TROY Group Reports Fourth-Quarter and Year-End Results; Fourth-Quarter Sales Increase 17% Year Over Year.

Business Editors

SANTA ANA, Calif.--(BUSINESS WIRE)--Feb. 21, 2002

TROY Group, Inc. (NASDAQ:TROY) today announced financial results for its fourth quarter and fiscal year ended November 30, 2001.

Revenues were in line with management estimates announced October 11, 2001, but net income and earnings per share were impacted by one-time charges relating to the impairment of certain acquired assets.

Revenues for the fourth quarter increased 17% to $14.4 million from $12.3 million in the fourth quarter of fiscal 2000, driven by additional revenues from acquisitions, increased shipments of TROY Wireless products and continued strengthening of the core business in TROY Systems. The net loss for the fourth quarter, after a tax benefit of $2.8 million, was $4.0 million. The fourth-quarter net loss included a one-time charge of $3.7 million (after tax) from the impairment of long-lived assets and an increase in the inventory reserve of $0.7 million (after tax). This compared to net income of $356,000 in the prior year's fourth quarter. The quarterly diluted loss per share was $(0.37), compared to diluted earnings per share of $0.03 in the comparable prior-year quarter. The net loss per share included charges of $0.41 per share which consisted of a $0.35 one-time charge from the impairment of long-lived assets and an increase in the inventory reserve of $0.06. Excluding these two actions, the net income per share would have been $0.04, exceeding management's estimate announced on October 11, 2001.

For the year ended November 30, 2001, revenues declined 6% to $49.2 million, from $52.3 million in the year ended November 30, 2000. The net loss for the year ended November 30, 2001 was $5.9 million, compared to fiscal year 2000 net income of $2.4 million. On a diluted basis, the net loss per share was $(0.55) for the year ended November 30, 2001, compared to net income of $0.21 in fiscal year 2000. The net loss per share includes the above-mentioned charges from the impairment of long-lived assets and an increase in the inventory reserve. Excluding these two actions, the net loss per share would have been $(0.14), consistent with management's estimate announced on October 11, 2001.

Impairment Charge

As part of the Company's annual review of assets, management initiated a review of the businesses acquired over the past three years. It was determined in the review that some of the acquired products and technologies were at or approaching end-of-life, and that they would not contribute to the future earnings of the Company. As a result of this review, the Company prepared an analysis in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), to determine if there was impairment of certain intangible assets associated with these acquisitions. The Company completed this evaluation with the assistance of an independent valuation firm. The analysis resulted in impairment charges based on the difference between the carrying value and the estimated fair value of these assets. Fair value was based on discounting estimated future cash flows for assets grouped at the lowest level for which there were identifiable cash flows at a discount rate commensurate with the risks involved.

Based on this analysis, the Company recorded charges in 2001 of $5.6 million for the impairment of long-lived assets related to acquisitions of XCD, Inc., American Development, Inc., CableNet Technologies, and the printing solutions operations of Extended Systems, Inc. The Company also increased its reserve for excess and obsolete inventories by $1.1 million as a result of this review. The remaining balance of $2.5 million in long-lived assets includes acquired assets which are currently determined to be not impaired, and capitalized software development costs related to new TROY Wireless products and StarACH(TM), the Company's newest ACH software product. The Company has invested considerable internal resources in developing these new products, and expects them to contribute to the Company's future sales growth. This is in line with the Company's strategy to invest profits from its legacy business into these new initiatives. The Company continues to believe that these investments will provide larger long-term growth potential.

Patrick Dirk, Chairman and Chief Executive Officer of TROY Group, commented, "We analyzed our acquired assets and brought our corporate valuation up to date, seeking to provide a solid foundation for the long-term growth that we are in the process of building. Our fiscal 2001 one-time impairment charge in connection with certain acquired assets should not obscure our potential for significant, sustained growth in our new business areas of wireless and electronic payments. It is also important to note that `human assets' not reflected in financial statements continue to be one of our greatest strengths. The talented, dedicated team members who have joined us as a result of various acquisitions over the last few years have positioned us to succeed in our new growth markets and continue to contribute to our growth potential."

Commenting on fiscal 2001 operational results, Mr. Dirk said, "Over the last few months, we have made significant progress toward our goals of strengthening our core businesses and of furthering our leadership in emerging wireless markets through the innovations of TROY Wireless, and positioning TROY Systems to offer comprehensive, end-to-end electronic payment solutions providing convenience, economy and security to consumers and businesses alike."

