Trojan Technologies Announces First Quarter Results

May 21, 2003, 01:00 ET from Trojan Technologies Inc.

    LONDON, ON, May 21 /PRNewswire-FirstCall/ - Trojan Technologies Inc.
 (TSX/TUV) today announced its financial and operating results for the three-
 month period ended March 31, 2003.
     "We have made solid progress in the development of our business" said
 Allan Bulckaert, President and Chief Executive Officer of Trojan Technologies
 Inc. "Revenues have grown by 17% and order backlog continues to be strong. Net
 income is affected by the disappointing outcome of our attempt to acquire a
 publicly-traded German water treatment company. Fortunately we have a strong
 balance sheet and the liquidity to withstand this special charge and we are
 determined to deliver improved results throughout the balance of the year."
     Because the Company has changed its financial year-end from August to
 December, the first quarter results in this report are compared to the three
 months ended February 28, 2002, the Company's second quarter under its
 previous reporting schedule. In accordance with accepted practice, this period
 has been selected as the comparative because it is the closest to March 31.
     Financial highlights include:
     -   For the three months ended March 31, 2003, revenues grew 17% to
         $26.6 million from $22.7 million in the three months ended February
         28, 2002.
     -   Consolidated gross margin for the three-month period was
         $10.3 million or 38.7%, compared to $9.6 million or 42.1% in the
         three-month period ended February 28, 2002.
     -   Earnings before interest, taxes, amortization and other items
         amounted to $1.6 million compared to $2.4 million in the three months
         ended February 28, 2002.
     -   The Company has recorded a charge of $9.5 million representing
         advisory fees and costs incurred in connection with negotiations to
         acquire a publicly traded, German-based water treatment company. On
         May 7, 2003, Trojan was advised that the other party was not willing
         to proceed and discussions have been terminated. All costs incurred
         have been expensed during the first quarter.
     -   For the quarter, Trojan reported a net loss of $7.1 million or
         $0.32 per share, compared to net income of $1.1 million or $0.06 per
         share in the three-month period ending February 28, 2002.
     -   Order backlog at March 31, 2003 was at $81.4 million, compared to
         $69.4 million at December 31, 2002.
     -   Cash and marketable securities totalled $9.4 million compared to
         $5.7 million at December 31, 2002. Approximately $7.7 million of the
         failed transaction costs remained to be paid after March 31.
     -   Shareholders' equity is $77.6 million compared to $84.5 million at
         December 31, 2002.
     More details about Trojan Technologies' financial performance are
 contained in the following Report to Shareholders.
       Report to Shareholders for the Three Months ended March 31, 2003
     President's Message
     To Our Shareholders
     I have mixed emotions in presenting to you our operating and financial
     results for the first quarter of 2003. I am obviously disappointed over
     the setback to the acquisition component of our growth plan. On the other
     hand, I am buoyed by our continued success operationally. Despite a slow
     economy in the United States and major global events creating some
     instability, we have been able to increase our revenues for the quarter
     by 17%. Even more encouraging is our strong order backlog of
     $81.4 million, which gives us good visibility of our revenues for the
     balance of 2003 and into 2004.
     Our recently terminated initiative to acquire a publicly traded German-
     based water treatment company was a significant undertaking that we
     believe would have been beneficial to customers, shareholders and
     employees. The decision of the other party not to proceed was
     disheartening, and we have subsequently expensed all our costs associated
     with this project. I realize the costs we incurred appear very high. As I
     have explained in conversations with shareholders, the German takeover
     code with which we were working was complex. In addition to the details
     of combining two companies, we were simultaneously working on a German
     stock exchange listing, as well as equity and debt financings. Regulatory
     requirements to mail an offer document to shareholders within four weeks
     of a public announcement necessitated that all of these elements had to
     be substantially completed in advance. Despite this setback, I remain
     convinced this would have been an attractive acquisition and our decision
     to move forward with discussions was the right one. However, without the
     ongoing full support of the other party's major shareholder and
     supervisory board, we do not believe a public offer would be successful
     at this time.
