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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549

                             -----------------------

                                    FORM 10-K
(Mark one)
[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                   For the fiscal year ended November 30, 2001

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

             For the transition period from __________ to __________

                         Commission File No.: 000-24413

                                TROY GROUP, INC.
             (Exact name of registrant as specified in its charter)

                    DELAWARE                               33-0807798
 (State or other jurisdiction of incorporation           (I.R.S. Employer
                or organization)                       Identification No.)

           2331 SOUTH PULLMAN STREET
             SANTA ANA, CALIFORNIA                          92705
    (Address of principal executive offices)               (Zip Code)

       Registrant's telephone number, including area code: (949) 250-3280

        Securities registered pursuant to Section 12(b) of the Act: NONE

           Securities registered pursuant to Section 12(g) of the Act:

                          COMMON STOCK, $.01 PAR VALUE

                               -------------------

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

         As of February 1, 2002, 10,959,657 shares of the Registrant's Common
Stock were outstanding. The aggregate market value of the Registrant's
outstanding common stock as of that date (based upon the last sale price of a
share of common stock on that date reported by the Nasdaq National Market),
excluding outstanding shares beneficially owned by directors and executive
officers, was $20,212,239.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Part III of this Annual Report on Form 10-K incorporates by reference
information (to the extent specific sections are referred to herein) from the
registrant's Proxy Statement for its 2002 Annual Meeting to be held on April 11,
2002.

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                                TABLE OF CONTENTS

<Table>
<S>        <C>                                                                               <C>
Item 1.    BUSINESS..............................................................................1
           General...............................................................................1
           Organization and Development of Business..............................................2
           Products..............................................................................3
           TROY Systems..........................................................................3
           TROY Wireless.........................................................................6
           Business Strategies...................................................................9
           Research and Product Development.....................................................11
           Support Services.....................................................................11
           Sales and Marketing..................................................................11
           Strategic Relationships..............................................................12
           Competition..........................................................................13
           Intellectual Property................................................................15
           Environmental and Regulatory Matters.................................................15
           Employees............................................................................16

Item 1A.   CERTAIN IMPORTANT FACTORS............................................................16

Item 2.    PROPERTIES...........................................................................20

Item 3.    LEGAL PROCEEDINGS....................................................................20

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................20

Item 4A.   EXECUTIVE OFFICERS OF TROY GROUP.....................................................21

Item 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
           STOCKHOLDER MATTERS..................................................................22

Item 6.    SELECTED FINANCIAL DATA..............................................................23

Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS............................................................24
           Background...........................................................................24
           Overview.............................................................................24
           Results of Operations................................................................25
           Fiscal Year Ended November 30, 2001 Compared to Fiscal Year Ended November 30, 2000..25
           Fiscal Year Ended November 30, 2000 Compared to Fiscal Year Ended November 30, 1999..28
           Backlog..............................................................................29
           Liquidity and Capital Resources......................................................29
           Recently Issued Accounting Standards.................................................30

Item 7a.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........................30

Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..........................................32


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Item 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
           AND FINANCIAL DISCLOSURE.............................................................33

Item 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................................33

Item 11.   EXECUTIVE COMPENSATION...............................................................33

Item 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
           MANAGEMENT...........................................................................33

Item 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................33

Item 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
           FORM 8-K.............................................................................34
</Table>


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         THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THE STATEMENTS CONTAINED
IN THIS REPORT THAT ARE NOT HISTORICAL IN NATURE, PARTICULARLY THOSE THAT
UTILIZE TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD," "EXPECTS," "ANTICIPATES,"
"ESTIMATES," "BELIEVES," OR "PLANS," OR COMPARABLE TERMINOLOGY, ARE
FORWARD-LOOKING STATEMENTS BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS.

         VARIOUS RISKS AND UNCERTAINTIES COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE EXPRESSED IN FORWARD-LOOKING STATEMENTS. THESE RISKS AND
UNCERTAINTIES INCLUDE 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 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 BELOW UNDER THE HEADING
"CERTAIN IMPORTANT FACTORS" AND IN OUR OTHER PERIODIC REPORTS AND OTHER
DOCUMENTS THAT WE FILE FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE
COMMISSION.

         We own or have rights to trademarks that we use in connection with the
sale of our products. TROY(R), eCheck Secure(TM), PrintraNet(TM), TROYmark(TM),
StarACH(TM), Etherwind(TM), Windconnect(TM), Windport(TM), EtherSync(TM), Exact
MICR Technology(TM) (ExMT(TM)) and Exact Positioning Technology(TM) (ExPT(TM))
are among the trademarks that we own. This report also makes reference to
trademarks and trade names of other companies.

                                     PART I
                            ------------------------

ITEM 1.  BUSINESS

GENERAL

         TROY Group, Inc. is a leading worldwide provider of enterprise output
solutions. For the past three years the Company has been expanding beyond its
core business in digital check printing systems and related consumables by
developing electronic payment systems and wired and wireless networking
solutions. Most of this new product expansion was accomplished through the
acquisition and further investment in five small technology companies. These
acquisitions have been organized under the Company's two primary business
segments: TROY SYSTEMS AND TROY WIRELESS.

         TROY SYSTEMS provides state-of-the-art payment systems ranging from
high security digital check printing systems to electronic payment and funds
transfer solutions. Our systems are used to transfer monies between bank
accounts using paper checks or electronic ACH (Automated Clearing House)
processes. Our products provide our customers with payment solutions that offer
security, speed, flexibility and efficiency. Ameritrade, Inc., AT&T Corporation,
Bank of America Corporation, Eastman Kodak Company, Farmers Group, Inc. (Farmers
Insurance), Fidelity Investments, Ford Motor Company, IBM, Manpower Inc., Morgan
Stanley Dean Witter & Co., CSFBdirect, Track Data, Mr. Stock, Wal-Mart Stores,
Inc., Wells Fargo & Company, Comerica Bank, Red Cross, G.E. Capital Ireland and
Ford Credit Europe are among the TROY customers that purchased products during
the last 12 months.


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         TROY WIRELESS provides hardware and software solutions that enable
enterprises to share intelligent devices like printers either wirelessly or
using traditional networks. We have been a premiere supplier of hardwired
network printing solutions since 1991. Our wireless products allow a wide range
of devices to exchange information via BLUETOOTH(TM) and 802.11b short-range
radio connections. Brother Industries, Ltd., Sony Corporation, Seiko Epson
Corporation and DaimlerChrysler AG are among the TROY Wireless customers that
have purchased products during the last 12 months.

         We serve a wide variety of industries including financial services,
insurance, telecommunications, computer hardware, automotive, personnel,
government and others. We distribute our solutions around the world and market
our products through a direct sales force and a network of distributors and
value-added resellers. More than 5,000 active customers purchase our products
and services.

ORGANIZATION AND DEVELOPMENT OF BUSINESS

         TROY Group, Inc. is the result of various mergers and acquisitions
by a company originally founded in 1982. The founding Company adopted the
TROY Group name and incorporated in California in 1996 and reincorporated in
Delaware in May 1998. Today, we are organized into two business segments,
TROY Systems and TROY Wireless.

         In October 1998, we merged XCD Incorporated, a leading supplier of
network connectivity solutions, into our subsidiary TROY Wireless Company,
formerly TROY XCD, Inc. This subsidiary is now a part of TROY Wireless.

         In May 1999, we acquired the remaining outstanding shares of Telgate
Systems, Inc. (formerly Telgate Equipment Corporation), a Canadian software
development company. This subsidiary is responsible for the ongoing technical
development and support for our electronic check and software products and is
now a part of TROY Systems.

         In February, 2000, we acquired American Development (AMDev), Inc., an
ACH (Automated Clearing House) software development and processing company. TROY
Financial Services, Inc.'s, formerly TROY AMDev, ACH products integrate with
electronic checks to broaden our offering of e-commerce payment solutions. This
subsidiary is now a part of TROY Systems.

         In May, 2000, we acquired CableNet Technologies, a North Carolina based
company which specializes in printer enhancement and connectivity technology,
enhancing our technology platform to include IBM mainframe and midrange
connectivity capabilities, as well as security and forms management products.
CableNet is now part of TROY Wireless.

         In May 2001, we acquired the printing solutions operations of Extended
Systems Incorporated, significantly enhancing our distribution capabilities,
technology portfolio and customer base in this area of our business. This
business line is now a part of TROY Wireless.

         Our principal executive offices are located at 2331 South Pullman
Street, Santa Ana, California 92705, and our telephone number at that location
is (949) 250-3280.

         Information regarding our reportable business segments, major customers
and geographical information is contained in Note 13 to our financial statements
on pages F-19 to F-22 of this report, and is incorporated in this item by
reference.


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PRODUCTS

         TROY SYSTEMS

         TROY Systems provides state-of-the-art payment systems ranging from
high security digital check printing systems to electronic payment and funds
transfer solutions. Our systems are used to transfer monies between bank
accounts using paper checks or electronic ACH processes. Our products provide
our customers with payment solutions that offer security, speed, flexibility and
efficiency.

           Over the past decade there has been a dramatic shift from mainframe
computer systems to networked computing environments. Due to this fundamental
shift in the way corporations store and manage financial payment data, IT
departments are now faced with the challenge of providing users with secure
methods to make financial payments remotely and maintain control over cash. The
Company, through its MICR desktop check printing system, was the first to
develop a technology to effectively distribute payments electronically to
multiple end-users both within and outside an organization.

         The emergence and adoption of enterprise-wide and web-based software
applications is also changing the way organizations generate and securely
distribute financial payments. Although many software applications include basic
financial reporting functionality, they generally do not adequately address an
enterprise's need to electronically transmit and output financial payments
across networked computing environments or the Web. TROY Systems is focused on
secure payment systems for back office processing as well as web, stand-alone or
networked payment initiation.

         We have been experts in the payment systems marketplace since 1971 and
our experience has helped make us a worldwide leader in secure financial payment
systems. Today, our services include a full array of secure payment solutions
capable of addressing both print and electronic situations. TROY System's
products are now organized into two product groups: Electronic Payment
Software/Processing and Digital MICR Check Print Systems and related supplies
and services.

         ELECTRONIC PAYMENT SOFTWARE/PROCESSING

         The growth of the Internet and the accompanying rapid rise in
electronic payments continues. The Gartner Group predicts that by 2004, "the
Internet will become the predominant mechanism for conducting business, whether
it be business-to-consumer or business-to-business." Further, the electronic
payments market continues to expand. Forrester Research estimated over $6.8
trillion in electronic payments by 2004. The ongoing transition from
"information only" to "e-commerce enabled" web sites is accelerating. Today,
online merchants require a variety of electronic payment options to compete in
the fast-moving Internet marketplace.

         We have developed an expertise in electronic payment processing,
primarily by Automated Clearing House (ACH) through the Federal Reserve. Our
systems, products and services all support this rapidly growing financial
settlement process, which is at the root of virtually every commercial online
transaction. According to the National Automated Clearing House Association
(NACHA), the national organization of over 12,000 ACH system participants settle
over six billion payment transactions each year. We have a product/service set
that serves both bank and commercial customers.

         Our bank systems are:

            o     VIP and NOVA are our Windows-based ACH software systems for
                  small and medium transaction originators. These systems
                  support the requirements of financial institutions for
                  in-house processing of ACH items. These systems provide a
                  simple, inexpensive


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                  solution to banks, credit unions and savings & loans upgrading
                  from manual Fedline entry of ACH transactions.

            o     StarACH, which we launched in April 2001 at the NACHA payments
                  conference, is our newest Windows-based ACH software product.
                  StarACH is an enterprise-class, Internet-ready system capable
                  of high-speed processing. It provides the latest alternative
                  to the legacy mainframe-based ACH systems that are still being
                  used by most banks.

         Our commercial systems are:

            o     AutoDraftCP is our desktop ACH origination system for
                  corporate users in networked or standalone situations. This
                  software system provides a full array of ACH transaction
                  types, simplified database entry and management as well as
                  NACHA file formatting. Batch transaction files are transmitted
                  to the bank or to our Nashville Data Center for TROY ACH
                  processing. AutoDraftCP is a flexible, inexpensive solution to
                  electronic payments, collections, payroll and other
                  disbursements.

            o     ECheck Secure(TM)is our hosted online check service for web
                  merchants and online brokerage firms. ECheck Secure features
                  an interactive, real-time link with a leading check
                  verification service for data validation. In 2001, we enhanced
                  ECheck to add "Returning Customer" which allows users to save
                  banking data for future use. Our highest volume clients enjoy
                  the convenience this provides to their valued customers.
                  ECheck Secure continues to be very popular with online brokers
                  in funding new accounts. We have further expanded our services
                  to provide enhanced services to utilities and online
                  merchants. We are continuing to develop new tools, methods and
                  services to support the rapid, ongoing changes associated with
                  Internet commerce. In addition to our original service, which
                  allows consumers to send a MICR-encoded check remotely over
                  the Internet for printing at the biller's or merchant's site,
                  ECheck Secure now supports ACH settlement. Consumers may use
                  ECheck Secure to avoid credit card fees or interest, to
                  control household spending from a single checking account,
                  engage in transactions for which they have ready funds in
                  their checking accounts but insufficient availability on their
                  credit cards, or for any of a number of other reasons, as long
                  as they choose a merchant, stockbrokerage or other payee that
                  is ECheck Secure-enabled. ECheck Secure provides a competitive
                  advantage to businesses that wish to offer their customers and
                  prospective customers instant, secure transaction capabilities
                  regardless of the customer's ability or desire to use credit
                  cards. When coupled with the variety of risk management
                  services provided by third parties and our sophisticated
                  back-office ECheck Secure reporting, we now provide some of
                  the most secure, fast and convenient methods for online check
                  acceptance.

            o     ACH transaction processing services are also provided through
                  our various banking relationships. We utilize direct links to
                  the Federal Reserve. In March 2001, we relocated our
                  Nashville, TN Data Center to a new facility equipped with
                  highly sophisticated operational and security features. Our
                  ACH processing capabilities are used by financial
                  institutions, which outsource this function as their
                  transaction volume grows, as well as to commercial customers
                  who transmit ACH-formatted files for Federal Reserve
                  processing. We have recently expanded our ACH processing to
                  include check conversion services for high-volume
                  check-remittance customers. This service utilizes NACHA rules
                  to convert checks to ACH and is particularly attractive to
                  MICR (magnetic ink character recognition) coupon remittance
                  operations such as utilities, cable system operators and
                  sports club billing operations whose receivables involve large
                  numbers of


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                  frequent and/or repeated customer or member invoices or
                  statements. The customer's paper check is automatically
                  converted to an ACH transaction, improving settlement, return
                  and reporting capabilities.



         DIGITAL MICR CHECK PRINT SYSTEMS AND RELATED SUPPLIES AND SERVICES

         We began developing MICR check printing systems in 1971 and today we
are a leading provider of MICR check printing systems and related supplies. In
1984 we began installing secure payment systems for the U.S. Treasury that are
still in operation today. Many of the income tax rebate checks distributed to
taxpayers by the Treasury in mid-2001 were printed on TROY payment systems. With
the advent of laser technology and networking, we have expanded our products to
serve the needs of virtually every business that issues a check.

         Today with our technology, laser printers have the ability to print
unique output such as the MICR line on the bottom of a check. MICR lines are
printed with a magnetic ink or toner that, when magnetized, emits a magnetic
signal that identifies each unique character. If the shape and/or the magnetic
properties of the characters do not meet specified standards, the banking system
will reject the document, which could cause costly manual handling. Our skill
has been to develop printers and supplies that can print high-quality financial
documents using blank paper stock. Checks printed on our systems consistently
exceed banking standards.

         Our MICR check printing systems include hardware, firmware, software
and imaging supplies that provide customers with functions not offered by most
major OEMs (original equipment manufacturers). Our technologies enable laser
printers to print MICR lines, graphics, bar codes and forms. They also enable a
printer to perform other functions not offered by most printer manufacturers,
such as auditing, status checking and security. These features increase an
enterprise's flexibility and customer service capabilities, eliminate costs
associated with forms obsolescence and enhance document security.

         Our strategic alliance with Hewlett-Packard ("HP") provides our
customers with all of the benefits of high-quality payment solutions combined
with the features, functionality, and reliability provided by HP printers. We
offer various levels of high-quality MICR payment solutions based on laser
technology. Our laser solutions range in print speeds from 15 to 50 pages per
minute and combine laser-quality business documents with high-quality MICR
coding.

         Our most advanced printing systems incorporate additional security
features such as encryption/decryption, MICR sensors, password protection, key
locks, and TROY's exclusive special watermarking technology, TROYmark(TM). This
high-quality line of MICR printers is ideal for customers who require a more
dedicated and fully secure financial payment solution.

         We have been certified by the London-based Association for Payment
Clearing Services (APACS) as complying with the organization's standards for
secure check printers. APACS is a British banking organization that sets the
standards for check writing as well as all aspects of money transmission and
payments-related activities in the United Kingdom. The APACS standard is
considered one of the most stringent in the world, and with this certification,
we are now the only approved desktop MICR solutions provider in the U.K.

         We also offer our own proprietary MICR software solutions that
streamline payment processes by printing checks with security and ease on blank
check stock. Authorized finance, accounts payable and


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payroll staff can merge accounting data with our software to create and print
checks securely and easily from different bank accounts, using multiple
signatures, in a one-step process. Our two primary check printing solutions are
ChequeScribe I and ChequeScribe II.

            o     ChequeScribe I is a 32 bit Windows application used
                  extensively by banks, credit unions and savings & loan
                  branches for on-demand new account check, cashier check, money
                  order or loan payment coupon printing. With ChequeScribe I,
                  customers have immediate access to personalized new account
                  checks, custom loan coupons, and convenient bank payment
                  products.

            o     ChequeScribe II Secure is a 32-bit check printing application
                  compatible with Windows, UNIX, AS400 and mainframe-based
                  accounting and payroll systems. ChequeScribe II Secure enables
                  our customers to print checks securely and easily from
                  different bank accounts using multiple signatures in a
                  one-step process. This innovative solution streamlines check
                  payment creation and prints checks on blank check paper with
                  multi-layered security. It is capable of integrating with a
                  wide array of commercial accounting applications, including
                  Great Plains, Peoplesoft, SAP, SunSystems, ACCPAC, Oracle and
                  many more.

         Laser payment solutions require imaging supplies on an ongoing basis.
We develop and market imaging supplies that are uniquely formulated for specific
output devices. As new output devices are developed, our chemical engineers
combine their expertise with our advanced research and development equipment to
design proprietary formulations. Our imaging supplies are then produced in a
sophisticated, computerized manufacturing facility. We are recognized by our
customers as a high-quality developer and manufacturer of proprietary imaging
supplies. TROY is the largest MICR toner manufacturer in the USA and
precision-manufactures the highest quality MICR toner cartridges for laser
printers. We also offer other toners, ribbons and accessories for use with other
printing devices. These additional supplies include fluorescent and indelible
ribbons, post-encoding ribbons, jumbo rolls, standard toner, paper handling
accessories and check security paper. Over 50% of the Company's revenue in
fiscal 2001 came from our supplies business.

