the financial statements and the pro-forma impact on basic earnings is less than $0.03 per share in the current year.

Research and Development Expenses

The Research and Development efforts are directed at both product and technology development. The product development program ensures our products meet the needs of our customers and the technology development identifies additional opportunities for the application of the Company"s proprietary technologies. Total expenses in 2002 were $4.2 million, net of grants, compared to $3.8 million in 2001.

During 2002, the Company was focused on two important initiatives: the further development of the Company"s range of drinking water products and the development of the large systems in the environmental contaminant market.

Activities in drinking water were centred on the development of a broader range of products in the Trojan UVSwift(TN) family of products. The initial Trojan UVSwift(TM) products were designed for municipal facilities with 12- inch diameter water pipes. Recent developments have extended the product range to 24-inch, systems and larger systems are also under development. In addition, work has been undertaken to meet the needs of smaller communities.

Time and effort has also been invested to ensure that the drinking water products meet all regulatory compliance standards. Validation is critical as a prerequisite to successful market entry and during the year certain of the Company"s drinking water products received the recognized "DVGW" validation in Germany. In North America, regulatory approval for reuse applications was also sought in California through the National Water Research Institute ("NWRI").

The Company has developed a leadership position in the environmental contaminant market, building on the intellectual property acquired in the purchase of the assets of Advanced UV Solutions in 2001. During the year, the first systems were developed and delivered for the effective reduction of chemical contamination of groundwater sources.

In conjunction with the PWN Water Supply Company, the Company continued its research and development to the challenges of destroying herbicides and pesticides present in drinking water supplies. We believe this research will position the Company well for further advanced applications of UV light.

Other Expenses

Net interest was reduced to approximately $54,000 in the quarter and $1.0 million for the year as compared to $0.6 million and $1.9 million respectively in fiscal 2001 primarily due to reduced bank indebtedness. Last year"s results reflected special charges related to the write down of certain investments and the recognition of a pension obligation to a retiring executive.

Liquidity And Capital Resources

One of the Company"s objectives in 2002 was to strengthen its balance sheet. This has been accomplished through the return to profitability, the ongoing focus on effective working capital management and the successful completion of two equity issues.

Cash Flow From Operating Activities

The net cash outflow from operations was $2.6 million compared to $4.7 million inflow in 2001. Net income for the year was $3.7 million, compared to a loss of $5.1 million in the previous year. In addition, a further $0.9 million of cash was generated because the tax provision is offset against tax loss carry forwards. As a result, no cash taxes are payable on earnings for the year. Amortization is also a "non-cash" charge in the amount of $3.3 million - largely unchanged from the prior year.

Net cash flow from operations is also impacted by changes in non-cash working capital balances. In 2002, operations consumed $9.0 million of cash compared to being a source of $5.8 million in 2001. Following two years of steady improvement in working capital management and ratios, the financing of a single large project impacted the results in 2002. The specifics of the contract are explained below.

Trade accounts receivable are $24.7 million, including $8.1 million of customer holdbacks compared to $23.8 million, including approximately $7.3 million in customer holdbacks last year. Days sales in receivables, including holdbacks, have decreased to just under 100 days compared to 118 days last year. Customer holdbacks vary in length but generally fall due for payment following successful installation and performance testing of systems.

Unbilled revenue increased to $20.6 million from $8.8 million in the prior year. This account represented the value of contracts in progress, using percentage of completion accounting, as at August 31. Unbilled revenue is managed by ensuring systems are assembled as close to delivery dates as efficient production planning and quality testing will permit and by requesting progress payments on large contracts where assembly occurs over an extended period of time. At August 31, 2002 one contract represents over $11 million of the unbilled revenue for contracts in progress. This one contract was shipped in September 2002. When the contract was negotiated, we were unable to come to a satisfactory resolution on any price adjustment to reflect progress payments and, given the Company"s cash position, it was economically in the Company"s best interests to finance the project. This method of financing is not anticipated to become a common practice but was an effective use of funds prior to the intended redeployment of cash in pursuit of the Company"s acquisition program.

Cash Flow from Investing Activities

In 2002, cash used in investing activities totalled $15.5 million. The largest component of this total was the net investment of $10.4 million in marketable securities, being the investment of cash deemed excess to short term needs. The purchase price of Ueberall GmbH. was $1.8 million and investment in capital assets cost $2.2 million.