In the area of wireless, Mr. Dirk listed a number of achievements during TROY's fiscal year 2001, including:

-- Merger of the electronic payments business into TROY Systems to consolidate
the core check printing and consumables business with the electronic payment
products

-- Were certified to market desktop MICR printing solutions in the U.K.,
becoming that market's only approved desktop MICR manufacturer

-- Launch of StarACH(TM) at the NACHA Payments Conference to serve large-volume
electronic payment customers

-- Opened our new, state-of-the-art Nashville Data Center

-- Continued to enhance our ACH (Automated Clearinghouse) capabilities to
facilitate electronic transactions of various kinds among businesses and
between businesses and consumers

-- Continued to promote adoption of TROY's electronic payment solutions and
expansion of the Company's customer base

-- Initiatives in electronic lockbox check conversion and online bill payment,
which management expects to increase the Company's Automated Clearinghouse
(ACH) transaction processing revenues

-- Announced an eCheck Secure(TM) upgrade to maintain product/service
leadership

-- Announced a secure, end-to-end MICR printing solution

-- Introduced a full array of Web card services for e-commerce merchants

"In the wireless printing arena, we believe that we have significant potential for growth since most of the leading cell phone and printer manufacturers have announced intentions to pursue wireless printing capabilities. We are pleased that we were able to ship wireless products before our year-end and look forward to 2002 as a defining year. We will continue to invest in this area."

In the area of TROY's core business and electronic payment solutions, Mr. Dirk also highlighted several achievements:

-- Merger of the electronic payments business into TROY Systems to consolidate
the core check printing and consumables business with the electronic payment
products

-- Were certified to market desktop MICR printing solutions in the U.K.,
becoming that market's only approved desktop MICR manufacturer

-- Launch of StarACH(TM) at the NACHA Payments Conference to serve large-volume
electronic payment customers

-- Opened our new, state-of-the-art Nashville Data Center

-- Continued to enhance our ACH (Automated Clearinghouse) capabilities to
facilitate electronic transactions of various kinds among businesses and
between businesses and consumers

-- Continued to promote adoption of TROY's electronic payment solutions and
expansion of the Company's customer base

-- Initiatives in electronic lockbox check conversion and online bill payment,
which management expects to increase the Company's Automated Clearinghouse
(ACH) transaction processing revenues

-- Announced an eCheck Secure(TM) upgrade to maintain product/service
leadership

-- Announced a secure, end-to-end MICR printing solution

-- Introduced a full array of Web card services for e-commerce merchants

"We are pleased to state that the core business is strong and profitable. We continue to be a leading provider of payment solutions and we believe that we have opportunities for growth in our core business during this next year. We continue to be optimistic about the opportunities in electronic payment solutions," Mr. Dirk commented. "We expect growth from our StarACH(TM) product, which we believe is superior to anything else available in the market."

Fiscal Year 2002 Outlook

Mr. Dirk stated, "As we move forward into FY2002 we expect growth in revenues and we expect to be profitable for the year. We will continue to invest in our wireless technology and electronic payment solutions. Our cash position remains strong in that we currently have over $7 million in cash or cash equivalents and a $5 million unused operating line of credit. We have a strong balance sheet and we believe that we have the financial resources available to execute our business plan.

"Although we are very optimistic about the markets for wireless technology, at this time we have limited visibility as to the short-term adoption rate on these new products. Therefore, our guidance to investors for the first quarter ending February 28, 2002 is approximately $13 million in revenues with a net loss per share of $(0.01) to $(0.02). The projected loss is a result of our increased investments in sales, marketing and engineering. These investments are essential to our initiatives in electronic payment systems and wireless printing products, and we feel that this is the strategic time to make them. We are anticipating growth and profitability in the remaining quarters based on wireless and other opportunities. We will be providing guidance when more definitive information becomes available.

"As stated in previous conference calls, we believe that we have an undervalued core business with significant upside opportunities in wireless printing technology and electronic payments."

The Company will be holding a conference call on Thursday, February 21, 2002 at 4:30 p.m. EST  (1:30 p.m. PST). To monitor the conference, please dial the following number five to ten minutes prior to the scheduled conference call time: [phone]; international callers, please dial [phone]. Please give the pass code "TROY Group, Chairperson Patrick J. Dirk." The conference call can also be accessed by all interested parties at www.troygroup.com or www.streetevents.com. A replay of the call will be available on those Web sites for 90 days. For telephone access to the replay, which will be available from February 21 at 3:30 p.m. PST through Thursday, February 28 at 3:30 p.m. PST, please dial [phone] (international callers please dial [phone]), and enter access code 4422.

About TROY Group

TROY Group is a leading provider of wireless technology and electronic payment solutions. TROY Wireless, a leader in short-range wireless solutions, designs and manufactures high-performance 802.11b (also known as "Wi-Fi") as well as Bluetooth(TM) hardware and software products. These products enable wireless communications between printers, PCs, mobile cellular phones, PDAs and digital cameras - in office, home, industrial, retail, medical and other environments. TROY Wireless is also a premier supplier of hardwired network print products. TROY Systems is an industry-leading provider of electronic payment solutions. The TROY Systems product line includes secure Internet check and credit card payments, ACH processing services, payment software systems, check conversion, electronic bill payment (EBP) and laser check printing solutions. The Company distributes products to major corporations, key government accounts, retailers and distributors in 55 countries worldwide. Visit TROY at www.troygroup.com.