         In addition, we offer maintenance contracts to our customers on an
annual, monthly and hourly basis. A major part of our maintenance work is
subcontracted to third party vendors.

TROY WIRELESS

         Our TROY Wireless business segment provides hardware and software
solutions that enable enterprises to share intelligent devices like printers
either wirelessly or using traditional networks. The company has been a premiere
supplier of hardwired network printing solutions since 1991. Our wireless
products allow a wide range of devices to exchange information via BLUETOOTH(TM)
and 802.11b short-range radio connections. TROY Wireless Products are organized
in two product groups: Wireless and Network and Internet Connectivity Products.

WIRELESS PRODUCTS

         Over the past several years, there has been rapid, widespread adoption
of various mobile computing technologies. Due to this fundamental shift in the
way computer users store and manage data of all kinds, they are now faced with
the challenge of outputting data from mobile devices through stationary
PC/peripheral configurations and/or local area networks ("LANs") that are not
specifically configured to interoperate with the mobile data sources. In this
new age of mobile information, there is a rapidly growing need for intelligent
devices such as PC's, cellular telephones, Personal Digital Assistants


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(PDA's), printers, and digital cameras to exchange information with each other.
We provide a wide range of products that enable users of these new devices to
print information over wireless networks without the need to install
device-specific driver software.

         Our wireless products are hardware and software solutions that address
both BLUETOOTH and 802.11b, which are the two emerging industry standards for
short-distance wireless communications within a single building. In November
2001, we demonstrated our BLUETOOTH and 802.11b wireless printing and
connectivity products at COMDEX. We also announced that we had begun shipments
of these products.

         BLUETOOTH is a very low-cost wireless technology that has now been
endorsed by over 2,000 companies, including many of the major computer and
telecommunications companies. It is especially useful for enabling small,
battery-powered mobile devices like cellular telephones to communicate with
other mobile or fixed devices at distances up to 10 meters (33.7 feet).

         We established an important relationship with Texas Instruments
Incorporated to provide BLUETOOTH printing capabilities for cellular telephones,
and secured an OEM contract with EPSON Electronics America, Inc. for hardware to
enable BLUETOOTH functionality on their line of inkjet printers. We also
partnered with Canon U.S.A., Inc., Ricoh Co., Ltd., Toshiba America, Inc., and
Intel Corporation for BLUETOOTH demonstrations at COMDEX, and we participated
with Intel in the World PC Expo show in Tokyo.

         We believe we were the first company in the world to demonstrate a
product for PC printing over a BLUETOOTH wireless link, and we believe we were
one of the first to ship a BLUETOOTH hardware product with official BLUETOOTH
qualification. In August 2001, we began shipping production-level BLUETOOTH
wireless print devices. Earlier in the year, we were also selected by Sony
Europe to provide BLUETOOTH wireless printer connectivity, teamed with
semiconductor manufacturer Atmel to combine TROY's protocol stack with the Atmel
BLUETOOTH-qualified baseband chip, and participated in a wireless "Smart Home"
demonstration at the COMDEX electronics trade show. This demonstration
spotlighted that wireless applications are designed to bring convenience to the
home of the future. In addition, we achieved official qualification of our
BLUETOOTH Protocol Stack software, which we license to OEMs to aid in their
development of new products with full multivendor device interoperability under
BLUETOOTH standards. We were also promoted to Associate Member of the BLUETOOTH
Special Interest Group under the sponsorship of Intel Corporation, among other
achievements in this area.

         Our current BLUETOOTH products include:

            o     WindConnect(TM) Print Adapter.
                  Our 10+ years of experience in printer connectivity
                  solutions has been combined with BLUETOOTH technology into
                  the WindConnect(TM) print adapter. This device can be
                  attached to most printers enabling them to receive data
                  without wires or cables and print from PC's, laptops, PDA's
                  and cellular phones. This BLUETOOTH V1.1 Qualified product
                  features the leading interoperability with the most printers,
                  operating systems, and PCMCIA cards.

            o     WindPort(TM) PC Wireless Card.
                  Our PCMCIA card is a BLUETOOTH qualified solution which
                  provides full BLUETOOTH connectivity to any device with a
                  PCMCIA slot. It is based on the most widely adopted PCMCIA
                  BLUETOOTH platform to ensure maximum interoperability. And
                  it is fully tested and interoperable with TROY's BLUETOOTH
                  devices.

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            o     WindStack(TM) Software Stack.
                  We have developed a fully BLUETOOTH 1.1 qualified BLUETOOTH
                  stack for embedded applications. It has been successfully
                  ported to a number of chipset platforms, including TI,
                  Silicon Wave, Atmel, CSR, Ericsson, and Conexant. Written
                  in ANSI C, and developed using a highly modular API
                  structure, it is easily portable and usable.

            o     OEM Modules.
                  We can bring our BLUETOOTH expertise to provide custom
                  embedded solutions to our customer's applications, from
                  middleware/firmware to turnkey hardware/firmware solutions.

         In 2000, we announced an initiative to develop products that address
the rapidly growing 802.11b wireless LAN standard. 802.11b, a Wi-Fi standard, is
essentially a wireless version of the highly popular Ethernet networking
standard, and therefore has become quite popular because of its compatibility
with existing applications. Due to our significant experience with wired
Ethernet LANs, we believe that we have already developed much of the technology
and expertise to be successful in this market. According to Cahners In-Stat, the
wireless LAN equipment market is predicted to grow to $3 billion in 2002. In
fiscal 2001, we began shipping production-level 802.11b EtherWind and EtherSync
wireless print devices, having debuted them at the Networld+Interop trade show
in May and demonstrated them along with our BLUETOOTH innovations at COMDEX in
mid-November. In related news during the year, we joined the Wireless Ethernet
Compatibility Alliance ("WECA"), underlining our commitment to building our
industry leadership in wireless innovation under the 802.11b and Wi-Fi
standards.

         Our current 802.11 WiFi Products include:

                  o     EtherWind(TM) Wireless Print Server.
                        Our 10+ years of experience in printer connectivity
                        solutions has been combined with 802.11b technology
                        into the EtherWind(TM) wireless print server. It
                        features the broadest support for networking protocol
                        standards, and has full interoperability with the
                        most printers, operating systems, and other 802.11b
                        products (e.g. PCMCIA cards and access points).

                  o     EtherSync(TM) PC Wireless Card.
                        Our EtherSync PC Card works with most laptop
                        computers to deliver high-performance wireless
                        network access and the freedom to print from anywhere
                        within our customer's home or office. Its 11 Mbps
                        data rate enables even the most demanding untethered
                        applications such as large file or image transfers,
                        fast Internet access, and multimedia.

                  o     OEM Modules
                        We can bring our 802.11b expertise to provide custom
                        embedded solutions to our customer's applications,
                        from middleware/firmware to turnkey hardware/firmware
                        solutions.

NETWORK AND INTERNET CONNECTIVITY PRODUCTS

         Our network and Internet connectivity products are recognized worldwide
for supporting a large number of protocols and network operating systems.
Although we have traditionally focused on printer


                                       8
<Page>

connectivity (print servers) for local area networks (LANs), our products now
enable virtually any device to send and receive data and/or to be controlled,
monitored, and diagnosed via a LAN and the Internet.

         In May 2001, we acquired the printing solutions operations (print
servers) of Extended Systems, in an effort to expand our distribution
capabilities, technology portfolio and customer base. We are currently marketing
these products under the TROY ExtendNet brand.

         Our network and Internet connectivity products include:

                  o     XJet print servers.
                        The XJet Ethernet and Fast Ethernet print servers
                        plug into the internal slot of Hewlett-Packard
                        LaserJet(R) printers.

                  o     Pony and XConnect print servers.
                        The Pony and XConnect print servers support 1, 2, or
                        4 printers and work on Ethernet and/or Fast Ethernet
                        networks.

                  o     UNA, Turbo Tee, and IPA.
                        The UNA, Turbo Tee, and IPA allow printers to be
                        connected to IBM mainframe computers using such
                        technologies as twinax, coax, Ethernet, and/or IPDS.

                  o     Serial Server.
                        The Serial Server connects a wide range of devices,
                        such as medical instrumentation, numerical control
                        equipment, LED signs, and much more to Ethernet
                        networks.

                  o     Soft Print Server.
                        Soft Print Server is a software solution that can be
                        integrated into our customer's product and provides
                        the same benefits as exist in our hardware solutions.
                        While certain segments of the print server business
                        have become very price competitive and some printer
                        OEMs have elected to incorporate the print server
                        technology inside their printers to reduce the cost,
                        we believe this establishes an opportunity for our
                        Soft Print Server.

                  o     OEM products.
                        TROY develops custom hardware products for OEM
                        applications.

                  o     Specialty Products.
                        TROY also offers products for security, barcode,
                        electronic forms, non-networked printer sharing, and
                        other applications.

         We will be leveraging our current OEM and distribution channels with a
continued product improvement strategy, to address the industry trends and
leverage our breadth of product line.

BUSINESS STRATEGIES

         Our objective is to expand our expertise as a provider of enterprise
output solutions to become a leading worldwide provider of wireless printing
solutions and electronic payment systems. Our strategies for achieving this
objective include:


                                       9
<Page>

         CONTINUING TO DEVELOP AND MARKET WIRELESS SOLUTIONS. We believe the
wireless connectivity market represents an area of major growth potential. In
order to address this market, we continue to make investments to enhance our
wireless products and technology.

         EXPANDING AND SEEKING NEW OEM RELATIONSHIPS. We are aggressively
expanding our existing relationships with manufacturers of wireless equipment
and related components and seeking new OEM relationships. In the BLUETOOTH and
802.11b wireless markets, we have initially focused on printer manufacturers
like Epson, since we have credibility and existing relationships with these
companies. In addition, most of our existing network and Internet connectivity
firmware and software can also be used in our 802.11b products. Although printer
manufacturers remain our primary OEM focus, we will also pursue opportunities in
other vertical markets, such as transportation, medical, logistics, and
education, where wireless provides a high value proposition. We are also working
to aggressively expand our existing OEM relationships and actively seeking new
OEM relationships in connection with our growth initiative in electronic payment
solutions. We believe that this strategy provides us with the opportunity to
expand our market share and maintain and enhance our technological position and
expertise. This is our overall objective and is synergistic with our resources
and products.

         CONTINUING TO DEVELOP AND MARKET ELECTRONIC PAYMENT SOLUTIONS. Our
strategy is to expand our product lines to provide online merchants with
bankcard and financial electronic data interchange products that complement our
current electronic payment services comprised of ACH payment systems and secure
electronic check solutions. This product expansion will ensure that we have a
complete service solution for online merchants, coupled with a variety of
security and transaction verification options. We are combining our core
products, ACH payments and eCheck Secure, with state-of-the-art web bankcard and
sophisticated financial electronic data interchange services to meet the market
needs for integrated, customized and modular payment solutions. In the payment
processing arena, we are broadening our processing portfolio to balance risk
management, volume and settlement capabilities to assure competitive, yet
low-risk, payment processing products.

         INTRODUCING AND ENHANCING PRODUCTS THROUGH RESEARCH AND DEVELOPMENT. We
achieved a leadership position by investing in research and development,
introducing higher-quality products and focusing on satisfying the needs of both
our OEM customers and end users. We continue to invest in research and
development to enhance our current technologies and introduce new products.

         LEVERAGING STRATEGIC ALLIANCES. We currently partner with various
software, firmware, hardware and financial service companies in offering
solutions that assist us in meeting our customers' financial payment needs. We
continue to aggressively pursue new strategic alliances that we believe will
enable us to enter new markets, expand our distribution channels and enhance our
product and service offerings. We currently have management resources dedicated
to developing strategic alliances.

         EXPANDING DISTRIBUTION CHANNELS TO INCREASE OUR FOCUS ON SELLING TO
MID-SIZE AND SMALLER BUSINESSES. We believe that an increasing number of small
and mid-sized businesses will begin to use networks, the Internet and enhanced
financial payment solutions to facilitate their business needs by lowering
costs, providing instantaneous access to financial data, and enabling better
customer service. The small and mid-sized business market will also be adopting
wireless technology and TROY Wireless is positioned with multiple products to
provide a complete solution to this market segment, through system integrators,
distributors, and with direct marketing to the customer. We continue to expand
our distribution channels to increase our sales to these businesses.

         ACQUIRING RELATED BUSINESSES, PRODUCTS AND TECHNOLOGIES. A significant
aspect of our growth strategy has been the acquisition of complementary
businesses in order to achieve market presence, increase our customer base and
expand our product offerings to our customers and business partners. In


                                       10
<Page>

fiscal 2001, we acquired the printing solutions operations of Extended Systems.
We continue to search for such appropriate opportunities. We currently have an
experienced team, both internal and external, executing and implementing our
acquisition strategy.

         There can be no assurance that we will be successful in pursuing these
business strategies, which necessarily involve certain risks (see "Certain
Important Factors" as presented on pages 16 to 20).

RESEARCH AND PRODUCT DEVELOPMENT

         We are committed to growing our business through research and
development, and it is one of our major business strategies. We seek customer
feedback in the product design process in order to meet changing requirements,
and are committed to developing functional and integrated solutions in a rapid
and efficient manner. In addition, we invest significantly in highly
sophisticated research and development equipment.

         As of February 1, 2002, we employed approximately 55 persons in our
research and development efforts. Our highly trained staff of software,
electrical, mechanical and chemical engineers is focusing on principal research
and development activities such as:

            o     developing software and firmware for BLUETOOTH and Wi-Fi
                  products;

            o     developing electronic payment solutions;

            o     developing new products that provide solutions for our
                  strategic business partners;

            o     creating proprietary imaging supplies; and

            o     developing secure printing solutions.

SUPPORT SERVICES

         We offer TECHNICAL SUPPORT, MAINTENANCE AND ON-SITE SERVICES, portions
of which are provided by third parties. We provide technical support through a
toll-free telephone line from 7:00 AM to 5:00 PM (PST) and through our web
sites. We also provide on-site service through yearly maintenance contracts or
on a time-and-materials basis.

         In addition to our technical support, maintenance and on-site services,
we have maintained the MICR TECHNOLOGY CENTER, a research group dedicated to
providing solutions for MICR document processing problems. Members of the
testing facility for this research group have the ability to examine all aspects
of the MICR printing process to pinpoint where improvements can be made and to
ensure the highest-quality MICR line.

SALES AND MARKETING

         Our business segments, TROY Systems and TROY Wireless have independent
sales and marketing organizations. They focus on their respective product
groups. They are similar in that they market products to Fortune 1000 companies
through a direct sales force, and to small and mid-size businesses primarily
through a network of distributors and value-added resellers. Our products are
represented internationally, primarily through a distributor network.


                                       11
<Page>

         Our TROY Systems segment markets check printing solutions to financial
services, insurance, telecommunications, computer hardware, automotive,
personnel, government and others. We market our electronic payment solutions
directly to Internet merchants, and virtually every Internet web site that
offers e-commerce is a potential client. Our research has identified several
markets that will be targeted on a high-priority basis: business-to-consumer
utility companies, and both conventional and online stock brokerage firms. Also,
we currently have strong access to many Fortune 1000 companies and to the U.S.
Treasury.

         We sell our wireless network and Internet connectivity products through
OEM partners, value-added resellers, distributors and directly to corporations.
Our OEM customers include companies such as OKI, Monarch, Zebra, Texas
Instruments, Epson, Brother, Eastman Kodak, Encad, and Hitachi Koki. We have
co-marketing arrangements with Sony Europe, Compaq, and Kyocera. Through our
German sales team, we sell directly to major corporations such as Daimler
Chrysler and Siemens.

         Our base of more than 5,000 active customers includes e-commerce retail
and brokerage firms, financial institutions, insurance companies, payroll
processing companies, corporations and government agencies. Ameritrade, Inc.,
AT&T Corporations, Bank of America Corporation, Brother Industries, Ltd.,
Eastman Kodak Company, Farmers Group, Inc. (Farmers Insurance), Fidelity
Investments, Ford Motor Company, IBM, Manpower Inc., Wells Fargo & Company,
Mercedes Benz USA, Comerica Bank, Red Cross, G.E. Capital Ireland and Ford
Credit Europe are among the TROY customers that purchased products during the
last 12 months.

         We have increased the number of sales and support staff dedicated to
recruiting and training additional distributors and value-added resellers. This
supports our strategy to sharpen our focus on mid-size and smaller companies
that will increasingly use the Internet and networks to facilitate their
business needs. We also have management resources dedicated to recruiting and
developing new OEM relationships and leveraging strategic alliances in support
of our key business strategies.

         We promote our products through our web site, trade shows, advertising
and direct marketing materials as well as referrals from our strategic business
partners, including Compaq, Texas Instruments, Atmel, Intersil Corporation, HP,
IBM, and Standard Register.

STRATEGIC RELATIONSHIPS

         In fiscal year 2001, TROY Wireless continued to establish and enhance
relationships with key industry partners. We began shipments of our EtherWind
802.11b print server to Epson as part of an OEM agreement in which EtherWind is
bundled with the Epson Stylus C80 inkjet printer. We were selected by Intersil,
the leading manufacturer of 802.11b chip technology, to provide consultative and
engineering services for Intersil customers as part of its PRISM Partner
Initiative program. We announced a relationship with Atmel to build specific
BLUETOOTH application software into Atmel's family of Bluetooth baseband
controllers. Our WindConnect print adapter was selected by Sony Europe as part
of the introduction program for their new Sony Vaio line of BLUETOOTH-enabled
notebook computers. WindConnect was also selected by Compaq as the only
BLUETOOTH printing device to be listed on its web site. In addition, we
partnered with Zebra Technologies, the leading manufacturer of thermal barcode
printers, to enable seamless IPDS/AFP printing from IBM AS/400 and mainframe
computers. Finally, we further strengthened our relationship with Texas
Instruments by developing our CCITT 16- and 32-bit algorithms for their
third-party DSP developer's program.

         Our ACH processing business uses links to the Federal Reserve through
Pacific Mercantile Bank, First National Bank of Omaha and First Tennessee Bank.
In March 2001, we relocated our Nashville, Tennessee Data Center to a new,
state-of-the-art facility equipped with highly sophisticated operational


                                       12
<Page>

and security features. Our ability to provide accurate, timely and complete ACH
payment processing services is dependent on our strategic relationships with the
banks that provide our access to the Federal Reserve payment system.

