Trojan Technologies Announces First Quarter Results: New Contracts Announced At Annual Meeting Of Shareholders.

Business Editors

LONDON, Ontario--(BUSINESS WIRE)--Jan. 16, 2002

Trojan Technologies Inc. (TSE:TUV.) today announced its operating and financial results for the quarter ended November 30, 2001.

Revenue for the quarter totalled $18.6 million, compared to $18.4 million in the same quarter in fiscal 2000. Earnings before interest, taxes, amortization and equity income ("EBITDA") were $496,000 for the quarter compared to $271,000 in the quarter to November 2000. The improvement is primarily attributable to increased gross margins. After taxes, the Company reported a net loss of $0.4 million or $0.02 per share compared with a net loss of $0.6 million or $0.03 per share in the prior year.

Revenue for the quarter increased by 1%. Revenue from Municipal wastewater systems declined, but was more than offset by increases in the Municipal drinking water, Environmental Contaminant and the Industrial and Commercial businesses. The increases in revenue in these segments reflects the Company's strategy to further penetrate each of these exciting market opportunities and, by focussed efforts, grow each of these businesses to critical mass. Results by segment are as follows: - Municipal wastewater disinfection revenue was $12.8 million,

compared to $16.0 million last year. Revenue from after market

sales and service increased by over $1 million to $4.6 million,

but was offset by lower production of systems for delivery in both

Europe and North America. This reduction reflects the timing of

delivery on current contracts and is anticipated to improve in the

second quarter. - Municipal drinking water disinfection revenue was $0.8 million

compared to $0.1 million last year. The North American market for

Municipal drinking water disinfection using ultraviolet light is

beginning to emerge, and during the quarter systems were produced

for North Bay, Ontario and North Battleford, Saskatchewan. - Environmental Contaminant treatment revenue was $1.8 million. This

is a new market segment for Trojan; accelerated market entry was

achieved through the acquisition of Advanced Ultraviolet Solutions

in March 2001. - Industrial and commercial revenue, increased to $2.1 million from

$1.1 million. North American revenues increased to $1.8 million

from $0.3 million, reflecting the benefits of the acquisition of

Pureflow Ultraviolet Inc. effective September 1, 2001. - Residential market revenue was $1.1 million compared to $1.2

million last year. Last year's revenue was particularly strong as

the Company was continuing to meet demand created following the

outbreak of e-coli in Walkerton, Ontario in May 2001.

At the annual meeting held in London, Ontario earlier today, the Company announced a number of new contracts and distribution relationships. New municipal wastewater contracts, aggregating $12.2 million, have been awarded, including 7 contracts in Europe where the Company's competitive position is improving. The company was selected on a total of 8 new Municipal drinking water projects, aggregating $4.7 million, including large projects in Albany, New York and Seattle, Washington. The Seattle project is the largest drinking water UV project ever awarded, and provides a strong indication of the growing trend to adopt UV as part of a multi-barrier disinfection strategy among municipalities in North America.

In the Industrial and Commercial market and the residential market, the Company has been focussed on extending its distribution reach. In conjunction with Pureflow, systems valued at approximately $1 million have been delivered to Suntory, a large bottled water provider. After a successful test market in selected stores in Ontario, Home Depot has agreed to expand the offering of UVMAX, the Company's residential product, to other regions of Canada.

The first quarter showed continuing improvements in the company's gross margin. Despite operating at relatively low production levels, gross margin improved to 36.8% compared to 36.4% a year ago. The improvement reflects the Company's ongoing cost reduction and margin improvement efforts.

Expenses were $6.3 million or 34.2% of revenue, compared to $6.4 million or 34.9% of revenue last year. Administrative and general expenses declined by just over $100,000, with research and development expenditures at approximately the same level.

For the quarter, the Company generated positive cash flow from operations of $1.0 million, compared to $5.5 million in the same period last year. The positive cash flow in both years reflects improvements in working capital management in excess of the net loss in both periods. These improvements were achieved primarily by improved production planning and by negotiating progress payments on large projects. Cash used in investment activities declined to $232,000 from $623,000, primarily as a result of reduced investment in capital additions.