Cash Flow from Financing Activities

Financing activities in 2002 generated a net cash inflow of $20.7 million compared to a net cash outflow of $1.8 million in 2001. During the year, $36.4 million was raised through the successful completion of two equity issues.

In December 2001, the Company issued 2.1 million units at a price of $7.50 per unit, for total gross proceeds of $15.8 million. Each unit consisted of one common share and a half warrant; each whole warrant is exercisable into one common share at $8.25 until June 2003. The net proceeds were used to repay bank indebtedness.

In April and May 2002, the Company issued 2 million common shares at $10 for total proceeds of $20 million. The funds are intended to be used to support the Company"s acquisition program and will be invested in short-term marketable securities pending redeployment.

Outlook

In 2002, the Company achieved its objectives of returning to profitability and restoring financial strength to its balance sheet.

Building on this momentum, the Company anticipates further growth in 2003. Wastewater revenues are expected to decline in 2003, given that 2002 revenue benefitted from the production of two very large orders. However, growth in the other arenas will more than offset this decline and overall, organic growth in revenues is anticipated to be approximately 20%. Additional growth may come from acquisitions but the Company cannot predict with certainty whether or when transactions will be completed during the 2003 year.

It is management"s objective to achieve a 20% increase in revenues to approximately $110 million and basic earnings per share in the range of 36 to 40 cents per share, approximately double the 2002 performance.

A conference call and webcast will be held for investors, analysts and media at 4:15 pm EST on October 29, 2002. 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 (613) 688-2795 or (800) 427-6791. A taped version of the call will be available until midnight Tuesday, November 5, 2002 by calling (416) 640-1917 or (877) 289-8525 and dialling passcode number 216440 (pound 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 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. Trojan also designs and installs treatment technology for the environmental contaminant and micropollutant destruction market.

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)
(unaudited)
For the twelve For the three
months ended months ended
----------------------- -----------------------
August 31 August 31 August 31 August 31
2002 2001 2002 2001
------------------------------------------------- -----------------------
Revenue $ 92,676.5 $ 73,252.9 $ 26,223.0 $ 19,011.3
Cost of Goods Sold $ 51,751.9 $ 45,930.3 $ 13,597.8 $ 12,016.6
Gross Margin $ 40,924.6 $ 27,322.6 $ 12,625.2 $ 6,994.7
Gross Margin percentage 44.2% 37.3% 48.1% 36.8%
Income (loss) before
other expenses (income) $ 5,359.2 $ (1,533.0) $ 1,243.8 $ (748.4)
Net Income (Loss) $ 3,675.1 $ (5,109.3) $ 1,700.0 $ (3,444.2)

Earnings (loss) per share
(in dollars)
Basic $ 0.19 $ (0.30) $ 0.08 $ (0.20)
Fully diluted $ 0.18 $ (0.30) $ 0.08 $ (0.20)

Weighted Average Number
of Shares
Basic 19,796,240 17,168,392 21,813,031 17,168,392
Fully diluted 20,036,832 17,168,392 22,404,992 17,168,392


As at As at
August 31, August 31,
2002 2001
-----------------------
Working Capital $ 49,195.2 $ 15,933.9
Shareholders" Equity $ 84,256.7 $ 41,438.3
Per share Shareholders"
Equity $ 3.86 $ 2.41
Number of Shares
Outstanding 21,840,057 17,168,392



TROJAN TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
(unaudited)
As at August 31
2002 2001
-------------------------------------------------------------------------
ASSETS

Current
Cash and cash equivalents $ 3,525.8 $ 977.8
Marketable securities 10,366.4 -
Accounts receivable - trade 24,699.9 23,779.5
Accounts receivable - other 1,993.5 1,639.4
Unbilled revenue 20,612.6 8,790.5
Inventory 12,126.6 10,920.2
Prepaid expenses 584.2 331.5
Income taxes receivable 1,055.1 771.1
-------------------------------------------------------------------------
Total current assets 74,964.1 47,210.0

Investment in other company 2,375.5 1,497.1
Investment tax credits recoverable 5,959.0 4,628.0
Future income taxes 2,925.7 3,208.1
Capital assets, net 20,314.5 22,316.8
Patents and other intangible assets, net 7,744.9 2,237.2
Goodwill 5,923.4 83.4
-------------------------------------------------------------------------
$120,207.1 $ 81,180.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS" EQUITY