         The laser check printer market continues to be an important part of our
business, and we are continuing to develop both wireless and wired products to
address the needs of the market. Since 1993, we have also maintained a strategic
relationship with Hewlett-Packard's various printing groups. In addition, we are
a member of Hewlett-Packard's LaserJet Integrated Solutions Partner Support
Program (ISPS), a select group of third-party solutions partners. As a member of
this group, we work with Hewlett-Packard on architecture issues for new product
development. We believe that our relationship with Hewlett-Packard gives us a
competitive advantage in marketing our products, primarily because of HP's
reputation as the leading provider of laser printers throughout the world.

         We have a joint marketing relationship with IBM, the world leader in
the development and manufacture of advanced information technology. In an
agreement with TROY, IBM has agreed to purchase from us all of its MICR toner
requirements for the IBM 3900, InfoPrint 4000, and the soon-to-be-released IBM
4100 family of high-speed laser printers.

         We are an OEM supplier to Standard Register. Standard Register is a
recognized leader in delivering document management systems, products and
services to healthcare, financial and general business markets. We private-label
MICR and multi-purpose printers for Standard Register, to be used in conjunction
with their various document management solutions including LINKUP(TM), a check
printing software system, and PATIENT LINKUP(TM), a hospital admissions and
document routing system.

COMPETITION

         The market for our products is highly competitive and subject to rapid
technological change. We compete principally on the basis of the quality,
flexibility, convenience and security of our enterprise output solutions.
Overall, we believe that we are well positioned in our industry and compete
favorably as a result of:

            o     our highly trained team of software, firmware, electrical,
                  mechanical and chemical engineers and programmers;

            o     our commitment to understanding the changing needs of our
                  marketplace;

            o     our ability to develop new solutions to meet those needs;

            o     the breadth of our products' features;

            o     our reputation for knowledge, technical expertise and
                  professionalism;

            o     the strength and scope of our strategic relationships;

            o     our capable and reliable technical support capabilities; and

            o     a historical and ongoing commitment to quality.


                                       13
<Page>

         TROY SYSTEMS

         FINANCIAL SOFTWARE & SERVICES SOLUTIONS. We develop, market and support
a variety of software systems. Our key competitors are CheckFree, Politzer &
Haney and ACI for ACH processing systems, and Jack Henry for AS400 bank cash
management systems. Our software systems have unique features that competitively
differentiate them from other providers. We continue to develop enhancements to
our core software systems that, we believe, will continue to provide unique
capabilities to our software users.

         We are an authorized reseller of Certegy check verification services,
formerly Equifax Check Services. Certegy also has other authorized resellers,
such as BankServ, Xign and Intellicheck, which provide competitive service
offerings. eCheck Secure provides secure online checks and competes with
Authorize.net, Deluxe Check, PaybyCheck, Achex and a host of other online check
service providers. TROY differentiates itself in real-time verification,
coupling a flexible front end with robust back-office reporting.

         We provide ACH processing services to banks and commercial companies.
We compete with domestic banks and other third-party electronic payment
providers, such as Deluxe Check. ACH processing with the Federal Reserve is a
highly standardized service with defined settlement timeframes and established
rules. We are an experienced originator, active in NACHA, the national
organization of ACH system participants, and are competent in risk management
techniques that optimize our use of the settlement system while minimizing our
financial risk.

         MICR CHECK PRINTING SOLUTIONS. Our primary competitors in networked
computer payment solutions are Source Technologies, Xerox, ACOM Solutions, and
Rosetta. We believe that our current relationship with Hewlett-Packard gives us
a competitive advantage in the MICR printing market, primarily because of
Hewlett-Packard's reputation as the leading provider of laser printers
worldwide.

         IMAGING SUPPLIES. We compete in the specialty toner and ribbon market
primarily on the basis of quality and service. Color Image is our most
significant competitor with respect to our toner products. Our significant
competitors with respect to ribbons are Nu-Kote International, Fuji Copian
Corporation and Columbia. We position ourselves as a full-service provider, with
a pricing strategy that reflects our quality, reliability, precision of
formulation and available customer support. We have been able to maintain a
leadership position in the MICR printer and imaging supplies business as a
result of advanced technological features (including security), higher levels of
quality and value-added services.

         TROY WIRELESS

         WIRELESS SOLUTIONS. The BLUETOOTH and 802.11b wireless markets are
emerging markets. Our primary competitors in the BLUETOOTH market are MPI,
AnyCom and Axis Communications. In addition, HP, NEC and Samsung have delivered
BLUETOOTH capabilities on their lines of printers. Our competitors in the
802.11b printer connectivity market are HP, Buffalo, Linksys, D-Link, Sercomm,
and Komatsu. Competitors with our expanded 802.11b product line beyond the print
server include Cisco, Agere, 3Com, Linksys, D-Link, SMC, Proxim, Symbol, and
others. Our primary competitors in the BLUETOOTH software protocol stack market
are Extended Systems Inc. and Widcomm Inc. Other competitors include IVT
Corporation, Stonestreet One, Inc., and several other smaller companies.

         NETWORK AND INTERNET CONNECTIVITY SOLUTIONS. In the print server
market, HP, Intel, Axis, S.E.H., Lantronix, Lexmark and MiLAN offer competing
products that are suitable for multiprotocol enterprise network printing
applications. There are many other commodity print servers, including very
low-cost products, but such commodity print servers are not usually suitable for
enterprise networks due to inadequate protocol support and features, limited
customer support and low performance. In addition, our


                                       14
<Page>

support of both PrintraNet and IPP Internet connectivity provides another
advantage over most of our competitors. Although Hewlett-Packard makes print
servers, we do not generally consider them a direct competitor. This is because
we are a Hewlett-Packard partner providing DEC and Banyan VINES connectivity
solutions that are not available on Hewlett-Packard products.

INTELLECTUAL PROPERTY

         We have certain proprietary printing system components, manufacturing
processes, information, knowledge, trademarks and tradenames. We rely on a
combination of patent, trademark, trade secret and other intellectual property
laws, nondisclosure agreements with employees and internal confidentiality
measures to protect our intellectual property rights and confidential
information. We seek patents from time to time on products and processes. The
decision to seek additional patents is based on analysis of various business
considerations such as the cost of obtaining a patent, the likely scope of
patent protection and the benefits of patent protection relative to relying on
trade secrets protection and other measures. We also rely on specialized
know-how and continuing technological innovation to develop and maintain our
competitive position.

         As of February 1, 2002, we held nine United States patents. Our
existing patents primarily cover components of our impact printing systems and
proprietary consumables. We have also filed applications for one additional
United States patent and four foreign patents, which are currently pending.
There can be no assurance that our issued patents will provide meaningful
protection of our products and technologies. In addition, patent applications
can be denied or significantly reduced before issuance. Moreover, there can be
no assurance that third parties will not assert intellectual property
infringement claims against us or that, if such claims are asserted, we would
prevail or be able to obtain any necessary licenses.

         We believe that our proprietary manufacturing processes and techniques,
materials expertise and trade secrets may provide us with a competitive
advantage as important as, if not more important than, patent protection. We
seek to maintain the confidentiality of this proprietary information by
requiring employees who have access to proprietary information to sign
confidentiality agreements and by limiting its disclosure to outside parties.
There can be no assurance, however, that these measures will provide us with
adequate protection of our proprietary information or with adequate remedies in
the event of unauthorized use or disclosure. In addition, there can be no
assurance that our competitors will not independently develop or otherwise gain
access to processes, techniques or trade secrets that are similar or superior to
ours. Finally, as with patent rights, legal action to enforce trade secret
rights can be lengthy and costly, with no guarantee of success.

ENVIRONMENTAL AND REGULATORY MATTERS

         Our MICR printer and imaging supplies manufacturing operations are
subject to numerous domestic and international laws and regulations,
particularly relating to environmental matters that impose limitations on the
discharge of pollutants into the air, water and soil and establish standards for
the treatment, storage and disposal of solid and hazardous wastes. We are also
required to have permits from a number of governmental agencies in order to
conduct various aspects of our business. Compliance with these laws and
regulations is not expected to have a material adverse effect on our capital
expenditures, earnings or competitive position. There can be no assurance,
however, that future changes in environmental laws or regulations, or in the
criteria required to obtain or maintain necessary permits, will not have a
material adverse effect on our operations.


                                       15
<Page>

EMPLOYEES

         As of February 1, 2002, we employed approximately 240 persons. None of
our employees are represented by a labor union or covered by a collective
bargaining agreement. We have not experienced any work stoppages and consider
relations with our employees to be good.

ITEM 1A.  CERTAIN IMPORTANT FACTORS

         There are several important factors that could cause our actual results
to differ materially from those we anticipate or those reflected in any of our
forward-looking statements. These factors, and their impact on the success of
our operations and our ability to achieve our goals, include those set forth
below.

WE HAVE EXPANDED OUR BUSINESS TO OFFER e-COMMERCE PAYMENT SOLUTIONS AND FACE
CERTAIN RISKS RELATED TO THESE SOLUTIONS, INCLUDING FAILURE TO GAIN MARKET
ACCEPTANCE.

         Since we have expanded our business and strategy to offer online,
secure check acceptance for e-commerce merchants and online brokerages, we have
continued to gather expertise in this area. We have recently revised our
business strategy to further focus our efforts in ACH origination and ACH
systems. We have been disappointed in the market acceptance by e-commerce
merchants to date. We have no assurance that this adjustment in our strategy
will be successful or that our existing business to online brokerages will
continue. In addition, our focus on e-commerce payment solutions could cause our
historical networked payment solutions business to suffer. Our e-commerce
payment solutions compete with other well-established payment methods and we
cannot assure you that our current solutions or those under development will be
accepted by the marketplace. If we are not successful in marketing e-commerce
payment solutions or if our historical business declines as a result of our
efforts in this area, our business will be materially and adversely affected.

         Our e-commerce payment solutions often involve risk of payment error or
repudiation. We may be unable to recover funds advanced to our customers when
payments are returned or when proper procedures are not followed. Further, we
could be held responsible for claims that payments, presented by our products,
are not authorized by the holder of the account on which they are drawn. If we
are found responsible for unauthorized payments, we could be liable for the
amount of the unauthorized payment as well as other indirect or consequential
damages, such as overdraft charges or damage to the account holders' credit
rating. Any findings of such liability could also significantly impact our
marketing of these products and could cause our business to suffer.

THE SUCCESS OF OUR WIRELESS INITIATIVES DEPENDS ON OUR ABILITY TO DEVELOP NEW
PRODUCTS FOR EXISTING AND EMERGING WIRELESS COMMUNICATIONS MARKETS AND TO
INTRODUCE SUCH PRODUCTS IN A TIMELY MANNER AND THE ABILITY OF THESE PRODUCTS TO
GAIN MARKET ACCEPTANCE.

         The development of new wireless networking products is highly complex
and we may experience delays in developing and introducing new products. Due to
the intensely competitive nature of our business, any delay in the commercial
availability of new products could materially and adversely affect our business,
reputation and future operating results. In addition, if we are unable to
develop or obtain access to advanced wireless networking technologies as they
become available, or are unable to design, develop and introduce competitive new
products on a timely basis, or are unable to hire or retain qualified engineers
to develop new technologies and products, our future operating results would be
materially and adversely affected. We anticipate expending substantial resources
in developing products that are designed to conform to emerging wireless
standards. We can offer no assurance, however, that our products for wireless
applications will gain market acceptance or have a meaningful commercial impact.


                                       16
<Page>

In addition, there can be no assurance that our products will be based on the
wireless standards that are ultimately adopted by the marketplace.

TECHNOLOGY IN OUR INDUSTRY EVOLVES RAPIDLY, AND WE MUST CONTINUE TO ENHANCE
EXISTING PRODUCTS AND DEVELOP NEW PRODUCTS OR OUR BUSINESS WILL SUFFER.

         Rapid technological advances, obsolescence and large fluctuations in
demand and changing industry standards characterize the markets for our current
products. Our existing and development-stage products may easily become obsolete
if our competitors introduce newer or better technologies or if industry
standards change. To be successful, we must continually enhance our existing
products and develop and introduce other e-commerce payment, networked payment
and wireless and other connectivity technologies. If we fail to adequately
anticipate or respond to changing technological developments and standards or
customer requirements, or if we are significantly delayed in developing and
introducing products, our business will suffer. In addition, our success in this
rapidly changing environment depends on our ability to appropriately refocus our
management attention and other resources on the emerging technologies and
standards that will ultimately gain market acceptance.

WE FACE SIGNIFICANT COMPETITION THAT MAY NEGATIVELY IMPACT OUR REVENUES, GROSS
MARGINS AND MARKET SHARE.

         Our e-commerce payment solutions compete directly with well-established
payment methods such as credit cards. Credit card companies, financial
institutions and others offering direct debit, wire transfer and ACH services
generally have greater current market share and resources than we have. There
can be no assurance that we will be able to compete successfully against these
other payment methods and their providers, and our failure to do so will
adversely affect our business and prospects.

         In addition, we face significant competition in developing and selling
networked payment solutions. Many of our competitors in this market also have
substantially greater financial, development, marketing and personnel resources
than we have. We cannot assure you that we will be able to compete successfully
against our current or future competitors. Increased competition may result in
price reductions, lower gross margins and loss of market share.

WE FACE RISKS ASSOCIATED WITH OUR STRATEGY OF GROWING THROUGH ACQUISITIONS.

         We intend to acquire technologies, product lines and businesses that
will complement our business and enable us to achieve our objective of becoming
the leading worldwide provider of e-commerce enterprise output solutions.
Acquisitions involve risks, including that:

            o     we may not be able to identify and assimilate products,
                  technologies or businesses into our ongoing business;

            o     an acquired company may take a disproportionate amount of
                  management time and energy, causing our existing business to
                  suffer;

            o     we may find it difficult to retain key employees of the
                  acquired businesses;

            o     an acquisition may dilute our stockholders' equity if
                  additional equity securities are issued; and

            o     we may be required to amortize acquisition expenses and
                  acquired assets over a relatively short period, causing our
                  earnings to be below analysts' expectations.


                                       17
<Page>

OUR BUSINESS DEPENDS ON THE CONTINUED DEMAND FOR PRINTED DOCUMENTS, INCLUDING
FINANCIAL DOCUMENTS.

         Because we provide solutions that allow enterprises to distribute and
print information, our business depends on the continued demand for printed
documents. Demand for these solutions could decline if businesses and
organizations move toward "paperless" environments and reduce their dependence
on printed documents. In addition, our financial payment solutions are dependent
on the demand for printed financial documents. Demand for printed financial
documents may be reduced as a result of competition from alternate financial
document delivery or payment methods, such as electronic banking, electronic
commerce, on-line services and other electronic media. We cannot assure you that
changes in the business environment or competition from alternate financial
document delivery or payment methods will not significantly erode the demand for
our products and cause our business to suffer.

WE MAINTAIN STRATEGIC SUPPLY, OEM AND MARKETING ARRANGEMENTS, AND TERMINATION OF
THESE RELATIONSHIPS COULD ADVERSELY AFFECT OUR REVENUES AND EARNINGS.

         We maintain and depend on strategic relationships with a number of
companies, including Certegy, Hewlett-Packard, IBM, Novell, Standard Register
and Wind River. These relationships include supply, OEM, marketing and service
arrangements which are important to our business. Certain of these relationships
are not covered by written agreements and could be terminated at any time. If
our relationship with any of these companies were to end, our revenues and
earnings could fall. We cannot assure you that we will be able to maintain our
strategic relationships with these companies.

WE SELL A SIGNIFICANT PORTION OF OUR PRODUCTS INTERNATIONALLY, WHICH EXPOSES US
TO CURRENCY FLUCTUATIONS AND OTHER RISKS.

         We sell a significant amount of our products to customers outside the
United States. International sales accounted for 14.9% of our net sales in the
year ended November 30, 2001. International sales represented 13.7% of our net
sales in the fiscal year ended November 30, 2000, and 13.1% of sales in the
fiscal year ended November 30, 1999. We expect that shipments to international
customers will continue to account for a material portion of our net sales.
Sales outside the United States involve the following risks, among others:

            o     foreign governments may impose tariffs, quotas and taxes;

            o     political and economic instability may reduce demand for our
                  products;

            o     restrictions on the export or import of technology may reduce
                  or eliminate our ability to sell in certain markets; and

            o     potentially limited intellectual property protection may cause
                  us to refrain from selling in certain markets.

         Because we denominate some of our international sales in U.S. dollars,
currency fluctuations could also cause our products to become less affordable or
less price-competitive than those of foreign manufacturers. We cannot assure you
that these factors will not have a material adverse effect on our international
sales. Any adverse impact on our international sales would affect our results of
operations and would cause our business to suffer.

OUR QUARTERLY OPERATING RESULTS FLUCTUATE AS A RESULT OF MANY FACTORS.


                                       18
<Page>

         Our quarterly operating results fluctuate due to various factors. Some
of the factors that influence our quarterly operating results include:

            o     the mix of products and services sold in the quarter;

            o     life-cycle stages of the products sold in the quarter;

            o     the availability and cost of components and materials;

            o     costs and benefits of new product and service introductions;
                  and

            o     customer order and shipment timing.

         Because of these factors, our quarterly operating results are difficult
to predict and are likely to vary in the future. If our earnings are below
financial analysts' expectations in any quarter, our stock price is likely to
drop.

WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY
RIGHTS OR TO PROTECT OURSELVES AGAINST INFRINGEMENT CLAIMS OF OTHERS.

         We cannot be certain that the steps we have taken to protect our
intellectual property rights will be adequate or that third parties will not
infringe or misappropriate our proprietary rights. Any such infringement or
misappropriation could have a material adverse effect on our future financial
results. We also cannot be certain that we have not infringed the proprietary
rights of others. Any such infringement could cause third parties to bring
claims against us, resulting in significant costs, possible damages and
substantial uncertainty.

WE DEPEND ON OUR EXECUTIVE OFFICERS FOR OUR SUCCESS.

         We are significantly dependent upon Patrick J. Dirk, our Chairman and
Chief Executive Officer, and our other executive officers. There could be a
material adverse effect on our business if we lose the services of Mr. Dirk or
any other executive officer.

COMPLIANCE WITH GOVERNMENT REGULATIONS MAY CAUSE US TO INCUR UNFORESEEN
EXPENSES.

         Our MICR printer and imaging supplies manufacturing operations are
subject to a number of federal, state and local laws and regulations. These
regulations include laws and regulations promulgated by the Environmental
Protection Agency and similar state agencies regarding storing, shipping,
disposing, discharging and manufacturing hazardous materials and hazardous and
non-hazardous waste. Although we believe that our operations materially comply
with all current laws and regulations, we cannot assure you that these
regulations will not change. We also cannot assure you that unforeseen
environmental incidents will not occur, or that past contamination or
non-compliance with environmental laws will not be discovered on our current or
former properties. Any of these events could result in significant expense or
require changes in our operations, which could materially and adversely affect
our business.

OUR FORMER STATUS AS AN S CORPORATION COULD EXPOSE US TO LIABILITY.