On December 17, 2001, the Company announced the completion of the issue and sale of 2,110,000 units for gross proceeds of $15.8 million. Each unit consists of one common share and one-half of one warrant to purchase an additional common share within 18 months at an exercise price of $8.25. The net proceeds of the sale of the common shares were used to repay in full the borrowings drawn under the Company's operating credit facility. The issue of shares increased the capital of the Company to approximately 19.7 million shares, and if all warrants are exercised, approximately 20.8 million shares.

"The results for the first quarter are in line with the expectations we established back in October," said Allan Bulckaert, President and CEO since October 1, 2001. "I am confident that we will be able to build on this past quarter and, with the higher levels of production anticipated for the balance of the year, we are on target to achieve our 2002 objectives for revenue growth and earnings.

Our first objective is to execute our plans to grow revenues this year in excess of 15%. I am encouraged by the sales activity and growth demonstrated in our first quarter market activity - particularly in the municipal drinking water and the industrial and commercial markets. I expect second quarter production revenues to exceed $22 million. Order backlog of $40 million for the delivery of municipal systems in the current year is unchanged from August 31, 2001.

Second, we must ensure we continue to supply the right products by expanding our technology leadership and actively pursuing the acquisition of complementary technologies.

Our third objective is to translate revenue growth into profits by delivering after tax earnings this year in the range of 4% to 5% of revenue. With the anticipated growth in revenue and the gross margin improvement demonstrated during the quarter, we are well positioned to increase gross margins to exceed 40% for the year and to reduce selling, general and administrative expense ratios. Our recent equity issue will be positive for the company. In the short term, the impact on earnings will be less than $0.01 as the benefit of reduced interest expenses will be offset by the increased number of shares outstanding. By freeing up our credit lines, the Company is in a much better position to finance growth, whether internally generated or from acquisitions.

Finally, I have made good progress in further developing management and performance measurement processes to ensure we achieve our plans."

A conference call will be held for investors, analysts and media at 4.30pm EST on January 16th, 2002. The conference call will be hosted by Allan Bulckaert, CEO and will include Douglas Alexander, Executive Vice President & CFO and Marvin DeVries, Executive Vice President. The phone number to call is [phone] or [phone]. A taped version of the call will be available until midnight Wednesday, January 23rd, 2002 by calling [phone] or 1-800-408-3053 and dialing pass-code number 1033771.

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

TROJAN TECHNOLOGIES INC.
FINANCIAL HIGHLIGHTS
(in thousands of dollars)
(unaudited)                     For the three months ended

                                   Nov 30           Nov 30

                                     2001             2000
-------------------------------------------------------------

Revenue                      $   18,556.2     $   18,418.5

Earnings (loss) before interest,
 taxes, amortization,
 equity income               $      495.7     $      271.5

Net loss                     $     (412.4)    $     (589.6)

Loss per share (in dollars)
     Basic and fully diluted $      (0.02)    $      (0.03)

Number of shares (in thousands)
     Basic                       17,552.7         17,168.4
     Fully diluted               17,666.5         17,169.7



TROJAN TECHNOLOGIES INC.
CONSOLIDATED STATEMENT OF INCOME
(in thousands of dollars)
(unaudited)                     For the three months ended
-------------------------------------------------------------
                                   Nov 30           Nov 30

                                     2001             2000
-------------------------------------------------------------

REVENUE                      $   18,556.2    $    18,418.5
Cost of goods sold               11,719.7         11,719.6
-------------------------------------------------------------

Gross Margin                      6,836.5          6,698.9
-------------------------------------------------------------

EXPENSES

Administrative and selling
 expenses                         5,390.6          5,498.2

Research and development            950.2            929.2
-------------------------------------------------------------

                                  6,340.8          6,427.4
-------------------------------------------------------------

Earnings (loss) before interest,
 taxes, amortization, income from
 equity investment                  495.7            271.5

Other expenses (income)

Interest on long-term debt          121.6             68.7

Interest and bank charges           340.5            447.7

Amortization                        700.9            764.4

Interest income                      (9.9)           (34.7)

Income from equity investment       (95.0)          (195.0)


Operating income (loss)            (562.4)          (779.6)


Income taxes - current               30.0             51.0

Income taxes - future              (180.0)          (241.0)
-------------------------------------------------------------

Net loss                           (412.4)          (589.6)