     Throughout our negotiation period, our senior management team remained
     very focused on our business. Their efforts are reflected in strong
     operational performance. In the period, we were awarded a $16.0 million
     contract for wastewater treatment systems to be installed near Birmingham
     Alabama. Bidding activity continues to grow in the municipal drinking
     water segment with bids valued at over $4.0 million submitted in North
     America. We also announced a $1.7 million order in the environmental
     contaminant treatment market for UV-oxidation equipment to be installed
     in California. We have grown our industrial and commercial sales
     management team through the addition of two experienced sales managers in
     the United States. Our European business has seen good growth with
     revenues climbing by 55% over the comparable period last year. The
     outlook is encouraging with recent contract wins announced this month
     valued at approximately $2.4 million adding to our order backlog.
     Trojan has an aggressive strategy for growth to achieve revenues of
     $250 million by 2006. This objective includes organic growth supplemented
     by acquisitions and strategic alliances. We have diversified from our
     core wastewater business, and are seeing encouraging growth in our four
     other business segments. To reach our targets, we will continue to
     execute this strategy as we have already generated strong organic growth
     over the past 18 months. In addition, we will continue to look for
     acquisitions that will supplement our distribution reach or will
     complement our existing technology and help generate additional sales of
     UV systems. While we are not contemplating any transactions on the scale
     of our recent effort, there are several much smaller but interesting
     opportunities that will be evaluated in the coming months.
     In closing I thank you, our shareholders, for your support and continued
     confidence. I can assure you that we are moving forward with an increased
     determination to deliver results. Our operations are strong and we are
     well positioned to provide our customers with the clean water solutions
     they need. By executing diligently on our plan, we will deliver value for
     our customers, shareholders and employees.
     Allan Bulckaert
     President and Chief Executive Officer
     May 21, 2003
                         Financial Analysis of Results
     Revenue for the quarter was $26.6 million, an increase of 17% compared to
 $22.7 million for the three months ended February 28, 2002. Gross margin for
 the quarter was 38.7% compared to 42.1% in the previous year. The net loss for
 the quarter was $7.1 million after the special charge, at $0.32 per share. The
 net income for the three months ended February 28, 2002 was $1.1 million or
 $0.06 per share.
     Analysis by Market
     Revenue for the quarter increased by 17%. Revenue from municipal
 wastewater disinfection and environmental contaminant treatment systems
 declined but was offset by increases in the municipal drinking water,
 industrial and commercial and residential businesses. Results by segment are
 as follows:
     -   Municipal wastewater disinfection revenue was $18.4 million compared
         to $18.6 million for the three- month period ending February 28,
         2002. Revenue last year was very positively impacted by two large
         contracts. In the absence of large contracts in the current year, we
         had forecast a decline in wastewater project revenue in the current
         year and the quarterly results are in line with expectations. Revenue
         from after market sales and service increased by 31% in the quarter
         to $3.7 million compared to $2.9 in the previous year.
         During the quarter, the Company announced that it had been awarded a
         $15.7 million contract by Jefferson County for the Valley Creek
         Wastewater Treatment Plant near Birmingham, Alabama. The system is
         scheduled for delivery in 2004. Once operational, the plant will
         treat approximately 600 million gallons of wastewater per day.
     -   Municipal drinking water revenue was $4.1 million, an increase of
         355% compared to $0.9 million in the similar period last year. The
         demand for ultraviolet disinfection solutions continues to be very
         strong in North America as municipalities move toward implementation
         of multibarrier approaches to disinfection strategy. During the
         quarter, the Company was active in preparing bids for over 26
         projects in North America where it is anticipated that municipalities
         will make purchase decisions within the next fiscal year. Of these
         bids, 21 contracts have been awarded and of these, Trojan has been
         awarded 16 contracts with a value of $2.3 million.