         From December 1989 to October 30, 1998, TROY Group and TROY Systems
elected S corporation status under the Internal Revenue Code. Although we
believe that TROY Group and TROY Systems met the S corporation requirements
under the Code during this period, the IRS has not challenged or made a
determination as to our status. If the IRS determines that TROY Group or TROY


                                       19
<Page>

Systems did not meet the Code requirements for S corporations, we could be
liable for unpaid federal and state income taxes for all or a part of the time
that we elected S corporation status, plus interest and possible penalties.

ITEM 2.  PROPERTIES

         We currently lease approximately 37,000 square feet of space for our
headquarters in Santa Ana, California. Our other facilities are located in
Irvine, California, where we lease approximately 14,000 square feet; in
Coquitlam, British Columbia, where we lease approximately 7,000 square feet; in
Wheeling, West Virginia, where we lease approximately 77,000 square feet for a
manufacturing facility; in Nashville, Tennessee, where we lease approximately
5,300 square feet; in Matthews, North Carolina, where we lease approximately
2,500 square feet; in Boise, Idaho, where we lease 10,000 square feet and in
Herrenberg, Germany, where we lease 6,000 square feet. We consider our present
facilities to be sufficient for our current operations.

ITEM 3.  LEGAL PROCEEDINGS

         There are no material pending legal proceedings to which we or any of
our subsidiaries is a party, or regarding any of our properties or any of our
subsidiaries' properties.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matter was submitted for a vote of our security holders during the
fourth quarter of the fiscal year covered by this report.


                                       20

<Page>

ITEM 4A.  EXECUTIVE OFFICERS OF TROY GROUP

         Our executive officers as of February 1, 2002, are as follows:

<Table>
<Caption>
       NAME             AGE                        TITLE
---------------------   ---    -----------------------------------------------
<S>                     <C>    <C>
Patrick J. Dirk......    62    Chairman of the Board, Director and Chief
                               Executive Officer of TROY Group and related
                               subsidiaries

Brian P. Dirk........    37    Vice Chairman of the Board, Director, Corporate
                               Secretary of TROY Group and Senior Vice
                               President, Corporate Development

James W. Klingler....    54    Vice President-Finance, Treasurer, and Chief
                               Financial Officer of TROY Group
</Table>

         PATRICK J. DIRK has been Chairman of the Board, Chief Executive Officer
and a Director since he co-founded TROY Group with his wife in May 1982. From
May 1982 until August 1999, Mr. Dirk served as President of TROY Group. Mr. Dirk
is also the Chairman of the Board and Chief Executive Officer of TROY Group
related subsidiaries. From 1973 until 1982, Mr. Dirk was employed in various
capacities by Kroy Inc., a manufacturer of automated lettering machines and
related products, serving as President and a director from 1980 to 1982. Mr.
Dirk also serves as a member of the boards of directors and advisory boards of
several private companies, none of which compete with TROY Group. Mr. Dirk
devotes substantially all of his efforts to TROY Group and its subsidiaries. Mr.
Dirk is the father of Brian P. Dirk.

         BRIAN P. DIRK was appointed Vice Chairman of the Board, Corporate
Secretary and Senior Vice President, Corporate Development of TROY Group on
December 1, 2001. Previously, he served as Vice President since May 1996. He was
a member of our Board of Directors from that date until October 30, 1998. He
again became a director in July 1999. Mr. Dirk's duties include managing our
acquisition and alliance strategies and staff. Prior to this, he served as Vice
President of International and Federal Government Sales. Since joining us in
1989, Mr. Dirk has held various management positions, including Vice President
of Business Development and Vice President of International Sales. Mr. Dirk is
the son of Patrick J. Dirk.

         JAMES W. KLINGLER joined Troy Group as Vice President-Finance,
Treasurer and Chief Financial Officer on January 14, 2002. From February 2001 to
November 2001, he served as Senior Vice President, Business Operations and Chief
Financial Officer of Trinagy, Inc., a software company that has been merged into
Hewlett-Packard Company. Mr. Klingler was Vice President, Finance and
Administration of Triconex Corporation, a supplier of products, systems and
services for safety, critical control and turbomachinery applications and a
subsidiary of Invensys plc, from February 1999 to February 2001, and Vice
President and Chief Financial Officer of Wilshire Technologies Inc., a company
that manufactures polyurethane products, from October 1994 to February 1999. In
addition, he has held financial management positions with Allergan, Inc.,
PEPSICO subsidiary Kentucky Fried Chicken Corp., Schering-Plough Corp. and
Continental Group, Inc. A Certified Management Accountant and veteran of the
U.S. Air Force, Mr. Klingler holds an MBA from Columbia University Graduate
School of Business and a B.A. from The Ohio State University.


                                       21
<Page>

                                     PART II
                              --------------------

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         COMMON STOCK INFORMATION.

         Our common stock is currently traded on the Nasdaq National Market
under the symbol "TROY." The following table sets forth, for each of the fiscal
periods indicated, the range of high and low sale prices per share as reported
by the Nasdaq National Market. These prices do not include adjustments for
retail mark-ups, mark-downs or commissions.

<Table>
<Caption>
                       FISCAL 2001                     HIGH             LOW
                       -----------                     ----             ---
         <S>                                         <C>             <C>
         First Quarter........................         $8.56           $3.81
         Second Quarter.......................         $4.84           $2.81
         Third Quarter........................         $6.25           $4.00
         Fourth Quarter.......................         $4.80           $3.25
</Table>

<Table>
<Caption>
                       FISCAL 2000                     HIGH             LOW
                       -----------                     ----             ---
         <S>                                         <C>             <C>
         First Quarter........................        $43.00           $12.5
         Second Quarter.......................        $36.25          $8.125
         Third Quarter........................        $15.25           $8.00
         Fourth Quarter.......................       $ 9.688           $4.25
</Table>

         We have not declared or paid any cash dividends (other than S
corporation distributions) on our common stock since our inception, and the
Board of Directors presently intends to retain all earnings for use in our
business for the foreseeable future. In addition, our ability to declare and pay
dividends is restricted by the terms of certain of our debt agreements. See Note
9 to our financial statements on pages F-14 to F-16 of this report.

         As of February 1, 2002, there were approximately 127 record holders of
our common stock.


                                       22
<Page>

ITEM 6.  SELECTED FINANCIAL DATA.


                     SUMMARY STATEMENTS OF OPERATIONS DATA:
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<Table>
<Caption>
FOR THE YEAR ENDED NOVEMBER 30:                2001             2000            1999           1998           1997
------------------------------                 ----             ----            ----           ----           ----
<S>                                          <C>             <C>             <C>            <C>            <C>
Net sales.............................        $49,218          $52,310        $59,121        $35,758        $33,434
Gross profit..........................         18,498           22,292         22,531         14,262         13,837
Net income (loss).....................         (5,945)           2,407          5,827          4,434          4,397

Pro forma net income..................             --               --             --          2,371          2,659

Diluted net income (loss) per share...        $ (0.55)         $  0.21        $  0.64        $  0.31        $  0.34

Weighted average diluted shares
   outstanding........................         10,775           11,369          9,116          7,745          7,759
</Table>


                           SUMMARY BALANCE SHEET DATA:
                                 (IN THOUSANDS)

<Table>
<Caption>
AT NOVEMBER 30:                                2001             2000            1999           1998           1997
--------------                                 ----             ----            ----           ----           ----
<S>                                          <C>             <C>             <C>            <C>            <C>
Working capital.........................      $21,170          $24,903        $25,011        $ 5,806        $ 5,173

Total assets............................       37,671           42,575         37,355         18,918         11,749

Long-term debt (net of current portion).          193              272            331          3,333          2,034

Stockholders' equity....................       28,732           35,615         29,795          8,265          5,948
</Table>


         The above information includes our initial public offering on July 21,
1999 and our acquisitions of XCD Incorporated in October 1998, Telgate Systems
in May 1999, American Development (AMDev), Inc. in February 2000, CableNet
Technologies in May 2000 and the printing solutions operations of Extended
Systems Incorporated in May 2001. See Note 2 to our financial statements on
pages F-10 and F-12 of this report for further information including information
regarding pro forma net income.


                                       23
<Page>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

         The following discussion and analysis should be read in conjunction
with our Consolidated Financial Statements and related Notes included in this
report.

BACKGROUND

         TROY Group, Inc. is a leading worldwide provider of enterprise output
solutions. For the past three years the Company has been expanding beyond its
core business in digital check printing systems and related consumables by
developing electronic payment systems and wired and wireless networking
solutions. Most of this new product expansion was accomplished through the
acquisition and further investment in five small technology companies. These
acquisitions have been organized under the Company's two primary business
segments: TROY Systems and TROY Wireless.

         TROY Systems provides state-of-the-art payment systems ranging from
high security digital check printing systems to electronic payment and funds
transfer solutions. Our systems are used to transfer monies between bank
accounts using paper checks or electronic ACH (Automated Clearing House)
processes. Our products provide our customers with payment solutions that offer
security, speed, flexibility and efficiency.

         TROY Wireless provides hardware and software solutions that enable
enterprises to share intelligent devices like printers either wirelessly or
using traditional networks. We have been a premiere supplier of hardwired
network printing solutions since 1991. Our wireless products allow a wide range
of devices to exchange information via BLUETOOTH(TM) and 802.11b short-range
radio connections. Brother Industries, Ltd., Sony Corporation, Seiko Epson
Corporation and DaimlerChrysler AG are among the TROY Wireless customers that
have purchased products during the last 12 months.

         We serve a wide variety of industries including financial services,
insurance, telecommunications, computer hardware, automotive, personnel,
government and others. We distribute our solutions around the world and market
our products through a direct sales force and a network of distributors and
value-added resellers. More than 5,000 active customers purchase our products
and services.

OVERVIEW

         Net sales are generated from the sale of our wireless technology,
electronic payment solutions and services and our products and services related
to specialized printer applications. We recognize revenue from the sale of our
products when the goods are shipped to the customer and we recognize maintenance
revenue over the period of the contract on a straight-line basis. We recognize
revenue from the sale of software licenses upon receipt of an executed sales
agreement and shipment to the customer, provided there are no significant
obligations except for one agreement which requires the revenue to be recognized
on a per unit basis. All sales are made through purchase orders.

         In fiscal year 1999, we had sales to a customer that individually
accounted for 11.4% of our total net sales. Sales to this customer in fiscal
years 2000 and 2001 were less than 10% of our net sales. In addition, in fiscal
year 1999, we had sales to another customer that individually accounted for
19.9% of our total net sales. Sales to this customer in fiscal years 2000 and
2001 were less than 10% of our net sales. All sales to major customers occurred
within the TROY Systems segment.


                                       24
<Page>

RESULTS OF OPERATIONS

         The following table sets forth, for the periods indicated, certain
information derived from our consolidated statements of operations expressed as
a percentage of net sales:

<Table>
<Caption>
                                                                 Fiscal Year Ended
                                                                    November 30,
                                                           -----------------------------

                                                            2001       2000      1999
                                                            ----       ----      ----
         <S>                                               <C>       <C>        <C>
         Net sales......................................    100.0%    100.0%     100.0%
         Cost of goods sold.............................     62.4      57.4       61.9
         Gross Profit...................................     37.6      42.6       38.1
         Selling, general and administrative expenses...     31.9      27.1       15.9
         Research and development expenses..............     12.2       8.4        6.2
         Amortization of long-lived assets .............      2.6       1.9        0.7
         Impairment of long-lived assets ...............     11.5        --        --
         Operating income (loss)........................    (20.6)      5.2       15.3
         Interest income................................      1.0       1.6        0.4
         Interest expense...............................     (0.2)     --         (0.4)
         Income (loss) before income taxes..............    (19.8)      6.8       15.3
         Provision for income taxes (credit)............     (7.7)      2.2        5.4
         Net income (loss)..............................    (12.1)      4.6        9.9
</Table>

FISCAL YEAR ENDED NOVEMBER 30, 2001 COMPARED TO FISCAL YEAR ENDED NOVEMBER 30,
2000

         NET SALES. Net sales in the fiscal year ended November 30, 2001 were
$49.2 million, a decrease of $3.1 million, or 5.9%, from $52.3 million in the
fiscal year ended November 30, 2000. This cumulative decrease in net sales
represents a $5.1 million decrease in sales of TROY Systems due to an economic
slowdown, which was partially offset by an increase of $2.0 million in sales of
TROY Wireless. Net sales during the fiscal year ended November 30, 2001 in the
TROY Wireless segment include $4.8 million related to our acquisition of the
printing solutions operations of ESI. Net sales of software licensing revenue
included in the TROY Wireless segment decreased from $2.8 million in fiscal year
ended November 30, 2000 to $476,000 in fiscal year ended November 30, 2001. Net
sales were not significantly affected by price changes. We anticipate that net
sales from the wired connectivity products will decline as these products are at
or approaching end of life.

         COST OF GOODS SOLD. Cost of goods sold increased by $702,000 or 2.3% to
$30.7 million in the fiscal year ended November 30, 2001 from $30.0 million in
the fiscal year ended November 30, 2000. This increase primarily was due to $2.5
million additional costs as a result of our acquisition of ESI and an increase
in the inventory reserve of $1.6 million for obsolete and excess inventories,
both in TROY Wireless, partially offset by reductions due to lower sales in TROY
Systems. The increase in the reserve for slow moving and obsolete inventories
partially resulted from an analysis of our long-lived assets and could vary
significantly in future years. Cost of goods sold as a percentage of net sales
increased to 62.4% in the fiscal year ended November 30, 2001 from 57.4% in the
fiscal year ended November 30, 2000. We may enter into agreements to license
technology from other companies. As a result of these agreements, cost of goods
sold could vary from historical patterns.

         GROSS PROFIT. As a result of the above factors, gross profit decreased
by $3.8 million to $18.5 million in the fiscal year ended November 30, 2001
from $22.3 million in the fiscal year ended November


                                       25
<Page>

30, 2000. Gross profit as a percentage of net sales decreased to 37.6% in the
fiscal year ended November 30, 2001 from 42.6% in the fiscal year ended November
30, 2000.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $1.5 million or 10.5% to $15.7 million in
the fiscal year ended November 30, 2001 from $14.2 million in the fiscal year
ended November 30, 2000. This increase primarily was due to additional operating
expenses of $942,000 as a result of our acquisition of the printing solutions
operations of Extended Systems Incorporated. Selling, general and administrative
expenses as a percentage of net sales increased to 31.9% in the fiscal year
ended November 30, 2001 from 27.1% in the fiscal year ended November 30, 2000,
due to our acquisition strategy and our associated growth requirements. We
intend to continue to invest in marketing expenditures, substantially increase
the size of the TROY Wireless sales force, and add technical resources as
required. This forward-looking statement will be impacted by the timing and
amount of these expenditures, our ability to attract and retain sales and
marketing personnel and the associated costs of such personnel, and the success
of our marketing efforts.

         RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by $1.7 million or 37.9% to $6.0 million in the fiscal year ended
November 30, 2001 from $4.4 million in the fiscal year ended November 30, 2000.
Research and development expenses as a percentage of net sales was 12.2% in the
fiscal year ended November 30, 2001 and 8.4% in the fiscal year ended November
30, 2000. In connection with our growth initiatives, we expect research and
development activities to focus on enhancements to TROY Wireless networking
products and on electronic payment and funds transfer solutions in TROY Systems.
This forward-looking statement will be impacted by the timing and amount of
additional research and development expenditures and our ability to attract and
retain research and development personnel and the associated costs of such
personnel.

         We capitalize certain software development costs in accordance with
Financial Accounting Standards Board (FASB) Statement No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed. Under the
provisions of FASB No. 86, we capitalize computer software development costs
from the point that technological feasibility is established until the time when
the product is available for general release to the public. Research and
development costs, consisting of software development costs incurred until the
point of technological feasibility, are charged to operations when incurred.
Software development costs capitalized were $154,000 during fiscal year ended
November 30, 2000 compared to $1.3 million during fiscal year ended November 30,
2001. We anticipate the estimated lives of these products to be approximately
five years.

         AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
increased by $263,000 or 25.8% to $1.3 million in the fiscal year ended November
30, 2001 from $1.0 million in the fiscal year ended November 30, 2000. This
increase was the result of increases in the intangible assets associated with
our acquisitions.

         IMPAIRMENT OF LONG-LIVED ASSETS. During the fourth quarter of fiscal
year 2001, the Company initiated an analysis of its long-lived assets 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 its long-lived assets.
This analysis was initiated due to changes in the Company's business
environment, which were highlighted during the Company's annual business
planning process, and certain changes in Company's management. This analysis was
done on a business unit by unit basis as it was determined that these units were
independent of each other and were the lowest level for which cash flows could
be identified. The business units identified were similar to the businesses
acquired by the Company since 1998. The analysis demonstrated that the acquired
print server products and technologies were at or approaching their end-of life
and that the ACH processing services were not generating the cash flows
anticipated when this


                                       26
<Page>

business unit was acquired. The Company completed this analysis with the
assistance of an independent valuation firm. The analysis indicated that these
business units would not generate sufficient positive cash flows over the
projected period of five years, which approximated the remaining life of the
long-lived assets, and that there was no current value or residual value beyond
the value of the net current assets and certain property and equipment.
Substantially all of the intangible assets of certain of these business units
were written off at November 30, 2001 because they are projected to generate
insufficient positive cash flows. Certain property and equipment of these
business units were not written off because they continue to be used in
operations and were determined to have value. As a result of this analysis, the
Company recorded a charge in 2001 of $5,634,000 for the impairment of long-lived
assets on a business unit by unit basis as follows:

<Table>
<Caption>
                   BUSINESS UNIT                 AMOUNT       SEGMENT
                   --------------------------------------------------
                   <S>                          <C>           <C>
                   XCD..........................$1,085,000    Troy Wireless
                   American Development..........1,945,000    Troy Systems
                   CableNet......................2,074,000    Troy Wireless
                   ESI.............................530,000    Troy Wireless
                                                   -------
                                        Total   $5,634,000
                                                ==========
</Table>


         The amortization expense recorded for these assets in 2001 prior to the
recorded impairment charge was $1,261,000.

         At November 30, 2001, the Company has $2,470,000 in intangible assets
that are currently determined to be not impaired. Included in this amount are
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. Amortization expense on
these intangible assets in 2002 is projected to be approximately $520,000.

         OPERATING INCOME (LOSS). As a result of the above factors, we recorded
an operating loss of $10.1 million in the fiscal year ended November 30, 2001
compared to operating income of $2.7 million in the fiscal year ended November
30, 2000. The operating loss as a percentage of net sales was 20.6% in the
fiscal year ended November 30, 2001 compared to operating income as a percentage
of net sales of 5.2% in the fiscal year ended November 30, 2000.

         INTEREST INCOME. Interest income decreased by $350,000 or 40.5% to
$515,000 in the fiscal year ended November 30, 2001 from $865,000 in the fiscal
year ended November 30, 2000. This income was due to our investment of current
cash and available for sale securities and our cash flows provided by
operations. This decrease is the result of lower rates on our investments in
available for sale securities due to our acquisitions, our stock repurchase
program and working capital requirements.