Retained earnings,
 beginning of period             (1,919.2)         3,190.1
-------------------------------------------------------------

Retained earnings, end of period (2,331.6)         2,600.5
-------------------------------------------------------------
-------------------------------------------------------------

Loss per share (in dollars)
 Basic and fully diluted            (0.02)           (0.03)

Number of shares (in thousands)

 Basic                           17,552.7         17,168.4
-------------------------------------------------------------

 Fully diluted                   17,666.5         17,169.7
-------------------------------------------------------------
-------------------------------------------------------------


TROJAN TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEET
(in thousands of dollars)
(unaudited)                   November 30        August 31

                                     2001             2001
-------------------------------------------------------------

ASSETS

Current

Cash and cash equivalents    $    1,018.1    $       977.8

Accounts receivable              27,161.0         25,419.0

Accounts receivable
 - government funding               859.8                -

Accrued revenue on contracts
 in progress                      4,866.5          8,790.4

Inventory                        11,113.6         10,920.2

Prepaid expenses                    469.7            331.5

Income taxes receivable             832.4            771.1
-------------------------------------------------------------

 Total current assets            46,321.1         47,210.0


Investments in other companies    1,592.1          1,497.1

Investment tax credits
 recoverable                      4,768.0          4,628.0

Future income taxes               3,392.4          3,208.1

Capital assets, net              21,913.1         22,316.8

Patents, trademarks and
 licenses, net                    1,362.6          1,367.1

Goodwill                          5,023.5            953.5
-------------------------------------------------------------

                          $      84,372.8   $     81,180.6
-------------------------------------------------------------
-------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities

Bank indebtedness         $      15,568.3  $      16,046.6

Accounts payable and accrued
 charges                         12,599.0         13,736.5

Current portion of long-term debt 1,493.0          1,493.1
-------------------------------------------------------------

Total current liabilities        29,660.3         31,276.2
-------------------------------------------------------------


Long term debt                    6,989.7          7,266.1
-------------------------------------------------------------

Deferred technology credit          859.8                -
-------------------------------------------------------------

Pension obligation                1,200.0          1,200.0
-------------------------------------------------------------

Shareholders' equity

Share capital                    47,994.6         43,357.5

Deficit                          (2,331.6)        (1,919.2)
-------------------------------------------------------------

                                 45,663.0         41,438.3
-------------------------------------------------------------

                          $      84,372.8   $     81,180.6
-------------------------------------------------------------
-------------------------------------------------------------


TROJAN TECHNOLOGIES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands of dollars)       For the three months ended

(unaudited)                        Nov 30           Nov 30

                                     2001             2000
-------------------------------------------------------------

OPERATING ACTIVITIES

Net loss                    $      (412.4)   $      (589.6)
Add (deduct) charges (credits)
 to operations not involving cash
     Amortization                   700.9            764.4

     Income from equity investment  (95.0)          (195.0)

     Future income taxes           (180.0)          (190.0)

     Investment tax credits
      recoverable                  (140.0)          (200.0)

Net change in non-cash working
 capital balances related to
 operations                       1,153.2          5,869.6
-------------------------------------------------------------

                                  1,026.7          5,459.4
-------------------------------------------------------------

INVESTMENT ACTIVITIES

Additions to capital assets, net   (194.9)          (438.2)

Additions to patents, trademarks
 and licenses                       (54.8)           (69.5)

Acquisition, net of cash required    18.1           (115.2)
-------------------------------------------------------------

                                   (231.6)          (622.9)
-------------------------------------------------------------

FINANCING ACTIVITIES

Increase (decrease) in bank
 indebtedness                      (478.3)        (3,715.6)

Repayment of long-term debt        (276.5)          (137.3)
-------------------------------------------------------------

                                   (754.8)        (3,852.9)
-------------------------------------------------------------

Net increase in cash and cash
 equivalents during the period       40.3            983.6

Cash and cash equivalents,
 beginning of period                977.8            718.0
-------------------------------------------------------------
Cash and cash equivalents,
 end of period             $      1,018.1   $      1,701.6
-------------------------------------------------------------
-------------------------------------------------------------

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. 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. As at November 30, 2001, the Company had a receivable from TPC of $859,789 that has been reflected in the accounts as a current asset, and the repayment obligation has been recorded as a deferred technology credit.