Current
Bank indebtedness $ 3,182.8 $ 16,046.6
Accounts payable and accrued charges 19,125.9 13,736.5
Current portion of long-term debt 3,460.2 1,493.1
-------------------------------------------------------------------------
Total current liabilities 25,768.9 31,276.2
-------------------------------------------------------------------------
Long-term debt 3,230.1 7,266.1
-------------------------------------------------------------------------
Other long-term liabilities 6,951.4 1,200.0
-------------------------------------------------------------------------

Shareholders" equity
Share capital 84,369.0 43,357.5
Retained earnings (deficit) (112.3) (1,919.2)
-------------------------------------------------------------------------
84,256.7 41,438.3
-------------------------------------------------------------------------
$120,207.1 $ 81,180.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes



TROJAN TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS RETAINED EARNINGS (DEFICIT)
(in thousands of dollars)
(unaudited)
For the twelve For the three
months ended months ended
----------------------- -----------------------
August 31 August 31 August 31 August 31
2002 2001 2002 2001
----------------------- -----------------------
Retained earnings
(deficit), beginning
of period (1,919.2) 3,190.1 (1,812.3) 1,525.0
Net income (loss) 3,675.1 (5,109.3) 1,700.0 (3,444.2)
Share issue costs net
of taxes (1,868.2) - - -
------------------------------------------------- -----------------------
Retained earnings
(deficit), end of
period $ (112.3) $( 1,919.2) $ (112.3) $ (1,919.2)
------------------------------------------------- -----------------------
------------------------------------------------- -----------------------
See accompanying notes



TROJAN TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands of dollars)
(unaudited)
For the twelve For the three
months ended months ended
----------------------- -----------------------
August 31 August 31 August 31 August 31
2002 2001 2002 2001
----------------------- -----------------------
REVENUE $ 92,676.5 $ 73,252.9 26,223.0 19,011.3
Cost of goods sold 51,751.9 45,930.3 13,597.8 12,016.6
------------------------------------------------- -----------------------
Gross margin 40,924.6 27,322.6 12,625.2 6,994.7
------------------------------------------------- -----------------------
EXPENSES
Administrative and
selling expenses 28,046.7 21,627.0 9,372.9 5,615.2
Research and development,
net 4,237.1 3,826.1 921.7 1,089.0
Amortization 3,281.6 3,402.5 1,086.8 1,038.9
------------------------------------------------- -----------------------
35,565.4 28,855.6 11,381.4 7,743.1
------------------------------------------------- -----------------------
Income (loss) before other
expenses (income) 5,359.2 (1,533.0) 1,243.8 (748.4)

Other expenses (income)
Interest, net 970.2 1,884.2 53.6 563.7
Loss on capital
transactions 641.6 830.8 (0.4) 830.8
Loss (income) from equity
investment (878.3) (389.7) (463.3) 100.3
Pension obligation - 1,200.0 - 1,200.0
------------------------------------------------- -----------------------
Operating income (loss) 4,625.7 (5,058.3) 1,653.9 (3,443.2)

Income taxes - current 98.6 96.0 13.9 -
Income taxes - future 852.0 (45.0) (60.0) 1.0
------------------------------------------------- -----------------------
Net income (loss) 3,675.1 (5,109.3) 1,700.0 (3,444.2)
------------------------------------------------- -----------------------
Earnings (loss) per share
(in dollars)
Basic 0.19 (0.30) 0.08 (0.20)
Fully diluted 0.18 (0.30) 0.08 (0.20)

Number of shares
(in thousands)
Basic 19,796.2 17,168.4 21,813.0 17,168.4
Fully diluted 20,036.8 17,168.4 22,405.0 17,168.4
------------------------------------------------- -----------------------
------------------------------------------------- -----------------------
See accompanying notes