         INTEREST EXPENSE. Interest expense increased by $119,000 to $138,000 in
the fiscal year ended November 30, 2001 from $19,000 in the fiscal year ended
November 30, 2000. This increase was due to increased borrowings under our line
of credit.

         INCOME TAXES. We reported an income tax credit of $3.8 million in the
fiscal year ended November 30, 2001 compared to income tax expense of $1.2
million in the fiscal year ended November 30, 2000. The credit was due to our
operating loss and increases in research and development and other tax credits.
The recoverability of our deferred tax asset is dependant on our ability to
generate future taxable income.


                                       27

<Page>

FISCAL YEAR ENDED NOVEMBER 30, 2000 COMPARED TO FISCAL YEAR ENDED NOVEMBER 30,
1999

         NET SALES. Net sales in the fiscal year ended November 30, 2000 were
$52.3 million, a decrease of $6.8 million, or 11.5%, from $59.1 million in the
fiscal year ended November 30, 1999. This cumulative decrease in net sales
represents a $12.9 million decrease in sales of our laser printers, impact
printers and services, which was partially offset by an increase of $2.4 million
in sales of our proprietary imaging supplies and an increase of $3.6 million in
sales of our connectivity products, which includes $2.8 million in software
licensing revenue. Net sales were not significantly affected by price changes.
The decrease in our net sales for the fiscal year ended November 30, 2000, as
compared to net sales for the fiscal year ended November 30, 1999, can be
attributed to a significant non-recurring replacement order of financial
document printers to Comark, Inc. of $10.8 million recorded in the third and
fourth quarters of 1999, as well as the implementation of our strategy to shift
our focus away from our established financial payment solutions and toward our
wireless printing opportunities and electronic payment solutions.

         COST OF GOODS SOLD. Cost of goods sold decreased by $6.6 million or
18.0% to $30.0 million in the fiscal year ended November 30, 2000 from $36.6
million in the fiscal year ended November 30, 1999. This decrease was primarily
due to decreased net sales offset by sales of higher gross margin products. Cost
of goods sold as a percentage of net sales decreased to 57.4% in the fiscal year
ended November 30, 2000 from 61.9% in the fiscal year ended November 30, 1999.

         GROSS PROFIT. As a result of the above factors, gross profit decreased
by $239,000 to $22.3 million in the fiscal year ended November 30, 2000 from
$22.5 million in the fiscal year ended November 30, 1999. Gross profit as a
percentage of net sales increased to 42.6% in the fiscal year ended November 30,
2000 from 38.1% in the fiscal year ended November 30, 1999. This increase was
also primarily due to sales of higher gross margin products.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $4.8 million or 50.6% to $14.2 million in
the fiscal year ended November 30, 2000 from $9.4 million in the fiscal year
ended November 30, 1999. This increase was due primarily to additional operating
expenses of $1.5 million as a result of acquisitions, an increase of $3.3
million due to increases in personnel, the allowance for doubtful accounts,
promotions and other expenses. Selling, general and administrative expenses as a
percentage of net sales increased to 27.1% in the fiscal year ended November 30,
2000 from 15.9% in the fiscal year ended November 30, 1999, due to our
acquisition strategy and our associated growth requirements

         RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by $725,000 or 19.9% to $4.4 million in the fiscal year ended November
30, 2000 from $3.6 million in the fiscal year ended November 30, 1999. Of this
increase, $600,000 was due to additional research and development expenses as a
result of acquisitions. Research and development expenses as a percentage of net
sales were 8.4% in the fiscal year ended November 30, 2000 and 6.2% in the
fiscal year ended November 30, 1999.

         We capitalize certain software development costs in accordance with
Financial Accounting Standards Board (FASB) Statement No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed. Under the
provisions of FASB No. 86, we capitalize computer software development costs
from the point that technological feasibility is established until the time when
the product is available for general release to the public. Research and
development costs, consisting of software development costs incurred until the
point of technological feasibility, are charged to operations when incurred.
Software development costs capitalized were none during fiscal year ended
November 30, 1999 compared to $154,000 during fiscal year ended November 30,
2000.


                                       28
<Page>

         AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
increased by $603,000 or 145.3% to $1.0 million in the fiscal year ended
November 30, 2000 from $415,000 in the fiscal year ended November 30, 1999. This
increase was the result of increases in the intangible assets associated with
acquisitions.

         OPERATING INCOME. As a result of the above factors, operating income
decreased by $6.3 million or 70% to $2.7 million in the fiscal year ended
November 30, 2000 from $9.0 million in the fiscal year ended November 30, 1999.
Operating income as a percentage of net sales decreased to 5.2% in the fiscal
year ended November 30, 2000 from 15.3% in the fiscal year ended November 30,
1999.

         INTEREST INCOME. Interest income was $865,000 in the fiscal year ended
November 30, 2000. This income was due to our investment of proceeds from our
initial public offering and cash flows provided by operations.

         INTEREST EXPENSE. Interest expense decreased by $215,000 to $19,000 in
the fiscal year ended November 30, 2000 from $234,000 in the fiscal year ended
November 30, 1999. This decrease was due to decreased borrowings under our line
of credit and term debt.

         INCOME TAXES. Income taxes decreased to $1.2 million in the fiscal year
ended November 30, 2000 from $3.2 million in the fiscal year ended November 30,
1999. This decrease is a result of decreased income before income taxes. Income
taxes as a percentage of pretax income decreased to 32.4% in the fiscal year
ended November 30, 2000 from 35.6% in the fiscal year ended November 30, 1999.
This decrease was due to increases in research and development and other tax
credits.

BACKLOG

         We sell our products on a purchase order basis rather than through
long-term contracts. Because we typically ship product within 30 days of order
and customers may cancel or reschedule deliveries, we do not consider backlog to
be a reliable indicator of future financial results.

LIQUIDITY AND CAPITAL RESOURCES

         Cash flows provided by operating activities were $763,000 in the fiscal
year ended November 30, 2001 compared to $3.4 million provided by operating
activities in the fiscal year ended November 30, 2000. This decrease was due
primarily to lower sales, a smaller decrease in accounts receivable and a larger
increase in inventories. The accounts receivable decrease resulted primarily
from collections. The increase in inventories resulted primarily from increased
levels to meet anticipated sales.

         Cash flows provided by investing activities were $217,000 in the fiscal
year ended November 30, 2001 compared to cash flows used in investing activities
of $7.3 million in the fiscal year ended November 30, 2000. Included in cash
flows provided by investing activities in the fiscal year ended November 30,
2001 was $5.1 million in net proceeds from available-for-sale securities. In
connection with split-dollar life insurance arrangements with our major
shareholder, we are committed to funding the premium on three life insurance
policies for the foreseeable future. Annual premiums on these policies are
approximately $563,000 per year for the next five years.

         Cash flows used in financing activities were $1.2 million in the fiscal
year ended November 30, 2001 compared to cash flows provided by financing
activities of $844,000 million in the fiscal year ended November 30, 2000. The
cash used in investing activities primarily resulted from $1.1 million of
purchases in the stock repurchase program.


                                       29
<Page>

         We currently have a $5.0 million general line of credit with Comerica
Bank-California, which is secured by substantially all of our assets and is
subject to certain financial covenants. In connection with the general
line-of-credit agreement, we have a $650,000 standby letter of credit sublimit
agreement of which $80,000 was outstanding at November 30, 2001. There were no
borrowings outstanding against either line of credit on November 30, 2001, and
as of that date $4.9 million was available under the general line of credit. The
general line of credit has no expiration date.

         We believe that existing cash balances, cash generated by operating
activities, and funds available under our credit facility will be sufficient to
finance our operating activities for at least the next 12 months. To the extent
that the funds generated from these sources are insufficient to finance our
operating activities, we would need to raise additional funds through public or
private financing. We cannot assure you that additional financing will be
available on terms favorable to us, or at all.

         In March 2001, Troy established a stock repurchase program under which
Troy's common stock, with an aggregate market value up to $4.0 million, may be
acquired in the open market. As of November 30, 2001, Troy has purchased
approximately 295,320 shares of common stock in the open market, at an average
price of $3.71 per share, under the stock repurchase program. Approximately $3.0
million remain available for future common stock repurchases.

RECENTLY ISSUED ACCOUNTING STANDARDS

         In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141 (SFAS No. 141), BUSINESS
COMBINATIONS, and Statement of Financial Accounting Standards No. 142 (SFAS No.
142), GOODWILL AND OTHER INTANGIBLE ASSETS. SFAS No. 141 addresses financial
accounting and reporting for business combinations and is effective for all
business combinations after June 30, 2001. SFAS No. 142 addresses financial
accounting and reporting for acquired goodwill and other intangible assets and
is effective for fiscal years beginning after December 15, 2001. The Company
will adopt as of the beginning of fiscal year 2003. We are in the process of
determining the expected impact on earnings and existing goodwill and other
intangibles upon adoption, which will include the elimination of goodwill
amortization and may include additional impairment. As of November 30, 2001,
unamortized goodwill totaled $308,000.

         In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which supersedes previous guidance
on financial accounting and reporting for the impairment or disposal of
long-lived assets and for segments of a business to be disposed of. Adoption of
SFAS 144 is required no later than the beginning of fiscal 2003. Management does
not expect the adoption of SFAS 144 to have a significant impact on our
financial position or results of operations. However, further impairment reviews
may result in charges against earning to write down the value of long-lived
assets.

ITEM 7a.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         Market risk is the risk of loss to future earnings, to fair values or
to future cash flows that may result from changes in the price of a financial
instrument. The value of a financial instrument may change as a result of
changes in interest rates, exchange rates, commodity prices, equity prices and
other market changes. Market risk is attributed to all market sensitive
financial instruments, including long-term debt.

         We do not utilize derivative financial instruments. Accordingly, our
exposure to market risk is through our investments in available-for-sale
securities and our bank debt which bears interest at variable rates.
Available-for-sale securities consist of corporate debt and marketable equity
securities. These securities generally have contractual maturity dates of up to
one year. At November 30, 2001, market


                                       30
<Page>

values approximated carrying values. Due to the short-term maturities of these
securities, management believes that there is no significant market risk. At
November 30, 2001, we had approximately $7.0 million in cash, cash equivalents
and investments in available-for-sale securities, and, accordingly, a sustained
decrease in the rate of interest earned of 1% would cause a decrease in the
amount of interest earned of $70,000. The bank debt is a revolving line of
credit. All borrowings bear interest based upon the reference rate per annum as
announced by the bank (5.0% at November 30, 2001) less 0.25%. At November 30,
2001, there were no amounts outstanding under the line of credit agreement and,
accordingly, a sustained increase in the reference rate of 1% would not cause
our annual interest expense to change.


                                       31
<Page>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         FINANCIAL STATEMENTS.

         Our consolidated financial statements and related notes are contained
on pages F-1 to F-24 of this report. The index to such items is included on page
31 in Item 14(a)(1).

         QUARTERLY RESULTS.

                             FISCAL 2001 (UNAUDITED)
                      (in thousands, except per share data)

<Table>
<Caption>
                                                  First             Second             Third             Fourth
                                                 Quarter            Quarter           Quarter           Quarter
                                                 -------            -------           -------           -------
         <S>                                     <C>                <C>               <C>               <C>
         Net sales...................            $11,309             $9,800           $13,674           $14,435
         Gross profit................              4,453              3,574             5,513             4,958
         Operating income (loss).....             (1,181)            (2,402)              230            (6,772)
         Net income (loss)...........               (585)            (1,581)              220            (3,999)
         Net income (loss) per share:
         Basic.......................               (.05)              (.15)              .02              (.37)
         Diluted.....................               (.05)              (.15)              .02              (.37)
</Table>

         During the fourth quarter of fiscal 2001, the Company recorded a change
for the impairment of long-lived assets of $5.6 million and increased the
reserve for obsolete and excess inventory by $1.1 million. See Note 14 in the
"Note to Consolidated Financial Statements" for additional discussion.


                             FISCAL 2000 (UNAUDITED)
                      (in thousands, except per share data)

<Table>
<Caption>
                                                  First             Second             Third             Fourth
                                                 Quarter            Quarter           Quarter           Quarter
                                                 -------            -------           -------           -------
         <S>                                     <C>                <C>               <C>               <C>
         Net sales...................            $14,030            $11,777           $14,183           $12,320
         Gross profit................              6,696              4,892             5,563             5,141
         Operating income............              2,468                108               123                14
         Net income..................              1,618                217               216               356
         Net income per share:
         Basic.......................                .15                .02               .02               .03
         Diluted.....................                .14                .02               .02               .03
</Table>

                             FISCAL 1999 (UNAUDITED)
                      (in thousands, except per share data)

<Table>
<Caption>
                                                  First             Second             Third             Fourth
                                                 Quarter            Quarter           Quarter           Quarter
                                                 -------            -------           -------           -------
         <S>                                     <C>                <C>               <C>               <C>
         Net sales...................            $11,523            $12,198           $17,573           $17,827
         Gross profit................              4,601              4,698             6,592             6,640
         Operating income............              1,670              1,851             2,681             2,843
         Net income..................                955              1,070             1,470             2,332
         Net income per share:
         Basic.......................                .12                .14               .17               .23
         Diluted.....................                .12                .13               .16               .21
</Table>

         Quarterly calculations of net earnings per share do not equate to the
calculations for the fiscal year as quarterly calculations are made on a
discrete basis.


                                       32
<Page>

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

         Not applicable.

                                    PART III
                              --------------------

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         (a)      DIRECTORS OF THE REGISTRANT.

         The information under the caption "Election of Directors - Information
About Nominees" and "Other Information About Nominees" in our 2002 Proxy
Statement is incorporated herein by reference.

         (b)      EXECUTIVE OFFICERS OF THE REGISTRANT.

         Information concerning our Executive Officers is included in this
Annual Report on Form 10-K under Item 4A, "Executive Officers of Troy Group."

         (c)      COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

         The information under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in our 2002 Proxy Statement is incorporated herein by
reference.

ITEM 11.  EXECUTIVE COMPENSATION.

         The information under the caption "Executive Compensation" in our 2002
Proxy Statement is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The information under the caption "Security Ownership of Certain
Beneficial Owners and Management" in our 2002 Proxy Statement is incorporated
herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The information under the caption "Executive Compensation - Certain
Transactions" in our 2002 Proxy Statement is incorporated herein by reference.


                                       33
<Page>

                                     PART IV
                              --------------------

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)      LIST OF DOCUMENTS FILED AS PART OF THIS REPORT:

         (1)      FINANCIAL STATEMENTS:

                  The following financial statements are included in this report
on the pages indicated:

<Table>
<Caption>
                                                                               Page(s)
                                                                               ---------
                  <S>                                                          <C>
                  Independent auditor's report...............................   F-1
                  Consolidated balance sheets as of
                      November 30, 2001 and 2000.............................   F-2
                  Consolidated statements of operations for the years ended
                       November 30, 2001, 2000 and 1999......................   F-3
                  Consolidated statements of cash flows for the years ended
                       November 30, 2001, 2000 and 1999......................   F-4
                  Consolidated statements of stockholders' equity as of
                       November 30, 2001, 2000 and 1999......................   F-5
                  Notes to consolidated financial statements.................   F-6-F-24
</Table>

         (2)      FINANCIAL STATEMENT SCHEDULES:

                  All financial statement schedules have been omitted because
         the required information is included in our consolidated financial
         statements or the related notes, or is not applicable.

         (3)      EXHIBITS

                  The exhibits to this Annual Report on Form 10-K are listed in
         the Exhibit Index contained on pages E-1 through E-5 of this report.

                  We will furnish a copy of any exhibit to a stockholder who
         requests a copy in writing and pays a fee of $25.00 per exhibit.
         Requests should be sent to: James W. Klingler, Chief Financial Officer,
         Troy Group, Inc, 2331 South Pullman Street, Santa Ana, California
         92705.

                  The following is a list of each management contract or
         compensatory plan or arrangement required to be filed as an exhibit to
         this Annual Report on Form 10-K pursuant to Item 14(c):

         A.       1996 Stock Option Plan (incorporated by reference to Exhibit
                  10.7 to Troy Group's Registration Statement on Form S-1 (File
                  No. 333-51523)).

         B.       1998 Stock Incentive Plan, as amended (incorporated by
                  reference to Exhibit 10.2 to Troy Group's Form 10-Q for the
                  quarter ended August 31, 2000 (File No. 000-24413)).

         C.       1998 Employee Stock Purchase Plan (incorporated by reference
                  to Exhibit 10.9 to Troy Group's Registration Statement on Form
                  S-1 (File No. 333-51523)).


                                       34
<Page>

         D.       Non-Competition Agreement dated November 27, 1996 between
                  Robert Messina and Troy Group (incorporated by reference to
                  Exhibit 10.12 to Troy Group's Registration Statement on Form
                  S-1 (File No. 333-51523)).

         E.       Form of Indemnification Agreement for directors and executive
                  officers of Troy Group (incorporated by reference to Exhibit
                  10.14 to Troy Group's Registration Statement on Form S-1 (File
                  No. 333-51523)).

         F.       Separation Agreement and Release Letter, dated as of November
                  1, 2001, between Troy Group and Robert S. Messina (filed
                  herewith electronically).

(b)      REPORTS ON FORM 8-K:

         None.

(c)      EXHIBITS:

         The response to this portion of Item 14 is included as a separate
         section of this Annual Report on Form 10-K.

(d)      FINANCIAL STATEMENT SCHEDULES:

         The response to this portion of Item 14 is included as a separate
         section of this Annual Report on Form 10-K.


                                       35
<Page>

                          INDEPENDENT AUDITOR'S REPORT





To the Board of Directors
Troy Group, Inc.
Santa Ana, California


         We have audited the accompanying consolidated balance sheets of Troy
Group, Inc. and subsidiaries as of November 30, 2001 and 2000, and the related
consolidated statements of operations, cash flows and stockholders' equity for
each of the three years in the period ended November 30, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Troy Group,
Inc. and subsidiaries as of November 30, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
November 30, 2001 in conformity with accounting principles generally accepted in
the United States of America.

                                             McGLADREY & PULLEN, LLP

                                             /s/ McGladrey & Pullen, LLP


Anaheim, California

February 15, 2002


                                      F-1
<Page>

                                TROY GROUP, INC.

                           CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                                                          November 30,
                                                                           -------------------------------------------
                                 ASSETS                                           2000                  2001
                                                                           -------------------- ----------------------
<S>                                                                        <C>                  <C>
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, including notes receivables from stockholders
      2000 $600,000; 2001 $983,000.......................................          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            4,418,000
   Accrued expenses.........................................................       2,659,000            2,456,000
   Deferred 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
                                                                                 ===========          ===========
</Table>

                 See Notes to Consolidated Financial Statements.