     -   Environmental contaminant treatment revenue was $0.2 million in the
         quarter. No revenue was recorded in the three months ended February
         28, 2002. Because of the timing of projects, there was very little
         production revenue during the quarter. With $22 million of project
         backlog for delivery in 2003, revenues will pick up in future
     -   Industrial and commercial revenue increased by 23% to $2.5 million
         from $2.1 million in the previous year. Revenue in North American has
         slowed during the quarter in this market segment reflecting the state
         of the economy and global uncertainty.
     -   Residential market revenue increased by 24% to $1.4 million compared
         to $1.1 million for the three months ended February 28, 2002. Revenue
         growth of 24% reflects success of promotions to acquire new accounts
         and generate sales in what is traditionally a seasonally slower time
         of the year.
     Backlog for municipal and ECT markets was $81.4 million. Approximately
 $36.5 million will be produced in 2003 with the remainder in 2004.
     Gross Margin
     Consolidated gross margin for the quarter was 38.7% or $10.3 million
 compared to 42.1% or $9.6 million in the three months ended February 28th,
 2002. Gross margin for the quarter is below our expectations for the full year
 and is impacted by the mix of product revenue. Increased production during the
 quarter, which is beneficial to gross margin, was offset by the impact of
 increased sales in Europe, where margins are traditionally somewhat lower.
     Operating Expenses
     Operating expenses, including general and administrative and selling and
 increased by 13.7% to $7.1 million or 26.8% of revenue from $6.3 million or
 27.6% of revenue for the three months ended February 28, 2002. The increase in
 costs is largely attributable to the 17% growth in the business. Research and
 development costs were $1.6 million for the quarter compared to $0.9 million
 for the three months ended February 28, 2002 reflecting increased activity in
 the development of product for the municipal drinking market. At 5.8% of
 revenue, research development costs are outside the normal range of between 4%
 and 5%. This reflects the timing of certain product development initiatives
 and costs are expected to return to within the anticipated range over the
 balance of the year.
     Other Expenses and Special Charge
     Interest and bank charges were reduced to approximately $0.13 million in
 the quarter compared to $0.23 million for the three months ended February 28,
 2002 reflecting reduced indebtedness and increased balances of cash and
 marketable securities.
     During the quarter, the Company has taken a special charge with respect
 to the costs of a failed business combination. Because of the complexity of
 acquiring a German public company under Germany's new takeover code, Trojan
 incurred advisor fees and expenses totaling approximately $9.5 million. In
 preparation for the proposed transaction, Trojan had prepared and negotiated
 extensive documentation including draft business combination and other legal
 agreements. As the proposed transaction involved a partial share exchange,
 Trojan had taken the steps necessary to apply to list its shares on a European
 stock exchange, a requirement of the new German takeover code, and to prepare
 the necessary offer documents. The listing documentation was extensive and
 included the preparation of pro forma financial statements. The cash component
 of the offer would have required Trojan to raise additional equity and
 borrowings and costs have been incurred to prepare a prospectus and to pay
 bank commitment fees. In addition, extensive due diligence had been completed
 and a fairness opinion prepared. Unfortunately, applicable German law required
 that all of these steps had to be largely completed in advance of entering
 into any legally binding agreements between the parties.
     Liquidity and Capital Resources
     The Company's net cash position improved in the quarter reflecting the
 continued management of working capital. Cash and cash equivalents on hand,
 net of bank indebtedness, at March 31, 2003, was $5.3 million compared to
 $1.6 million at the end of the prior fiscal year in December 31, 2002. Cash
 generated from operations was $3.7 million compared to $2.1 million at
 February 28, 2002. Increased production in progress during the quarter
 consumed $5.5 million of working capital, but was offset by cash generated by
 a $9.0 million decrease in trade accounts receivable.
     Including marketable securities, the Company has liquid assets of
 $9.4 million. Of the $9.5 million of transaction costs, approximately
 $1.8 million had been paid by March 31, 2003 and the balance has either been
 paid or will be paid shortly. While these costs will impact the Company's
 short-term cash position, the Company has the liquidity to meet these
     As at March 31, 2003 there are 1,017,850 warrants outstanding to purchase
 common shares at $8.25 prior to June 17, 2003. Subsequent to March 31, 2003,
 305,000 warrants have been exercised.