TROJAN TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
For the twelve For the three
months ended months ended
----------------------- -----------------------
August 31 August 31 August 31 August 31
2002 2001 2002 2001
------------------------------------------------- -----------------------
OPERATING ACTIVITIES
Net income (loss) $ 3,675.1 $ (5,109.3) $ 1,700.0 $ (3,444.2)
Add (deduct) charges
(credits) to operations
not affecting cash
Amortization 3,281.6 3,402.5 1,086.8 1,038.9
Loss (income) from
equity investment (878.3) (389.7) (463.3) 100.3
Future income taxes 852.0 (45.0) (60.0) 1.0
Investment tax credits
recoverable (1,331.0) (900.0) (575.0) 300.0
Loss on capital
transactions 641.6 830.8 (0.4) 830.8
Pension obligation 82.9 1,200.0 41.4 1,200.0
Net change in non-cash
working capital balances
related to operations (8,967.2) 5,752.4 (5,465.4) (926.3)
------------------------------------------------- -----------------------
(2,643.3) 4,741.7 (3,735.9) (899.5)
------------------------------------------------- -----------------------
INVESTING ACTIVITIES
Additions to capital
assets (2,199.0) (1,508.0) (943.2) (349.6)
Additions to patents and
other intangible assets (971.5) (346.2) (687.3) (150.6)
Dividend received from
equity investment - 490.0 - 490.0
Purchase of marketable
securities (12,879.9) - (12,879.9) -
Sale of marketable
securities 2,513.5 - 2,513.5 -
Acquisitions, net of
cash acquired (1,967.8) (1,330.4) (19.1) (51.0)
------------------------------------------------- -----------------------
(15,504.7) (2,694.6) (12,016.0) (61.2)
------------------------------------------------- -----------------------
FINANCING ACTIVITIES
Decrease in bank
indebtedness (12,863.8) (5,301.2) 3,182.8 691.2
Issuance of common shares 36,374.5 - 335.3 -
Share issue costs (2,598.4) - 37.8 -
Cash proceeds on sale of
capital assets 285.5 - - -
Advances from TPC 1,567.1 - 350.9 -
Advances of long-term debt 17.5 4,693.9 - 0.9
Repayment of long-
term debt (2,086.4) (1,180.0) (263.8) (262.7)
------------------------------------------------- -----------------------
20,696.0 (1,787.3) 3,643.0 429.4
------------------------------------------------- -----------------------
Net increase (decrease)
in cash and cash
equivalents during
the period 2,548.0 259.8 (12,108.9) (531.3)
Cash and cash equivalents,
beginning of period 977.8 718.0 15,634.7 1,509.1
------------------------------------------------- -----------------------
Cash and cash equivalents,
end of period $ 3,525.8 $ 977.8 $ 3,525.8 $ 977.8
------------------------------------------------- -----------------------
------------------------------------------------- -----------------------
See accompanying notes



1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have
been prepared by the Company in accordance with Canadian generally
accepted accounting principles. These unaudited 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, 2001.


2. INTELLECTUAL PROPERTY

On March 6, 2001, the Company acquired the assets of Advanced Ultra
Violet Solutions (AUVS) for initial consideration of US$500,000
(CA$778,100) plus costs of CA$137,800. 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 million or for a period of 10 years whichever came first.
During fiscal 2002, this agreement was renegotiated, resulting in a
fixed purchase price of US$4 million payable over five years. The
payment due September, 2002 has been included in accounts payable and
accrued charges. The remaining three payments, of US$859,636
(CA$1,340,086) each, have been discounted at a rate of 6%; the total
balance of US$3,157,441 (CA$4,922,135) is included in other long-term
liabilities. The intellectual property amounting to CA$5,838,053 is
included in patents and other intangible assets and is being
amortized over its estimated useful life of 10 years as a proportion
of related segment revenue.


3. 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 $3.3 million
relating to specific research projects having a total estimated cost
of $10 million. The Company is obligated under its agreement to repay
TPC by way of a royalty commencing in 2004 based upon the total
revenue of the Company. The agreement contemplates that this royalty
will have both a minimum and a maximum amount. At August 31, 2002,
$519,283 (nil in 2001) owing for claims made under the TPC agreement
has been reflected in the account receivable - other, and the
repayment obligation of $2,086,430 has been recorded as a deferred
technology credit in other long-term liabilities.


4. INCOME TAXES

At August 31, 2002, the Company has approximately $1,872,000 of
Federal and $8,061,000 of Ontario non-capital losses that will start
to expire in 2006. The Company"s subsidiaries have approximately
$1,700,000 of net operating losses carrying forward. Unused
Scientific Research and Experimental Development deductions of
approximately $11,104,000 are available for carryforward indefinitely
for Federal and Ontario tax purposes. For financial reporting
purposes, a future tax asset has been recorded in respect of these
losses carrying forward and unused deductions. In addition, the
Company has approximately $5,959,000 of investment tax credits
available to reduce future Federal taxes payable that will start to
expire in 2006 and $484,000 of Ontario corporate minimum tax that
will start to expire in 2006.