                                      F-2
<Page>

                                TROY GROUP, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<Table>
<Caption>
                                                                              Fiscal Years Ended November 30,
                                                                     --------------------------------------------------
                                                                         1999              2000             2001
                                                                     ---------------- ----------------- ---------------
<S>                                                                  <C>              <C>               <C>
Net sales.....................................................        $59,121,000      $52,310,000       $49,218,000


Cost of goods sold (including $270,000; $270,000; and $270,000
in rent paid to majority stockholders)........................         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 (credit).............          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
                                                                     ============       ==========        ==========
</Table>

                 See Notes to Consolidated Financial Statements


                                      F-3
<Page>

                                TROY GROUP, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                              Fiscal Years Ended November 30,
                                                                     ---------------- ----------------- ----------------
                                                                          1999              2000             2001
                                                                     ---------------- ----------------- ----------------
<S>                                                                  <C>              <C>               <C>
Cash flows from operating activities:
   Net income (loss)..........................................       $  5,827,000     $  2,407,000       $(5,945,000)
   Adjustments to reconcile net income(loss)to net cash provided
      by operating activities:
      Depreciation and amortization...........................          1,173,000        1,680,000         2,059,000
      Intangible asset impairment.............................                  -                -         5,634,000
      Provision for doubtful accounts.........................            275,000          536,000           446,000
      Common stock warrants issued for services...............                  -          120,000                 -
      Accretion of investment discounts, net..................           (148,000)         (21,000)         (333,000)
      Deferred taxes..........................................           (504,000)        (283,000)       (2,218,000)
   Changes in working capital components, net of effects from
      acquisition of companies: (Increase) decrease in:
          Accounts receivable ................................         (6,231,000)       1,992,000           321,000
          Income tax refund receivable........................            319,000         (256,000)         (584,000)
          Inventories ........................................            736,000       (1,160,000)       (1,409,000)
          Prepaid expenses and other..........................           (116,000)        (426,000)          209,000
      Increase (decrease) in:
        Accounts payable......................................           (373,000)         (71,000)        1,994,000
        Accrued expenses......................................           (240,000)         132,000          (329,000)
        Income taxes payable..................................          1,208,000       (1,208,000)                -
        Deferred revenue......................................             46,000          (22,000)          918,000
                                                                     ------------      -----------           -------

      Net cash provided by operating activities...............          1,972,000        3,420,000           763,000
                                                                     ------------      -----------           -------

Cash flows from investing activities:
   Acquisition of companies...................................           (299,000)      (3,240,000)       (2,051,000)
   Purchase of available-for-sale securities..................         (7,499,000)     (15,766,000)       (5,111,000)
   Maturities of available-for-sale securities................                  -       13,481,000        10,215,000
   Purchase of equipment and leasehold improvements...........           (623,000)        (759,000)       (1,221,000)
   (Increase) in other assets.................................           (286,000)        (970,000)       (1,615,000)
                                                                     ------------      -----------           -------

      Net cash provided by  (used in) investing activities....         (8,707,000)      (7,254,000)          217,000
                                                                     ------------      ------------          -------

Cash flows from financing activities:
   Borrowings on notes payable................................         12,203,000                -                 -
   Payments on notes payable..................................        (13,393,000)               -                 -
   Proceeds from issuance of debt.............................            670,000                -                 -
   Principal payments on debt.................................         (3,608,000)        (289,000)          (67,000)
   Increase (decrease) in checks issued not yet presented for
      payment.................................................            255,000          558,000          (191,000)
   Dividends paid.............................................           (200,000)               -                 -
   Proceeds from issuance of common stock.....................         15,580,000          575,000           158,000
   Purchase of treasury stock.................................                  -                -        (1,096,000)
                                                                     ------------     -------------       ------------

      Net cash provided by (used in) financing activities.....         11,507,000          844,000        (1,196,000)
                                                                      -----------     -------------       -----------

      Net increase (decrease) in cash and cash equivalents....          4,772,000       (2,990,000)         (216,000)

Cash and cash equivalents, beginning of period................            308,000        5,080,000         2,090,000
                                                                     -------------    ------------         ---------

Cash and cash equivalents, end of period......................       $  5,080,000     $  2,090,000      $  1,874,000
                                                                     ============     ============      ============
</Table>

                 See Notes to Consolidated Financial Statements


                                      F-4
<Page>

                                TROY GROUP, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<Table>
<Caption>
                                         Common Stock                             Treasury Stock
                                   --------------------------  Additional   -------------------------
                                      Number                    Paid-in       Number                     Retained
                                    of Shares      Amount       Capital      of Shares      Amount       Earning         Total
                                   ------------  -----------  ------------  -----------  ------------  ------------   ------------
<S>                                <C>           <C>          <C>           <C>          <C>           <C>            <C>
Balance, November 30, 1998.........   7,671,430     $ 77,000   $ 1,724,000            -  $         -   $  6,464,000    $ 8,265,000
   Issuance of common stock
      in initial public offering...   2,500,000       25,000    14,583,000            -            -              -     14,608,000
   Issuance of other common
      stock........................      58,700        2,000       408,000            -            -              -        410,000
   Common stock options and
      warrants exercised...........     433,811        3,000       133,000            -            -              -        136,000
   Issuance of common stock
      warrants.....................           -            -       549,000            -            -              -        549,000
   Net income......................           -            -             -            -            -      5,827,000      5,827,000
                                    -----------  -----------  ------------  -----------  ------------  ------------   ------------

Balance, November 30, 1999.........  10,663,941      107,000    17,397,000            -            -     12,291,000     29,795,000
   Issuance of common stock
      for acquisitions.............      97,040        1,000     1,863,000            -            -              -      1,864,000
   Issuance of common stock for
      employee stock purchase
      plan.........................      14,654            -        76,000            -            -              -         76,000
   Common stock options and
      warrants exercised...........     105,129        1,000       497,000            -            -              -        498,000
   Issuance of common stock
      warrants.....................           -            -       755,000            -            -              -        755,000
   Tax benefit from disqualifying
      disposition of stock options.           -            -       220,000            -            -              -        220,000
   Net income......................           -            -             -            -            -      2,407,000      2,407,000
                                    -----------  -----------  ------------  -----------  ------------  ------------   ------------

Balance, November 30, 2000.........  10,880,764      109,000    20,808,000            -            -     14,698,000     35,615,000
   Issuance of common stock
      for employee stock
      purchase plan................      40,268            -       158,000            -            -              -        158,000
   Purchase of common stock for
      the treasury.................           -            -             -      295,320   (1,096,000)             -
                                                                                                                        (1,096,000)
   Net (loss)......................           -            -             -            -            -     (5,945,000)    (5,945,000)
                                    -----------  -----------  ------------  -----------  ------------  ------------   ------------

Balance, November 30, 2001.........  10,921,032     $109,000   $20,966,000     295,320   $(1,096,000)  $  8,753,000    $28,732,000
                                     ==========     ========   ===========     =======   ============  ============    ===========
</Table>

                 See Notes to Consolidated Financial Statements


                                      F-5
<Page>

                                TROY GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

         NATURE OF BUSINESS

         TROY Group, Inc. is a leading worldwide provider of enterprise output
solutions. For the past three years the Company has been expanding beyond its
core business in digital check printing systems and related consumables by
developing electronic payment systems and wired and wireless networking
solutions. The Company markets its products to over 5000 active customers around
the world through a direct sales force and a network of distributors and value
added resellers. Most of this new product expansion was accomplished through the
acquisition and further investment in five small technology companies. These
acquisitions have been organized under the Company's two primary business
segments: TROY Systems and TROY Wireless.

         A summary of the Company's significant accounting policies follows:

         USE OF ESTIMATES

         The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.

         The Company's operations are affected by numerous factors including
market acceptance, changes in technologies and new laws and government
regulations and policies. The Company cannot predict what impact, if any, the
occurrence of these or other events might have on the Company's operations.
Significant estimates and assumptions made by management are used for, but not
limited to, the allowance for doubtful accounts, the reserve for slow moving or
obsolete inventories and the carrying value of long-lived and intangible assets.

         PRINCIPLES OF CONSOLIDATION

         The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All material intercompany
balances and transactions are eliminated in consolidation.

         CHECKS ISSUED NOT YET PRESENTED FOR PAYMENT

         Through the use of concentration accounts, the Company's cash is
accumulated daily and applied to the outstanding balance of the revolving line
of credit (Note 6) or invested in a short-term money market account. Under this
program, idle funds are minimized. The Company's liquidity is thereby maintained
in the form of its ability to draw funds against the revolving line of credit.
All checks issued not yet presented for payment are classified as a liability.


                                      F-6
<Page>

NOTE 1.  NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         INVESTMENT IN AVAILABLE-FOR-SALE SECURITIES

         The Company has a portfolio of investments in certificates of deposit
and commercial paper. Management determines the appropriate classification of
the securities at the time they are acquired and evaluates the appropriateness
of such classifications at each balance sheet date. Management has determined
that all securities should be classified as available for sale.
Available-for-sale securities are stated at fair value and unrealized holding
gains and losses, net of the related deferred tax effect, are reported as a
separate component of stockholders' equity. As of November 30, 2000 and 2001,
the Company had approximately $1.5 million and $2.6 million, respectively, in
certificates of deposit and $8.4 million and $2.6 million, respectively, in
commercial paper, with contractual maturity dates of up to one year. Market
values approximated carrying values. Accordingly, no unrealized gains or losses
were recorded at November 30, 2000 and 2001.

         Premiums and discounts on investments in debt securities are amortized
over the contractual lives of those securities. The method of amortization
results in a constant effective yield on those securities (the interest method).
Dividends on marketable equity securities are recognized in income when
declared. Realized gains and losses, including losses from declines in value of
specific securities determined by management to be other than temporary, are
included in income. Realized gains and losses are determined on the basis of the
specific identification of the securities sold. The Company had no realized
gains or losses in fiscal years 1999, 2000 or 2001.

         INVENTORIES

         Inventories are stated at the lower of cost (first-in first-out method)
or market.

         EQUIPMENT AND LEASEHOLD IMPROVEMENTS

         Equipment and leasehold improvements are recorded at cost. Equipment is
depreciated using the straight-line method over their estimated useful lives,
currently five years. Improvements to leased property are amortized over the
lesser of the life of the lease or life of the improvements.

         INTANGIBLE ASSETS

         Intangible assets consist of customer lists, core technology, assembled
workforce and goodwill, which are being amortized on a straight-line basis over
five to seven years.

         EVALUATION OF LONG-LIVED ASSETS

         The Company periodically reviews the value of its long-lived assets
to determine if impairment has occurred by comparing the carrying value of
the long-lived assets with the future net undiscounted cash flows expected to
result from the use of the assets, including cash flows from disposition. As
discussed in Note 14, the Company recorded an impairment loss on certain
long-lived assets during fiscal year 2001 based on an evaluation of projected
operating income, cash flows and business prospects. In addition, management
determined other long-lived assets were not impaired. In making these
determinations, the assumptions used by management about future cash flows
are critical. If these expected cash flows are not realized, future
additional impairment losses may be recorded.

                                      F-7
<Page>

NOTE 1.  NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         REVENUE RECOGNITION

         The Company recognizes revenue when goods are shipped to the customer.
Licensing and upgrade revenue from sales of software products is recognized as
revenue upon receipt of an executed sales agreement and shipment to the
customer, provided there are no significant obligations, except for one
agreement which requires the revenue to be recognized on a per unit basis.
Maintenance service provides customers with support and the right to unspecified
future upgrades. Maintenance revenue is recognized as revenue over the life of
the contract using the straight-line method. Most maintenance agreements do not
exceed one year.

         PRODUCT RETURNS AND WARRANTIES

         The Company records a provision for estimated product returns and
warranties at the time the revenue is recognized.

         ADVERTISING POLICY

         The Company expenses the production costs of advertising the first time
the advertising takes place. Advertising expense was approximately $100,000,
$247,000 and $152,000 in fiscal years 1999, 2000 and 2001, respectively.

         RESEARCH AND DEVELOPMENT POLICY

         The Company expenses research and development costs, which are
primarily salaries and benefits, as they are incurred. The Company incurs
research and development costs in developing new products.

         CAPITALIZED SOFTWARE DEVELOPMENT COSTS

         Costs incurred for computer software development prior to establishing
technological feasibility are expensed as incurred. Software development costs
incurred by the Company following technological feasibility, defined by the
Company as the existence of a working model of the product, and prior to the
time the product is available for general release to customers have been none,
$154,000 and $1,314,000 as of November 30, 1999, 2000 and 2001 respectively.
Capitalized software costs resulting from acquisitions are $119,000, $230,000
and none in fiscal years 1999, 2000, and 2001, respectively. Capitalized
software costs are amortized over the greater of (1) the ratio of current gross
revenue for the product to the current and anticipated future gross revenues or
(2) the straight-line method over the remaining economic life of the product,
estimated to be five to seven years. Amortization expense related to capitalized
software costs was $12,000, $35,000 and $46,000 in fiscal years 1999, 2000, and
2001, respectively.

         RECLASSIFICATION

         Certain reclassifications have been made to the 1999 and 2000
statements of operations to conform to the 2001 presentation with no effect on
net income or stockholder's equity.


                                      F-8
<Page>

NOTE 1.  NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         INCOME TAXES

         Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating loss
and tax credit carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.

         Tax credits are accounted for by the flow-through method whereby they
reduce income taxes currently payable and the provision for income taxes in the
period the assets giving rise to such credits are placed in service. To the
extent such credits are not currently utilized on the Company's tax return,
deferred tax assets, subject to considerations about the need for a valuation
allowance, are recognized for the carryforward amount.

         STOCK-BASED COMPENSATION

         The Company accounts for stock-based employee compensation under the
requirements of Accounting Principles Board (APB) Opinion No. 25, which does not
require compensation to be recorded if the consideration to be received is at
least equal to fair value of the shares to be received at the measurement date.
Nonemployee stock-based transactions are accounted for under the requirements of
Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which requires
compensation to be recorded based on the fair value of the securities issued or
the services received, whichever is more reliably measurable.

         FAIR VALUE OF FINANCIAL INSTRUMENTS

         The Company's financial instruments consist of cash and cash
equivalents, available-for-sale securities, accounts receivable, accounts
payable and notes payable. The carrying value of these instruments is considered
to be representative of their fair value, based on the short-term nature of
these instruments and market rates of interest.

         EARNINGS (LOSS) PER SHARE

         Basic EPS is computed as net income (loss) divided by the weighted
average number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur from common shares issuable through
exercise of stock options and warrants (480,000, 537,000 and no shares in the
fiscal years ended November 30, 1999, 2000 and 2001, respectively). The dilutive
effect of options and warrants, which were not included in the total of diluted
shares for 2001 because the effect was antidilutive, was 74,000 shares.


                                      F-9
<Page>

NOTE 1.  NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         NEW ACCOUNTING PRONOUNCEMENTS

         In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141 (SFAS No. 141), BUSINESS
COMBINATIONS, and Statement of Financial Accounting Standards No. 142 (SFAS No.
142), GOODWILL AND OTHER INTANGIBLE ASSETS. SFAS No. 141 addresses financial
accounting and reporting for business combinations and is effective for all
business combinations after June 30, 2001. SFAS No. 142 addresses financial
accounting and reporting for acquired goodwill and other intangible assets and
is effective for fiscal years beginning after December 15, 2001. The Company
will adopt as of the beginning of fiscal year 2003. The Company is in the
process of determining the expected impact on earnings and existing goodwill and
other intangibles upon adoption which will include the elimination of goodwill
amortization and may include additional impairment. As of November 30, 2001,
unamortized goodwill totaled $308,000.

         In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which supersedes previous guidance
on financial accounting and reporting for the impairment or disposal of
long-lived assets and for segments of a business to be disposed of. Adoption of
SFAS 144 is required no later than the beginning of fiscal 2003. Management does
not expect the adoption of SFAS 144 to have a significant impact on the
Company's financial position or results of operations. However, further
impairment reviews may result in charges against earning to write down the value
of long-lived assets.

NOTE 2.  BUSINESS COMBINATIONS

         During the years ended November 30, 1999, 2000 and 2001, the Company
acquired the following companies, all of which were accounted for as purchase
business combinations with the operations included subsequent to their
respective acquisition dates.

         TELGATE EQUIPMENT CORPORATION

         On May 8, 1999, the Company acquired the remaining 75% of the
outstanding shares of Telgate Equipment Corporation (Telgate), a software
development company, in exchange for 58,700 shares of $0.01 par value common
stock, $242,000 in cash and $57,000 in direct expenses. The total acquisition
cost was $924,000, including the $214,000 recorded in connection with the
warrants to purchase 50,000 shares of common stock issued to a consultant and
was allocated as follows:

<Table>
        <S>                                                  <C>
        Current assets..........................             $ 233,000
        Equipment and leasehold improvements....                93,000
        Customer list...........................                25,000
        Core technology.........................               500,000
        Assembled workforce.....................               125,000
        Current liabilities assumed.............              (218,000)
        Long-term deferred tax liability........              (260,000)
        Goodwill................................               426,000
                                                             ---------

                                                             $ 924,000
                                                             =========
</Table>


                                      F-10
<Page>

NOTE 2.  BUSINESS COMBINATIONS (CONTINUED)

         AMERICAN DEVELOPMENT, INC.