     In order to protect the Company from the possibility of loss related to
 the cash flows relating to future export sales in U.S. dollars should the
 value of the U.S. dollar decline relative to the Canadian dollar, the Company
 has entered into forward foreign exchange rate contracts that oblige it to
 sell specific amounts of U.S. dollars at set future dates at predetermined
 exchange rates. The amount of future U.S. dollar cash flows are projected in
 light of current conditions in the Company's markets, existing orders from
 customers and the Company's past experience in similar circumstances.
     Over the next 9 months, the terms of the contracts will result in the
 Company selling US$18 million at a weighted average exchange rate of $1.5665
 Canadian. In addition, contracts are in place to sell US$21 million in 2004 at
 an average rate of $1.589 Canadian and in 2005, US$15 million has been sold
 forward at an average rate of $1.588 Canadian. These forward exchange
 contracts are designated as hedges of future cash flows.
     A conference call and webcast will be held for investors, analysts and
 media at 10:00 am EST on May 22, 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. The live webcast and a rebroadcast will be available at A taped version of the call will be available until midnight
 Thursday, May 29, 2003 by calling (416) 640-1917 or (877) 289-8525 and dialing
 passcode number 21002327 (No.).
     Trojan Technologies is a Canadian based, high technology environmental
 company operating internationally. With more than 20 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 press release contains certain forward looking statements. All
     statements, other than statements of historical fact included herein
     including, without limitation, statements regarding results and future
     plans are forward looking statements that involve risks and
     uncertainties. There can be no assurance that such statements will prove
     to be accurate and actual results and future events could differ
     materially from those anticipated in such statements. Important factors
     that could cause actual results to differ materially from the
     expectations are disclosed under the heading "risk factors" and elsewhere
     in Trojan's documents filed with the Toronto Stock Exchange and Canadian
     securities regulatory authorities.
     Trojan Technologies Inc.
     Incorporated under the laws of Ontario
     (Thousands of Canadian Dollars)                    March 31  December 31
                                                            2003         2002
                                                               $            $
     Cash and cash equivalents                             5,679        2,011
     Marketable securities                                 3,688        3,688
     Accounts receivable - trade                          25,442       34,437
     Accounts receivable - other                           1,235        1,502
     Unbilled revenue                                     15,295        9,842
     Inventory                                            16,335       13,967
     Prepaid expenses                                        872        1,289
     Total current assets                                 68,546       66,736
     Investment                                            2,871        2,683
     Government incentives recoverable (note 6)            4,200        5,591
     Future income taxes (note 6)                          5,885        2,955
     Capital assets, net                                  19,765       20,193
     Patents and other intangible assets, net              8,616        8,474
     Goodwill                                              5,923        5,923
                                                         115,806      112,555
     Bank indebtedness                                       374          386
     Accounts payable and accrued charges                 27,434       16,823
     Income taxes payable                                     85          147
     Current portion of long-term debt                       526          528
     Current portion of other long-term liabilities        1,306        1,379
     Total current liabilities                            29,725       19,263
     Long-term debt                                        2,932        3,060
     Other long-term liabilities                           5,588        5,706
     Shareholders' equity
     Share capital (note 7)                               84,605       84,466
     Retained (deficit) earnings                          (7,044)          60
     Total shareholders' equity                           77,561       84,526
                                                         115,806      112,555
     See accompanying notes
     Trojan Technologies Inc.
     (Thousands of Canadian Dollars)                     For the      For the
                                                           Three        Three
                                                    months ended months ended
                                                        March 31, February 28,
                                                            2003         2002
                                                                      (note 1)
     Retained earnings (deficit), beginning of period         60       (2,331)
     Net (loss) income                                    (7,104)       1,143
     Share issue costs, net of taxes (note 7)                  -         (892)
     Deficit, end of period                               (7,044)      (2,080)
     See accompanying notes
     Trojan Technologies Inc.