5. ACQUISITIONS

(a) Pureflow Ultraviolet, Inc.

Effective September 1, 2001, the Company purchased 100% of the
issued shares of Pureflow Ultraviolet Inc. for consideration
and related costs of $5,860,000.

Pureflow Ultraviolet Inc., 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 $4,637,107 and cash of $1,222,893, including expenses.

(b) Ueberall GmbH

Effective May 8, 2002, the Company purchased 100% of the issued
shares of Ueberall GmbH for cash consideration and related
costs of $1,818,531.

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.

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
$ $ $
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Cash (bank indebtedness) 1,241.0 (167.4) 1,073.6
Total assets other than cash 642.0 420.0 1,062.0
Total liabilities (93.0) (204.1) (297.1)
Excess of purchase price over fair
value of net assets (goodwill) 4,070.0 1,770.0 5,840.0
---------------------------------------------------------------------
Total purchase price 5,860.0 1,818.5 7,678.5
(Less cash acquired) add bank
indebtedness assumed (1,241.0) 167.4 1,073.6
---------------------------------------------------------------------
Purchase price paid net of
cash acquired 4,619.0 1,985.9 6,604.9
Less consideration paid through
share issuance (4,637.1) - (4,637.1)
---------------------------------------------------------------------
Net cash paid (acquired)
on purchase (18.1) 1,985.9 1,967.8
---------------------------------------------------------------------
---------------------------------------------------------------------


6. CHANGE IN ACCOUNTING POLICIES

(a) The Canadian Institute of Chartered Accountants (CICA) has
issued new accounting recommendations for the measurement,
presentation and disclosure for goodwill and other intangible
assets. The Company has adopted these recommendations effective
September 1, 2001 as permitted by the CICA Handbook Section
3062. The most significant change under the new recommendations
is that goodwill and intangibles with indefinite lives are no
longer amortized, but are subject to at least an annual
assessment for impairment by applying a fair value test. If
goodwill amortization had not been recorded for the same period
last year, the net loss for the year ended August 31, 2001
would have decreased by $107,190 and would have decreased the
loss per share by $0.01 to $0.29 per share. Amortization
amounting to $385,840 ($330,761 in 2001) is provided on patents
and other intangible assets over their estimated useful lives
ranging from five to 17 years.

(b) The CICA has also issued new accounting recommendations for the
presentation and disclosure of basic and fully diluted earnings
per share. The Company has adopted these recommendations on a
retroactive basis effective September 1, 2001. The most
significant change under the new recommendations is the use of
the treasury stock method instead of the imputed earnings
approach to computing diluted earnings per share. Under the
treasury stock method:

- The exercise of options is assumed to have taken place at
the beginning of the period (or at the time of issuance, if
later);
- The proceeds from the exercise are assumed to be used to
purchase common stock at the average market price during the
period; and
- The incremental shares (the difference between the number of
shares assumed issued and the number of shares assumed
purchased) are included in the denominator of the diluted
earnings per share calculation.


(c) Effective September 1, 2001, the Company adopted the
recommendations in Handbook Section 3870, Stock-Based
Compensation and Other Stock-Based Payments, issued by the
Canadian Institute of Chartered Accountants. The new
recommendations are applicable only to awards granted by the
Company after the date of adoption.

The Company has four stock-based compensation plans. No
compensation expense is recognized for these plans when stock
or stock options are issued to employees. Any consideration
paid by employees and directors on exercise of stock options or
purchase of stock is credited to share capital.

Stock options and warrants awarded to non-employees and non-
directors are accounted for using the fair value method. The
Company has elected to follow the recommended disclosures
related to stock options granted to employees and directors. As
a result, no compensation expense for stock options granted to
employees and directors is recognized, however, pro forma
disclosure of net income and net income per share is provided
as if these awards were accounted for using the fair value
method. Consideration paid on the exercise of stock options and
warrants is credited to share capital.