         On February 18, 2000, the Company acquired certain assets and assumed
certain liabilities of American Development, Inc., a software development
company, in exchange for 42,654 shares of $0.01 par value common stock,
$1,179,000 in cash and $54,000 in direct expenses. The total acquisition cost
was $2,652,000, including $330,000 recorded in connection with warrants to
purchase 15,000 shares of common stock issued to a consultant, and was allocated
as follows:

<Table>
        <S>                                                 <C>
        Current assets .........................            $  177,000
        Equipment and leasehold improvements....                61,000
        Other assets ...........................                94,000
        Customer list...........................               100,000
        Core technology.........................             2,100,000
        Assembled workforce.....................               130,000
        Goodwill ...............................               373,000
        Current liabilities assumed.............              (383,000)
                                                           ------------

                                                            $2,652,000
                                                           ===========
</Table>

         CABLENET TECHNOLOGIES

         On May 9, 2000, the Company acquired certain assets and assumed certain
liabilities of North Carolina-based CableNet Technologies, which specializes in
printer enhancement and connectivity technology, in exchange for 54,386 shares
of $0.01 par value common stock, $1,945,000 in cash, $62,000 in direct expenses,
including $306,000 recorded in connection with warrants to purchase 28,334
shares of common stock issued to a consultant. The total acquisition cost was
$3,088,000 and was allocated as follows:

<Table>
        <S>                                                <C>
        Current assets..........................           $   301,000
        Equipment and leasehold improvements....                17,000
        Customer list...........................                50,000
        Core technology.........................             2,492,000
        Assembled workforce.....................                75,000
        Goodwill................................               200,000
        Current liabilities assumed.............               (47,000)
                                                           ------------

                                                            $3,088,000
                                                           ============
</Table>


                                      F-11
<Page>

NOTE 2.  BUSINESS COMBINATIONS (CONTINUED)

         EXTENDED SYSTEMS INCORPORATED

         On May 31, 2001, the Company acquired certain assets and assumed
certain liabilities of Extended Systems Incorporated, a print server
manufacturer, in exchange for $1,672,000 in cash and $504,000 in direct
expenses. The total acquisition cost was $2,051,000 and was allocated as
follows:

<Table>
        <S>                                               <C>
        Inventories.............................           $ 1,600,000
        Equipment...............................                46,000
        Goodwill................................               530,000
        Current liabilities assumed.............              (125,000)
                                                          -------------

                                                            $2,051,000
                                                          =============
</Table>

         UNAUDITED PRO FORMA INFORMATION

         Unaudited pro forma consolidated results of operations for the years
ended November 30, 1999, 2000 and 2001 as though Telgate Equipment Corporation
had been acquired as of December 1, 1997, American Development, Inc. and
CableNet Technologies had been acquired as of December 1, 1998, and Extended
Systems Incorporated had been acquired as of December 1, 1999, is as follows:

<Table>
<Caption>
                                                1999             2000            2001
                                                ----             ----            ----
                                             (unaudited)      (unaudited)    (unaudited)
<S>                                         <C>               <C>            <C>
Sales...................................    $62,343,000       $69,582,000    $56,314,000
Pro forma net income (loss).............      5,500,000         1,821,000     (5,787,000)
Pro forma net income (loss) per share:
   Basic................................           0.63              0.17          (0.54)
   Diluted..............................           0.60              0.16          (0.54)
</Table>

         The above amounts reflect pro forma adjustments for amortization of
intangibles, interest expense and number of shares outstanding. This pro forma
financial information does not purport to be indicative of the results of
operations had the Telgate Equipment Corporation, American Development, Inc.,
CableNet Technologies and Extended Systems, Inc. acquisitions actually taken
place at the earlier date.

NOTE 3.  INVENTORIES

         Inventories consisted of the following as of November 30:

<Table>
<Caption>
                                                                  2000           2001
                                                                  ----           ----
         <S>                                                    <C>            <C>
         Raw materials.....................................     $4,738,000     $6,997,000
         Work in process...................................        150,000        455,000
         Finished goods....................................      2,235,000      4,306,000
         Reserve for slow moving and obsolete inventories..       (881,000)    (2,507,000)
                                                                  ---------    -----------
                                                                $6,242,000     $9,251,000
                                                                ==========     ==========
</Table>


                                      F-12
<Page>

NOTE 4.  EQUIPMENT AND LEASEHOLD IMPROVEMENTS

         Equipment and leasehold improvements consisted of the following as of
November 30:

<Table>
<Caption>
                                                                            2000                 2001
                                                                            ----                 ----
         <S>                                                              <C>                 <C>
         Machinery and equipment..............................            $7,280,000          $ 8,255,000
         Furniture and fixtures...............................               788,000              935,000
         Leasehold improvements...............................             1,213,000            1,359,000
                                                                           ---------          -----------

                                                                           9,281,000           10,549,000
         Less accumulated depreciation and amortization.......             7,241,000            8,020,000
                                                                           ---------          -----------

                                                                          $2,040,000          $ 2,529,000
                                                                          ==========          ===========
</Table>

NOTE 5.  OTHER ASSETS

         Other assets consisted of the following as of November 30:

<Table>
<Caption>
                                                                            2000                 2001
                                                                            ----                 ----
         <S>                                                            <C>                 <C>
         Customer list, net of accumulated amortization
           2000 $68,000 and 2001 $13,000.......................          $   207,000        $      12,000
         Core technology, net of accumulated amortization2000
           $795,000 and 2001 $92,000...........................            4,929,000              300,000
         Assembled workforce, net of accumulated amortization
           2000 $131,000 and 2001 $65,000......................              349,000               60,000
         Goodwill, net of accumulated amortization 2000
           $407,000 and 2001 $157,000..........................            1,523,000              308,000
         Cash surrender value of officers' life insurance.......           1,208,000            1,121,000
         Unsecured notes receivable from stockholders...........             600,000              983,000
         Software development costs, net of accumulated
           amortization 2000 $47,000 and 2001 $93,000...........             522,000            1,790,000
         Long-term deferred tax assets..........................                   -              580,000
         Other .................................................              77,000               72,000
                                                                         -----------          -----------

                                                                          $9,415,000           $5,226,000
                                                                          ==========           ==========
</Table>

NOTE 6.   NOTES PAYABLE

         The Company has a $5,000,000 line-of-credit agreement with a bank. As
of November 30, 2001, there were no borrowings outstanding against the line of
credit. Borrowings under the line of credit bear interest at the lesser of the
bank's reference rate (5.0% at November 30, 2001) less 0.25% or the bank's LIBOR
rate (6.56% at November 30, 2001) plus 2% and are limited to 80% of eligible
accounts receivable and 50% of eligible inventories if total liabilities to
tangible effective net worth is greater than two to one. In connection with the
line-of-credit agreement, the Company has a $650,000 standby letter-of-credit
sublimit agreement of which approximately $80,000 was outstanding at November
30, 2001. This line of credit is secured by substantially all of the Company's
assets. In connection with its borrowing arrangement, the Company is subject to
certain financial covenants. As of November 30, 2001, the Company had
approximately $4,920,000 in availability under the line of credit. The
line-of-credit borrowings are due on demand. The agreement may be terminated by
either party.


                                      F-13
<Page>

NOTE 7.  LONG-TERM DEBT

         The Company has 4% to 5% economic, industrial and business development
notes payable at November 30, 2000 and 2001 totaling $331,000 and $263,000,
respectively, which mature through 2005. The notes are secured by certain
equipment. One of the notes is secured by a fourth trust deed on real property
owned by a company related through common ownership to the majority
stockholders. As of November 30, 2001, future maturities of long-term debt are
as follows: 2002 $70,000; 2003 $73,000; 2004 $76,000 and 2005 $44,000.

NOTE 8.  ACCRUED EXPENSES

         Accrued expenses consisted of the following as of November 30:

<Table>
<Caption>
                                                      2000             2001
                                                      ----             ----
         <S>                                       <C>              <C>
         Compensation........................       $1,548,000      $  1,373,000
         Other...............................        1,111,000         1,083,000
                                                   -----------       -----------

                                                    $2,659,000        $2,456,000
                                                    ==========        ==========
</Table>

NOTE 9.  STOCKHOLDERS' EQUITY

         PREFERRED STOCK

         The Board of Directors has the authority, without action by the
stockholders, to designate and issue any authorized but unissued shares of
preferred stock in one or more series and to designate the rights, preferences
and privileges of each such series.

         STOCK OPTION PLANS

         The Company has reserved 3,064,298 shares of common stock for issuance
under the Company's 1998 Stock Incentive Plan and 1996 Stock Option Plan, of
which 1,854,000 shares are subject to outstanding options as of November 30,
2001. Option prices for the incentive stock options will be 100% of the fair
market value of the stock on the date the option is granted with an exercise
period of not more than ten years. For incentive options granted to 10% or more
stockholders, the option price is 110% of the fair market value of the stock on
the date the option is granted with an exercise period of not more than five
years. Option prices for the nonqualified stock options shall not be less than
85% of the fair market value of the stock on the date the options are granted
with an exercise period of not more than ten years. Vesting terms are determined
by the Company at the date of grant. Subsequent to November 30, 2001, the
Company has granted additional options to purchase 335,000 shares of common
stock.

         STOCK WARRANTS

         The Company issued warrants to purchase 350,000 shares of common stock
of the Company, of which approximately 132,000 are outstanding at November 30,
2001, to consultants and an attorney in connection with services provided
relating to acquisitions, the Company's initial public offering and for other
services. The warrants expire five years from the date granted. The Company's
value of the grants were estimated at the measurement date using the
Black-Scholes option-pricing model with the following assumptions: no dividends;
expected lives of one month to three years; expected amounts to be exercised of
100%; risk free interest rates of 4.32% to 5.58%; and expected volatility of 43%
to 45%.


                                      F-14
<Page>

NOTE 9.  STOCKHOLDERS' EQUITY (CONTINUED)

         A summary of the status of the stock option plans and stock warrants
and changes during fiscal years 1999, 2000 and 2001 is as follows:

<Table>
<Caption>
                                                                                                         Weighted
                                                                                                         Average
                                                                                  Number of Shares    Exercise Price
                                                                                  ----------------    --------------
<S>                                                                               <C>                 <C>
Outstanding, November 30, 1998................................................            426,957         $ 1.35
   Granted (weighted average fair value $4.46)................................          1,355,000           6.64
   Exercised..................................................................           (476,957)         (1.76)
   Forfeited..................................................................                  -              -
                                                                                  ---------------      ---------
Outstanding, November 30, 1999................................................          1,305,000           6.70
   Granted (weighted average fair value $5.46)................................            530,000           7.16
   Exercised..................................................................           (114,334)         (4.91)
   Forfeited..................................................................            (42,000)         (7.08)
                                                                                       -----------        -------
Outstanding, November 30, 2000................................................          1,678,666           6.96
   Granted (weighted average fair value $2.85)................................            581,000           3.86
   Exercised..................................................................                  -              -
   Forfeited..................................................................           (274,000)         (6.78)
                                                                                      ------------        -------

Outstanding, November 30, 2001................................................          1,985,666         $ 6.07
                                                                                  ===============         ======
</Table>

         A further summary of the options and warrants outstanding at November
30, 2001 is as follows:

<Table>
<Caption>
                                                                                           Options and Warrants
                   Options and Warrants Outstanding                                             Exercisable
------------------------------------------------------------------------              --------------------------------
                                         Weighted
                                         Average                                                         Weighted
      Range of          Number of        Exercise     Weighted Average                  Number of         Average
  Exercise Prices        Options          Price        Remaining Life                    Options      Exercise Price
--------------------- --------------- --------------- ------------------              --------------- ----------------
<S>                   <C>             <C>             <C>                             <C>             <C>
  $ 3.50 - $ 4.47          672,666       $  3.80             8.2                          145,627           $3.44
     6.31 - 8.00         1,288,000          7.12             7.9                          608,250            7.01
   13.16 - 14.25            25,000         13.38             8.0                                -               -
--------------------- --------------- --------------- ------------------              --------------- ----------------
--------------------- --------------- --------------- ------------------              --------------- ----------------
  $ 3.50 - $14.25        1,985,666       $  6.07             8.0                          753,877           $6.32
===================== =============== =============== ==================              =============== ================
</Table>

         There were 837,000 remaining options available for grants under the
plans at November 30, 2001.


                                      F-15
<Page>

NOTE 9.  STOCKHOLDERS' EQUITY (CONTINUED)

         As permitted under generally accepted accounting principles, grants to
employees under these plans are accounted for following APB Opinion No. 25 and
related Interpretations. Accordingly, no compensation cost has been recognized
for grants under the stock option plan. Had compensation cost been determined
based on the grant date, fair value of awards, as prescribed in FASB Statement
No. 123, reported net income, after the pro forma provision for income taxes,
and earnings per common share, would have been reduced to the amounts shown
below:

<Table>
<Caption>
                                              1999           2000             2001
                                              ----           ----             ----
<S>                                         <C>              <C>            <C>
Net income (loss):
   As reported  ......................      $5,827,000       $2,407,000     $(5,945,000)
   Pro forma..........................       5,092,000        1,176,000     $(7,279,000)

Basic earnings per share (loss):
   As reported........................            0.67             0.22           (0.55)
   Pro forma..........................            0.59             0.11           (0.68)

Diluted earnings per share (loss):
   As reported........................            0.64             0.21           (0.55)
   Pro forma..........................            0.56             0.10           (0.68)
</Table>

         In determining the pro forma amounts above, the value of each grant is
estimated at the grant date using the Black-Scholes option-pricing method with
the following assumptions for grants in 1999, 2000 and 2001: no dividends;
risk-free interest rates of 5.43% to 6.10%; 5.85% to 6.73% and 3.61% to 4.96%,
respectively; expected lives of ten years in 1999 and 2000 and five and ten
years in 2001; expected amounts to be exercised of 100%; and price volatility of
45% to 69%.

         EMPLOYEE STOCK PURCHASE PLAN

         The Company has a stock purchase plan covering substantially all
employees and has reserved 200,000 shares for issuance under this plan. Shares
are purchased subsequent to the end of the annual offering period for 85% of the
lower of the fair market value on the first day or last day of the Plan year
offering period. During the years ended November 30, 2000 and 2001, 14,654 and
40,268 shares were purchased for $76,000 and $158,000, respectively, under the
plan. At November 30, 2001, $121,000 was accrued for employee stock purchases
which represents approximately 41,000 shares at $2.93 per share.

         RETAINED EARNINGS

         The Company is limited in its ability to declare and pay dividends by
the terms of certain debt agreements.

         STOCK REPURCHASE PROGRAM

         The company established a stock repurchase program under which common
stock, with an aggregate market value up to $4.0 million, may be acquired in the
open market. As of November 30, 2001, the Company has purchased 295,320 shares
of common stock in the open market at an average price of $3.71 per share (total
$1,096,000) under this program.


                                      F-16
<Page>

NOTE 10.  RELATED-PARTY TRANSACTIONS, LEASE COMMITMENTS AND RENT EXPENSE

         The Company leases its operating facilities under noncancelable
operating lease agreements, which expire through 2003. The Company leases
certain operating facilities from a company related through common ownership on
a month-to-month basis. The related-party lease requires monthly payments of
approximately $22,000.

         Rent expense in fiscal years 1999, 2000 and 2001 was approximately
$572,000, $637,000 and $790,000, respectively. Future minimum rental commitments
under these leases in the fiscal years ending November 30 are as follows: 2002
$554,000; 2003 $366,000; 2004 $166,000; 2005 $35,000 (total $1,121,000).

         In fiscal years 2000 and 2001, the Company advanced $600,000 and
$983,000, respectively, to stockholders in connection with the purchase of split
dollar life insurance policies. The Company and the stockholders have executed
an unsecured, non-interest-bearing note receivable for the amount of the
advance. The note is due on demand, however the Company does not anticipate
demanding payment and accordingly has classified this amount as long-term.

NOTE 11.  INCOME TAX MATTERS

         Net deferred tax assets consist of the following components as of
November 30:

<Table>
<Caption>
                                                                                       2000               2001
                                                                                       ----               ----
<S>                                                                              <C>                <C>
Deferred tax liabilities:
   Equipment and leasehold improvements................................          $          -           $(21,000)
   Customer list, core technology, assembled workforce and goodwill....              (493,000)          (155,000)
                                                                                 -------------      -------------
                                                                                     (493,000)          (176,000)
                                                                                 -------------      -------------

Deferred tax assets:
   Inventories valuation...............................................                448,000            981,000
   Accounts receivable allowance and valuation.........................                168,000            425,000
   Accrued compensation................................................                195,000            154,000
   Accrued warranty and other..........................................                119,000            273,000
   Deferred revenue....................................................                      -            349,000
   Equipment and leasehold improvements................................                 22,000                  -
   Customer list, core technology, assembled workforce and goodwill....                      -            756,000
   Tax credit carryforwards............................................                383,000            298,000
                                                                                 -------------      -------------
                                                                                     1,335,000          3,236,000
                                                                                 -------------      -------------

   Net deferred tax assets.............................................               $842,000         $3,060,000
                                                                                 =============      =============
</Table>

         The Company has not established a valuation allowance for the deferred
tax assets, because management believes the deferred tax assets are more likely
than not to be realized based on current expectations of future earnings and
available tax planning strategies.

         The net deferred tax assets have been classified on the accompanying
consolidated balance sheets as of November 30 as follows:

<Table>
<Caption>
                                                                                      2000                2001
                                                                                      ----                ----
<S>                                                                              <C>                <C>
Current assets.........................................................             $1,313,000         $2,480,000
Long-term assets.......................................................                      -            580,000
Long-term liabilities..................................................               (471,000)                 -
                                                                                 -------------      -------------
                                                                                     $ 842,000         $3,060,000
                                                                                 =============      =============
</Table>


                                      F-17
<Page>

NOTE 11.  INCOME TAX MATTERS (CONTINUED)

         The Company's tax credit carryforwards are available to offset state
income taxes of one state and expire in fiscal year 2005.

         The provision (benefit) for income taxes charged to operations for the
years ended November 30, 1999, 2000 and 2001 are as follows.

<Table>
<Caption>
                                                                  1999                2000                2001
                                                                  ----                ----                ----
<S>                                                          <C>                <C>                  <C>
Current:
   U.S. federal...........................................     $  2,955,000       $  1,013,000         $(1,961,000)
   State..................................................          576,000            204,000              56,000
   Foreign................................................          188,000            218,000             320,000
                                                             --------------     --------------             -------
                                                                  3,719,000          1,435,000          (1,585,000)
                                                              -------------      -------------          -----------

Deferred:
   U.S. federal...........................................         (160,000)          (217,000)         (2,065,000)
   State..................................................         (293,000)           (81,000)           (133,000)
   Foreign................................................          (51,000)            15,000             (20,000)
                                                              -------------     --------------             --------
                                                                   (504,000)          (283,000)         (2,218,000)
                                                               ------------       ------------          -----------

                                                                 $3,215,000         $1,152,000         $(3,803,000)
                                                                 ==========         ==========         ============
</Table>

         The historical income tax provision for fiscal years 1999, 2000 and
2001 differs from the amount of income tax determined by applying the U.S.
federal income tax rate to pretax income due to the following:

<Table>
<Caption>
                                                                  1999                2000                2001
                                                                  ----                ----                ----
<S>                                                              <C>               <C>                 <C>
Computed "expected" tax rate (benefit)....................         35%                35%                (35)%
Increase (decrease)
   State income taxes, net of federal benefit.............          4                  5                   -
   Research and development and other tax credits                  (2)               (12)                 (11)
   Goodwill amortization and impairment...............              -                  -                   4
   Other..................................................         (1)                 4                   3
                                                                   ---               -----               -----

                                                                   36%                32%                (39)%
                                                                   ===                ===                =====
</Table>

         Pretax income (loss) subject to foreign and U.S. income taxes for
fiscal year 1999 was: $301,000, $8,741,000, respectively, for fiscal year 2000
was: $475,000 and $3,084,000, respectively, and for fiscal year 2001, was:
$438,000 and $(2,095,000), respectively.