3. INCOME TAXES

At November 30, 2001, the Company has approximately $10,900,000 of federal and $16,500,000 of Ontario non-capital losses that will expire in 2006 through to 2009. The Company also has undeducted Scientific Research and Experimental Development deductions of $8.0 million that have no expiry date. For financial reporting purposes, a future tax asset has been recorded in respect of these losses carrying forward.

4. ACQUISITION

Effective September 1, 2001, the Company purchased 100% of the issued shares of Pureflow Ultraviolet Inc. for consideration and related costs of approximately $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. The acquisition has been accounted for as a purchase transaction. The fair values of the assets acquired and liabilities assumed were as follows:

                                                       $000's
-------------------------------------------------------------

Cash                                                1,241.0
Total assets other than cash                          642.0
Total liabilities                                     (93.0)
Excess of purchase price over fair value
 of net assets (goodwill)                           4,070.0
-------------------------------------------------------------
Total purchase price                                5,860.0
Less cash of Pureflow acquired                     (1,241.0)
-------------------------------------------------------------
Purchase price paid net of cash acquired            4,619.0
-------------------------------------------------------------
Less consideration paid through share issuance     (4,637.1)
-------------------------------------------------------------
Net cash acquired on purchase                          18.1
-------------------------------------------------------------
-------------------------------------------------------------

The results of Pureflow from September 1, 2001 have been included in these consolidated financial statements.

5. CHANGE IN ACCOUNTING POLICY

(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. The most significant change under the new recommendations is that goodwill is not amortized. Instead, it must be tested annually for impairment. Accordingly, goodwill is no longer amortized. If goodwill amortization had not been recorded for the same period last year, the net loss for the first quarter in fiscal 2001 would have decreased by $26,000 and would have had no impact on the loss of $0.03 per share. Amortization amounting to $59,000 [$67,000 in 2001] is provided on patents, trademarks and licences 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.

6. SUBSEQUENT EVENT

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.

7. SEGMENT INFORMATION (in thousands of dollars)

Trojan operates worldwide in five strategic business units: municipal wastewater, municipal drinking water, environmental contaminant treatment, industrial /commercial and Residential. The Municipal Wastewater division 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 division sells UV systems for use in potable water treatment prior to release into public water distribution networks. The Environmental Contaminant Treatment division 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/Commercial division sells UV products that destroy microorganisms in water and other liquids used in many industrial processes. The Residential division sells UV products for disinfection of private water supplies for homes, cottages, farms, rural commercial establishments and resorts.

Three months ended November 30, 2001

  Municipal Municipal Environmental Industrial / Residential    Total
 Wastewater  Drinking   Contaminant   Commercial
                Water     Treatment
          $         $             $           $           $         $
----------------------------------------------------------------------
Revenue
   12,756.6     759.2       1,762.1      2,142.3    1,136.0  18,556.2
----------------------------------------------------------------------
Net contribution
    1,960.9     (68.7)        487.0        493.6      581.0   3,453.8
----------------------------------------------------------------------


Three months ended November 30, 2000
----------------------------------------------------------------------
               Municipal        Industrial /   Residential    Total
              Wastewater          Commercial
                       $                   $             $       $
----------------------------------------------------------------------
Revenue         16,059.0             1,118.5       1,241.0  18,418.5
----------------------------------------------------------------------
Net contribution 2,540.9               194.8         320.5   3,056.2
----------------------------------------------------------------------

Net contribution is defined as gross margin less selling expenses.

Reconciliation of net contribution to net loss:

                                             2001       2000
                                                $          $
----------------------------------------------------------------------

Total net contribution                    3,453.8    3,056.2

Less

 Administrative expenses                  2,007.9    1,855.3
 Research and development                   950.2      929.2
 Interest on long-term debt                 121.6       68.7
 Interest and bank charges                  340.5      447.7
 Amortization                               700.9      764.4
 Interest income                             (9.9)     (34.7)
 Income from equity investment              (95.0)    (195.0)
----------------------------------------------------------------------
Operating loss                             (562.4)    (779.6)
Income taxes                               (150.0)    (190.0)
----------------------------------------------------------------------

Net loss                                   (412.4)    (589.6)
----------------------------------------------------------------------
----------------------------------------------------------------------