     (Thousands of Canadian Dollars)                     For the      For the
                                                           Three        Three
                                                    months ended months ended
                                                        March 31, February 28,
                                                            2003         2002
                                                               $            $
                                                                      (note 1)
     REVENUE                                              26,599       22,739
     Cost of goods sold                                   16,310       13,172
     Gross margin                                         10,289        9,567
     Administrative and selling expenses                   7,125        6,268
     Research and development, net                         1,555          924
     Amortization                                            820          681
                                                           9,500        7,873
     Income before other income (expenses)                   789        1,694
     Other income (expenses)
     Interest, net                                          (131)        (234)
     Income from equity investment                           188          160
     Abandoned transaction costs (note 5)                 (9,500)           -
     (Loss) income before taxes                          (8,654)       1,620
     Income tax (recovery) provision (note 6)             (1,550)         477
     Net (loss) income                                    (7,104)       1,143
     (Loss) earnings per share (note 7)
     Basic and fully diluted                               (0.32)        0.06
     Number of shares
     Basic                                            21,866,174   19,382,321
     Fully diluted                                    21,866,174   19,447,296
     See accompanying notes
     Trojan Technologies Inc.
     (Thousands of Canadian Dollars)                     For the      For the
                                                           Three        Three
                                                    months ended months ended
                                                        March 31, February 28,
                                                            2003         2002
                                                               $            $
                                                                      (note 1)
     Net (loss) income                                    (7,104)       1,143
     Add (deduct) charges (credits) to operations
      not involving cash
       Amortization                                          820          681
       Income from equity investment                        (188)        (160)
       Future income taxes                                (1,637)         451
       Government incentives                                  75         (121)
       Interest on pension obligation                         23            -
       Interest on deferred intellectual
        property payments                                     51            -
       Foreign exchange gain                                (253)           -
                                                          (8,213)       1,994
     Net change in non-cash working capital items:
       Accounts receivable - trade                         8,995        1,949
       Accounts receivable - other                          (215)         162
       Unbilled revenue                                   (5,453)      (5,208)
       Inventory                                          (2,368)         767
       Prepaid expenses                                      417          (72)
       Income taxes receivable                                 -          136
       Accounts payable and accrued charges               10,611        2,398
       Income taxes payable                                  (39)           -
                                                           3,735        2,126
     Additions to capital assets                            (363)        (384)
     Additions to patents and other intangible assets       (171)         (32)
                                                            (534)        (416)
     Decrease in bank indebtedness                           (12)     (15,568)
     Issuance of common shares (note 7)                      139       15,825
     Share issue costs                                         -       (1,228)
     Repayable advances from TPC (note 4)                    482          860
     Payment on pension obligation                           (12)           -
     Advances of long-term debt                                -           17
     Repayment of long-term debt                            (130)        (627)
                                                             467         (721)
     Net increase in cash and cash equivalents,
      during the period                                    3,668          989
     Cash and cash equivalents, beginning of period        2,011        1,018
     Cash and cash equivalents, end of period              5,679        2,007
     See accompanying notes
     Notes to Consolidated Financial Statements - Unaudited
     March 31, 2003 (Thousands of Canadian Dollars, Except for Per Share Data)
     Trojan Technologies Inc. (the "Company") changed its fiscal year-end from
     August 31 to December 31 effective December 31, 2002. Accordingly, for
     the statements of deficit, (loss) income and cash flows, the comparative
     interim period for the three month period ended March 31, 2003 is the
     three month period ended February 28, 2002.
     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 2002
     Report to Shareholders for the four-month period beginning September 1,
     2002 and ending December 31, 2002.
     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 $1,231 ($1,304 at December 31,
     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.
     During the current period, the Company utilized all of the available
     funding.  The Company is obligated under its agreement to pay TPC by way
     of a royalty commencing in December 2005 based upon the total revenue of
     the Company.  The agreement contemplates that this royalty will have both
     a minimum and a maximum amount.