Forward-looking statements of TROY (statements that are not historical fact) in this news release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Certain important factors could cause results to differ materially from those anticipated by the statements made in this release, including the growth in acceptance of TROY's electronic payment solutions by online brokerage firms, e-merchants and other bill payment applications; the timely and successful development and integration of the Bluetooth(TM) and other wireless standards; the market acceptance of products incorporating wireless printing technologies; the ability to continue to develop and market other e-commerce payment, networked payment and wireless and other connectivity technologies; TROY's ability to refocus its management and resources on these emerging technologies; the ability to hire and retain qualified management, technology and other personnel; the impact of competition from existing and new technologies and companies; the ability to identify and assimilate acquired companies and technologies; the continued demand for printed financial documents; and the other factors set forth in TROY's periodic reports and other documents filed with the Securities and Exchange Commission from time to time.

The Bluetooth trademarks are owned by their proprietor and are used by TROY Group under license.

                           TROY Group, Inc.
                      Consolidated Balance Sheets

                                             November 30,
           ASSETS                      2000                 2001

Current assets:
   Cash and cash equivalents       $ 2,090,000          $ 1,874,000
   Investment in available-
    for-sale securities              9,953,000            5,181,000
   Accounts receivable, less
    allowance for doubtful
    accounts 2000 $684,000;
    2001 $1,130,000                 10,480,000            9,713,000
   Income tax refund
    receivable                         476,000            1,059,000
   Inventories                       6,242,000            9,251,000
   Prepaid expenses and other          566,000              358,000
   Deferred tax assets               1,313,000            2,480,000

      Total current assets          31,120,000           29,916,000

Equipment and leasehold
 improvements, net                   2,040,000            2,529,000

Other assets                         9,415,000            5,226,000


      Total assets                $ 42,575,000         $ 37,671,000


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Checks issued not yet
    presented for payment          $   855,000          $   664,000
   Current portion of
    long-term debt                      59,000               70,000
   Accounts payable                  2,424,000            3,414,000
   Accrued expenses                  2,659,000            3,460,000
   Deferred service revenue            220,000            1,138,000


      Total current
       liabilities                   6,217,000            8,746,000

Long-term debt, net of
 current portion                       272,000              193,000


Deferred tax liabilities               471,000                    -

Commitments and contingencies

Stockholders' equity:
   Preferred stock, no par
    value, authorized
    5,000,000 shares; issued
    None                                     -                    -
   Common stock, par value
    $.01 per share;
    authorized 50,000,000
    shares; issued 2000
    10,880,764 shares;
    2001 10,921,032 shares             109,000              109,000
   Additional paid-in capital       20,808,000           20,966,000
   Retained earnings                14,698,000            8,753,000

                                    35,615,000           29,828,000

   Less cost of treasury
    stock 2000 none; 2001
    295,320 shares                           -            1,096,000


      Total stockholders'
       equity                       35,615,000           28,732,000


      Total liabilities and
       stockholders' equity        $42,575,000          $37,671,000



                           TROY Group, Inc.
                 Consolidated Statements of Operations

                               Fiscal Years Ended November 30,
                            1999          2000             2001


Net sales                $59,121,000  $52,310,000       $49,218,000

Cost of goods sold        36,590,000   30,018,000        30,720,000

      Gross profit        22,531,000   22,292,000        18,498,000

Operating expenses:
   Selling, general
    and administrative     9,424,000   14,189,000        15,681,000
   Research and
    development            3,647,000    4,372,000         6,027,000
   Amortization of
    intangible
    assets                   415,000    1,018,000         1,281,000
   Impairment of
    long-lived
    assets                         -            -         5,634,000

                          13,486,000   19,579,000        28,623,000


      Operating
       income
       (loss)              9,045,000    2,713,000       (10,125,000)

Interest income              231,000      865,000           515,000
Interest expense            (234,000)     (19,000)         (138,000)


      Income (loss)
       before
       income taxes        9,042,000    3,559,000        (9,748,000)

Provision for
 income taxes
 (credit)                  3,215,000    1,152,000        (3,803,000)


      Net income
       (loss)            $ 5,827,000  $ 2,407,000       $(5,945,000)


    Net income
     (loss) per
     share:
   Basic                 $      0.67  $      0.22       $     (0.55)


   Diluted               $      0.64  $      0.21       $     (0.55)

    Weighted
     average shares
     outstanding:
   Basic                   8,636,000   10,832,000        10,775,000


   Diluted                 9,116,000   11,369,000        10,775,000