7. SHARE CAPITAL

On December 17, 2001, the Company issued 2,110,000 units at a price
of $7.50 per unit, for total gross proceeds of $15,825,000. 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 million. On
May 30, 2002, the Company issued an additional 200,000 common shares
at $10.00 per common share to cover over-allotments. During the
quarter, the Company issued 5,925 common shares for aggregate
proceeds of $48,881 pursuant to the exercise of options and 48,500
common shares for aggregate proceeds of $286,450 pursuant to the
exercise of warrants.

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 diluted income per common share as if
stock options granted to employees had been determined based on the
fair value method. The table includes all stock options granted by
the Company during the year ended August 31, 2002:

2002
$
---------------------------------------------------------------------
Net income 3,675,100
Compensation expense 465,077
---------------------------------------------------------------------
Pro forma net income 3,210,023
---------------------------------------------------------------------
---------------------------------------------------------------------

2002
$
---------------------------------------------------------------------
Basic income per share:
As reported 0.19
Pro forma 0.16

Diluted income per share:
As reported 0.18
Pro forma 0.16


The fair value of the options granted 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 4.25%,
expected dividend yield of 0%, expected volatility of 0.4892 and
expected option life of 3 years. The weighted-average fair value of
the options granted during the year was $3.36 per option.

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 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.


8. SEGMENT INFORMATION (in thousands of dollars)

Trojan operates worldwide in five strategic segments or arenas:
municipal wastewater, municipal drinking water, environmental
contaminant treatment, industrial and 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 ground water supplies and to
provide an additional barrier against organic micro pollutants. The
industrial and 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.

------------------------------------------------------------------------
Environ-
Municipal mental Industrial
Municipal Drinking Contaminant and Resi-
Wastewater Water Treatment Commercial dential Total
$ $ $ $ $ $
-------------------------------------------------------------------------

Year ended August 31, 2002
-------------------------------------------------------------------------
Revenue 72,311.8 3,070.8 4,399.7 7,375.8 5,518.4 92,676.5
-------------------------------------------------------------------------
Net
contribution 20,158.3 267.0 350.8 1,454.5 1,153.8 23,384.4
-------------------------------------------------------------------------

Year ended August 31, 2001
-------------------------------------------------------------------------
Revenue 61,491.7 3,045.1 1,271.3 3,136.2 4,308.6 73,252.9
-------------------------------------------------------------------------
Net
contribution 11,174.4 (23.1) 265.0 260.5 1,036.7 12,713.5
-------------------------------------------------------------------------

Three months ended August 31, 2002
-------------------------------------------------------------------------
Revenue 19,008.5 646.2 2,637.6 1,920.1 2,010.6 26,223.0
-------------------------------------------------------------------------
Net
contribution 5,756.4 (77.9) 660.4 169.2 520.0 7,028.1
-------------------------------------------------------------------------

Three months ended August 31, 2001
-------------------------------------------------------------------------
Revenue 14,083.7 1,100.4 1,271.3 1,189.3 1,366.6 19,011.3
-------------------------------------------------------------------------
Net
contribution 2,576.7 (205.3) 265.0 193.7 375.5 3,205.6
-------------------------------------------------------------------------
Net contribution is defined as gross margin less selling expenses.



Reconciliation of net contribution to net income (loss):

Year ended Three months ended
August 31 August 31
----------------------- -----------------------
2002 2001 2002 2001
$ $ $ $
------------------------------------------------- -----------------------
Total net contribution 23,384.4 12,713.5 7,028.1 3,205.6
Less
Administrative expenses 10,506.5 7,017.9 3,775.8 1,826.1
Research and development,
net 4,237.1 3,826.1 921.7 1,089.0
Amortization 3,281.6 3,402.5 1,086.8 1,038.9
Interest, net 970.2 1,884.2 53.6 563.7
Loss on capital
transactions 641.6 830.8 (0.4) 830.8
Loss (income) from
equity investment (878.3) (389.7) (463.3) 100.3
Pension obligation - 1,200.0 - 1,200.0
-------------------------------------------------------------------------
Operating income (loss) 4,625.7 (5,058.3) 1,653.9 (3,443.2)
Income tax provision 950.6 51.0 (46.1) 1.0
-------------------------------------------------------------------------
Net income (loss) 3,675.1 (5,109.3) 1,700.0 (3,444.2)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>


For further information

Allan Bulckaert, President and CEO, Douglas Alexander, Executive Vice President and CFO, Trojan Technologies, (519) 457- 3400, www.trojanuv.comeberit.jpg8AP
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