     At March 31, 2003, $3,322 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
     $3,322 claimed, approximately $2,908 ($2,425 at December 31, 2002) has
     been received while the remaining amount of approximately $414 ($482 at
     December 31, 2002) is reflected as Accounts receivable - other.
     The fair market value of the Deferred technology credit using a 6%
     discount rate is $1,535 ($1,513 at December 31, 2002).
     Subsequent to the quarter end, the Company announced that negotiations to
     acquire 100% of the shares of a publicly traded, European-based water
     treatment company, had been called off after several months of
     negotiations. Trojan had prepared and negotiated extensive documentation
     including draft business combination and other legal agreements. Because
     of the complexity of acquiring a public company under the applicable
     takeover code, the Company incurred advisor fees and expenses amounting
     to approximately $9,500 that have been charged to income for the three
     months ended March 31, 2003.
     At March 31, 2003 the Company has approximately $7,660 of Federal and
     $12,420 of Ontario non-capital losses that will start to expire in 2005.
     A future tax asset has been recorded in respect of these losses carrying
     At March 31, 2003, the Company's subsidiaries have approximately $3,451
     of net operating losses carrying forward. A future tax asset has been
     recorded in respect of $1,951 of the losses carrying forward.
     At March 31, 2003, unused Scientific Research and Experimental
     Development (SRED) deductions of approximately $11,242 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 $4,200 of investment tax
     credits available to reduce future Federal taxes payable that will start
     to expire in 2007 which are included on the consolidated balance sheets
     under the caption Government incentives recoverable.
     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.
     During the three months ended March 31, 2003, the Company issued 6,000
     common shares for aggregate proceeds of $38 pursuant to the exercise of
     options and 12,200 common shares for aggregate proceeds of $101 pursuant
     to the exercise of warrants.
     The number of shares outstanding at March 31, 2003 was 21,873,582
     (19,757,432 at February 28, 2002).
     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 on
     or after September 1, 2001.
                                                For the Three   For the Three
                                                 months ended    months ended
                                                     March 31     February 28
                                                         2003            2002
                                                            $               $
     (Loss) income  for the period                     (7,104)          1,143
     Compensation expense                                (314)            (80)
     Pro forma (loss) income for the period            (7,418)          1,063
     Basic (loss) income per share:
       As reported                                      (0.32)           0.06
       Pro forma                                        (0.34)           0.05
     Diluted (loss) income per share:
       As reported                                      (0.32)           0.06
       Pro forma                                        (0.34)           0.05
     No options were granted for the three months ended March 31, 2003.
     For the three months ended February 28, 2002, 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 0.491 and expected option life of 3 years.
     The weighted-average fair value of the options granted during the three
     month period was $2.82 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.
     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.
                         Municipal Environmental Industrial
              Municipal  Drinking   Contaminant      and
              Wastewater   Water     Treatment   Commercial Residential Total
                  $          $           $            $          $        $
                             Three months ended March 31, 2003
     Revenue   18,412      4,110         151        2,544      1,382   26,599
      bution    3,776        861        (129)         640        380    5,528
                           Three months ended February 28, 2002
     Revenue   18,648        904           -        2,072      1,114   22,739
      bution    5,138        176        (371)         652        178    5,773
     Net contribution is defined as gross margin less selling expenses.
     Reconciliation of net contribution to net (loss) income:
                                                 Three months    Three months
                                                        ended           ended
                                                     March 31     February 28
                                                         2003            2002
                                                            $               $
     Total net contribution                             5,528           5,773
       Administrative expenses                          2,364           2,474
       Research and development                         1,555             924
       Amortization                                       820             681
       Interest, net                                      131             234
       Abandoned transaction costs                      9,500               -
       Loss (income) from equity investment              (188)           (160)
     Operating income (loss)                           (8,654)          1,620
     Income tax provision (recovery)                   (1,550)            477
     Net income (loss)                                 (7,104)          1,143
     Certain comparative amounts have been reclassified to reflect the
     presentation adopted in the current period.

SOURCE Trojan Technologies Inc.