                                      F-18
<Page>

NOTE 12.  MAJOR VENDORS

         The Company purchases key components from two vendors. The Company also
sells components to these same vendors. Purchases from these vendors for fiscal
years 1999, 2000 and 2001 were as follows:

<Table>
<Caption>
                                                                   1999              2000                2001
                                                                   ----              ----                ----
        <S>                                                    <C>               <C>                   <C>
        Vendor A......................................         $12,040,000       $10,047,000           $5,906,000
        Vendor B......................................           4,600,000             *                  *

         Net payable or (receivable) balances as of November 30 were as follows:
</Table>

<Table>
<Caption>
                                                                   1999              2000                2001
                                                                   ----              ----                ----
        <S>                                                    <C>               <C>                   <C>
        Vendor A...........................................       $287,000          $308,000             $397,000
        Vendor B...........................................      (108,000)             *                  *
</Table>

*Net purchases were less than 5% of the Company's net sales.

NOTE 13.  SEGMENT INFORMATION, MAJOR CUSTOMERS AND GEOGRAPHICAL INFORMATION

         SEGMENT INFORMATION

         The Company's reportable segments are strategic business units. They
are managed separately because each business requires different technology and
marketing strategies.

         There are two reportable segments: TROY Systems and TROY Wireless. TROY
Systems includes software, firmware, hardware and imaging supplies that provide
state-of-the-art payment systems ranging from high security digital check
printing systems to electronic payment and funds transfer solutions. TROY
Wireless products include software, firmware and hardware that enable
enterprises to share intelligent devices like printers either wirelessly or
using traditional networks.

         The accounting policies applied to determine the segment information
are the same as those described in the summary of significant accounting
policies. Intersegment sales and transfers are accounted for at amounts that
assume the sales or transfers were to unrelated third parties at the current
market prices at the time of the transactions.

         Management evaluates the performance of each segment based on income or
loss from operations before income taxes.


                                      F-19
<Page>

NOTE 13.  SEGMENT INFORMATION, MAJOR CUSTOMERS AND GEOGRAPHICAL INFORMATION
          (Continued)

         Financial information with respect to the reportable segments follows:

<Table>
<Caption>
                                                          TROY                            UNALLOCATED
                                                         SYSTEMS        TROY WIRELESS      CORPORATE        TOTAL
                                                   ------------------- ---------------- --------------- --------------
<S>                                                <C>                 <C>              <C>             <C>
FISCAL YEAR 1999
Revenue:......................................
   Software, firmware and hardware............          $ 1,105,000       $  8,348,000  $         -     $  9,453,000
   Printers and services .....................           26,511,000                  -            -       26,511,000
   Imaging supplies ..........................           24,526,000                  -            -       24,526,000
                                                   ------------------- ---------------- ---------------- --------------
     Total revenue............................           52,142,000          8,348,000            -       60,490,000
Intersegment revenue..........................              305,000          1,064,000            -        1,369,000
Depreciation and amortization expense.........              646,000             63,000      464,000        1,173,000
Interest income...............................                1,000              1,000      229,000          231,000
Interest expense..............................               89,000                  -      145,000          234,000
Segment profit................................           10,420,000            807,000   (2,185,000)       9,042,000
Income taxes (credit).........................            3,704,000            287,000     (776,000)       3,215,000
Net income....................................            6,716,000            520,000   (1,409,000)       5,827,000
Segment assets................................           17,390,000          3,059,000   17,826,000       38,275,000
Expenditures for segment assets...............              558,000             65,000            -          623,000

FISCAL YEAR 2000
Revenue:......................................
   Software, firmware and hardware............            3,136,000          9,362,000            -       12,498,000
   Printers and services .....................           13,654,000                  -            -       13,654,000
   Imaging supplies ..........................           27,078,000                  -            -       27,078,000
                                                   ------------------- ---------------- ---------------- --------------
     Total revenue............................           43,868,000          9,362,000            -       53,230,000
Intersegment revenue..........................              712,000            208,000            -          920,000
Depreciation and amortization expense.........              518,000            331,000      831,000        1,680,000
Interest income...............................                1,000                  -      864,000          865,000
Interest expense..............................               17,000                  -        2,000           19,000
Segment profit................................            6,429,000            759,000   (3,629,000)       3,559,000
Income taxes (credit).........................            2,597,000            307,000   (1,752,000)       1,152,000
Net income....................................            3,832,000            452,000   (1,877,000)       2,407,000
Segment assets................................           16,353,000          6,355,000   25,621,000       48,329,000
Expenditures for segment assets...............              529,000            230,000            -          759,000

FISCAL YEAR 2001
Revenue:......................................
   Software, firmware and hardware............            3,670,000         11,136,000            -       14,806,000
   Printers and services .....................           10,386,000                  -            -       10,386,000
   Imaging supplies ..........................           24,310,000                  -            -       24,310,000
                                                   ------------------- ---------------- ---------------- --------------
     Total revenue............................           38,366,000         11,136,000            -       49,502,000
Intersegment revenue..........................              230,000             54,000                       284,000
Depreciation and amortization expense.........              588,000            606,000      865,000        2,059,000
Impairment of Long-Lived Assets...............           (1,945,000)        (3,689,000)           -       (5,634,000)
Interest income...............................                    -                  -      515,000          515,000
Interest expense..............................              (80,000)                 -      (58,000)        (138,000)
Segment profit (loss).........................            4,760,000         (6,747,000)  (7,761,000)      (9,748,000)
Income taxes (credit).........................            1,719,000         (2,380,000)  (3,142,000)      (3,803,000)
Net income (loss).............................            3,041,000         (4,367,000)  (4,619,000)      (5,945,000)
Segment assets................................           13,395,000         10,259,000   29,327,000       52,981,000
Expenditures for segment assets...............              420,000            770,000       31,000        1,221,000
</Table>


                                      F-20
<Page>

NOTE 13.  SEGMENT INFORMATION, MAJOR CUSTOMERS AND GEOGRAPHICAL INFORMATION
          (Continued)

         The following schedule is presented to reconcile fiscal years 1999,
2000 and 2001 amounts in the foregoing segment information to the amounts
reported in the Company's consolidated financial statements.

<Table>
<Caption>
                                                                           1999            2000             2001
                                                                           ----            ----             ----
<S>                                                                     <C>            <C>               <C>
Assets
   Total assets of reportable segments...........................       $38,275,000     $48,329,000      $52,981,000
   Intersegment receivables......................................          (132,000)     (4,797,000)     (14,928,000)
   Investment in subsidiaries....................................          (763,000)       (957,000)        (382,000)
   Other.........................................................           (25,000)              -                -
                                                                        -----------    -------------     -----------
     Consolidated assets.........................................       $37,355,000     $42,575,000      $37,671,000
                                                                        ===========    =============     ===========

Revenue
   Total revenue of reportable segments..........................       $60,490,000     $53,230,000      $49,502,000
   Intersegment revenue..........................................        (1,369,000)       (920,000)        (284,000)
                                                                        -----------    -------------     -----------
     Consolidated revenue........................................       $59,121,000     $52,310,000      $49,218,000
                                                                        ===========    =============     ===========
</Table>

         During fiscal year ended November 30, 2001, the Company reorganized the
business units included in the reportable segments and retroactively
reclassified the information for fiscal years ended November 30, 2000 and 1999.

         MAJOR CUSTOMERS

         In fiscal year 1999, the Company had sales to a customer that
individually accounted for 11.4% of the Company's total net sales. Sales to this
customer in fiscal years 2000 and 2001 were less than 10% of the Company's net
sales.

         In addition, in fiscal year 1999, the Company had sales to another
customer that individually accounted for 19.9% of the Company's total net sales.
Sales to this customer in fiscal years 2000 and 2001 were less than 10% of the
Company's net sales.

         All sales to major customers occurred within the TROY Systems segment.


                                      F-21

<Page>

         GEOGRAPHIC INFORMATION

         The Company operates in both U.S. and foreign markets. Geographic sales
information is based on the ordering location of the customer. Equipment and
leasehold improvements information is based on the physical location of the
assets. The following is net sales and equipment and leasehold improvements by
geographic region:

<Table>
<Caption>
                                                                                     All other
                                                                United States        Countries            Total
                                                              ------------------- ----------------- ------------------
<S>                                                           <C>                 <C>               <C>
FISCAL YEAR 1999
Net sales................................................          $51,350,000        $ 7,771,000       $59,121,000
Equipment and leasehold improvements, net................            1,695,000            168,000         1,863,000

FISCAL YEAR 2000
Net sales................................................          $45,154,000        $ 7,156,000       $52,310,000
Equipment and leasehold improvements, net................            1,859,000            181,000         2,040,000

FISCAL YEAR 2001
Net sales................................................          $41,876,000         $7,342,000       $49,218,000
Equipment and leasehold improvements, net................            2,349,000            180,000         2,529,000
</Table>


                                      F-22
<Page>

NOTE 14. IMPAIRMENT OF LONG-LIVED ASSETS

         During the fourth quarter of fiscal year 2001, the Company initiated an
analysis of its long-lived assets 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 its long-lived assets. This analysis was initiated
due to changes in the Company's business environment, which were highlighted
during the Company's annual business planning process, and certain changes in
Company's management. This analysis was done on a business unit by unit basis as
it was determined that these units were independent of each other and were the
lowest level for which cash flows could be identified. The business units
identified were similar to the businesses acquired by the Company since 1998.
The analysis demonstrated that the acquired print server products and
technologies were at or approaching their end-of life and that the ACH
processing services were not generating the cash flows anticipated when this
business unit was acquired. The Company completed this analysis with the
assistance of an independent valuation firm. The analysis indicated that these
business units would not generate sufficient positive cash flows over the
projected period of five years, which approximated the remaining life of the
long-lived assets, and that there was no current value or residual value beyond
the value of the net current assets and certain property and equipment.
Substantially all of the intangible assets of certain of these business units
were written off at November 30, 2001 because they are projected to generate
insufficient positive cash flows. Certain property and equipment of these
business units were not written off because they continue to be used in
operations and were determined to have value. As a result of this analysis, the
Company recorded a charge in 2001 of $5,634,000 for the impairment of long-lived
assets on a business unit by unit basis as follows:

<Table>
<Caption>
                           BUSINESS UNIT             AMOUNT       SEGMENT
                           ----------------------------------------------
                           <S>                     <C>            <C>
                           XCD......................$1,085,000    Troy Wireless
                           American Development......1,945,000    Troy Systems
                           CableNet..................2,074,000    Troy Wireless
                           ESI.........................530,000    Troy Wireless
                                                       -------
                                            Total   $5,634,000
                                                    ==========
</Table>


         The amortization expense recorded for these assets in 2001 prior to the
recorded impairment charge was $1,261,000.

         At November 30, 2001, the Company has $2,470,000 in intangible assets
and capitalized software development costs that are currently determined to be
not impaired. The capitalized software development costs relate 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.
Amortization expense on these intangible assets in 2002 is projected to be
approximately $520,000.


                                      F-23
<Page>

NOTE 15.  CASH FLOW AND OTHER INFORMATION

<Table>
<Caption>
                                                                     1999               2000              2001
                                                              ------------------- ----------------- ------------------
<S>                                                           <C>                 <C>               <C>
Cash paid for:
   Interest............................................           $   258,000        $     20,000        $  139,000
                                                                   ==========          ==========       ===========

   Income taxes........................................            $2,286,000          $2,433,000       $   418,000
                                                                   ==========          ==========       ===========

Supplemental schedule of noncash operating, investing
   and financing activities:
   Purchase of  Telgate Equipment Corporation in
        1999, American Development, Inc. and
        Cablenet Technologies in 2000 and Extended
        Systems Incorporated in 2001:
      Total purchase price.............................            $  924,000          $5,740,000        $2,051,000
      Less fair value of common stock and stock
         warrants issued in connection with the
         acquisition...................................               625,000           2,500,000                  -
                                                                   ----------         -----------       ------------

   Cash purchase price.................................            $  299,000          $3,240,000        $2,051,000
                                                                   ==========          ==========       ===========

   Accounts receivable charged off.....................            $  121,000         $   536,000       $   420,000
                                                                   ==========         ===========       ===========

   Fair value of stock warrants issued in connection
   with the Company's initial public offering..........            $  335,000         $         -       $         -
                                                                   ==========         ===========       ===========

   Fair value of stock warrants issued for services....            $        -         $   120,000       $         -
                                                                   ==========         ===========       ===========
</Table>


                                      F-24
<Page>

                                   SIGNATURES


         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Dated:   February 28, 2002                   TROY GROUP, INC.


                                             By  /s/ Patrick J. Dirk
                                                 ---------------------------
                                                 Patrick J. Dirk
                                                 Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below on February 28, 2002 by the following persons
on behalf of the Registrant and in the capacities indicated.

SIGNATURE                                                        TITLE

/s/ Patrick J. Dirk                           Chairman and Chief Executive
--------------------------------------        Officer (Principal Executive
Patrick J. Dirk                               Officer)



/s/ Brian P. Dirk                             Vice Chairman, Senior Vice
--------------------------------------        President, and Secretary
Brian P. Dirk


/S/ James W. Klingler                         Vice President-Finance, Treasurer
--------------------------------------        and Chief Financial Officer
James W. Klingler                             (Principal Financial and
                                              Accounting Officer)


/s/ Norman B. Keider                          Director
--------------------------------------
Norman B. Keider


/s/ Dr. Harold L. Clark                       Director
--------------------------------------
Dr. Harold L. Clark


/s/ John B. Zaepfel                           Director
--------------------------------------
John B. Zaepfel


<Page>

                                TROY GROUP, INC.

                         EXHIBIT INDEX TO ANNUAL REPORT
                                  ON FORM 10-K

                   For the fiscal year ended November 30, 2001

<Table>
<Caption>
Item No.   Description                                                             Method of Filing
--------   -----------                                                             ----------------
<S>        <C>                                                         <C>
   2.1     Merger Purchase Agreement dated October 28, 1998 between
           TROY Group, TROY Merger Subsidiary, Inc. and XCD
           Incorporated and its stockholders.......................    Incorporated by reference to Exhibit 2.1 to
                                                                       TROY Group's Registration Statement on Form
                                                                       S-1 (File No.  333-51523).

   3.1     Certificate of Incorporation of TROY Group..............    Incorporated by reference to Exhibit 3.1 to
                                                                       TROY Group's Registration Statement on Form
                                                                       S-1 (File No.  333-51523).

   3.2     Bylaws of TROY Group....................................    Incorporated by reference to Exhibit 3.2 to
                                                                       TROY Group's Registration Statement on Form
                                                                       S-1 (File No.  333-51523).

  10.1     Lease dated March 16, 1995 between TROY Systems
           International, Inc. and Ragco, as amended on May 18, 1998.  Incorporated by reference to Exhibit 10.1 to
                                                                       TROY Group's Registration Statement on Form
                                                                       S-1 (File No.  333-51523).

  10.2     Amendment to the Lease dated August 24, 2000 between
           TROY Systems International, Inc. and Ragco, a general
           partnership.............................................    Incorporated by reference to Exhibit 10.1 to
                                                                       TROY Group's Form 10-Q for the quarter ended
                                                                       August 31, 2000 (File No.  000-24413).

  10.3     Lease dated July 28, 1993 between Dirk Investments, Inc.
           and TROY Group..........................................    Incorporated by reference to Exhibit 10.2 to
                                                                       TROY Group's Registration Statement on Form
                                                                       S-1 (File No.  333-51523).

  10.4     Lease Amendment to Lease dated July 28, 1993 between
           Dirk Investments, Inc. and TROY Group...................    Incorporated by reference to Exhibit 10.3 to
                                                                       TROY Group's Registration Statement on Form
                                                                       S-1 (File No.  333-51523).


                                      E-1
<Page>

<S>        <C>                                                        <C>
  10.5     Addendum to Lease dated March 16, 1995 between Dirk
           Investments, Inc. and TROY Group........................   Incorporated by reference to Exhibit 10.4 to
                                                                      TROY Group's Registration Statement on Form
                                                                      S-1 (File No.  333-51523).

  10.6     Lease Amendment to Lease dated September 1, 1996 between
           Dirk Investments, Inc. and TROY Group...................   Incorporated by reference to Exhibit 10.5 to
                                                                      TROY Group's Registration Statement on Form
                                                                      S-1 (File No.  333-51523).

  10.7     Lease dated March 1, 1998 between Sanwa Bank California
           and XCD, Inc. and a Consent to Assignment of Lease,
           Assignment and Acceptance dated October 23, 1998 between
           Sanwa Bank California, XCD, Inc. and TROY XCD, Inc......   Incorporated by reference to Exhibit 10.6 to
                                                                      TROY Group's Registration Statement on Form
                                                                      S-1 (File No.  333-51523).

  10.8     1996 Stock Option Plan..................................   Incorporated by reference to Exhibit 10.7 to
                                                                      TROY Group's Registration Statement on Form
                                                                      S-1 (File No.  333-51523).

  10.9     1998 Stock Incentive Plan, as amended...................   Incorporated by reference to Exhibit 10.2 to
                                                                      TROY Group's Form 10-Q for the quarter ended
                                                                      August 31, 2000 (File No. 000-24413).

  10.10    1998 Employee Stock Purchase Plan.......................   Incorporated by reference to Exhibit 10.9 to
                                                                      TROY Group's Registration Statement on Form
                                                                      S-1 (File No.  333-51523).

  10.11    Non-Competition Agreement dated November 27, 1996
           between Robert Messina and Troy Group...................   Incorporated by reference to Exhibit 10.12 to
                                                                      Troy Group's Registration Statement on Form
                                                                      S-1 (File No.  333-51523).
  10.12    Restated Consulting Agreement dated October 1, 1997
           between TROY Group and Broadland Capital Partners, as
           amended through November 1, 1999........................   Incorporated by reference to Exhibit 10.11 to
                                                                      TROY Group's Annual Report on Form 10-K for
                                                                      the fiscal year ended November 30, 1999 (File
                                                                      No.  000-24413).


                                      E-2
<Page>

<S>        <C>                                                        <C>
  10.13    Form of Indemnification Agreement for directors and
           executive officers of TROY Group........................   Incorporated by reference to Exhibit 10.14 to
                                                                      TROY Group's Registration Statement on Form
                                                                      S-1 (File No.  333-51523).

  10.14    MICR Supplies Agreement dated February 6, 1998 between
           TROY Group and IBM Printing Systems Company (1).........   Incorporated by reference to Exhibit 10.15 to
                                                                      TROY Group's Registration Statement on Form
                                                                      S-1 (File No.  333-51523).

  10.15    Form of Tax Agreement Relating to S Corporation
           Distributions by and between TROY Group and the Dirk
           Stockholders............................................   Incorporated by reference to Exhibit 10.16 to
                                                                      TROY Group's Registration Statement on Form
                                                                      S-1 (File No.  333-51523).

  10.16    Loan Agreement and Security Agreement dated October 20,
           1998 between TROY Group and Comerica Bank-California....   Incorporated by reference to Exhibit 10.17 to
                                                                      TROY Group's Registration Statement on Form
                                                                      S-1 (File No.  333-51523).

  10.17    Amendment No. 1 to Loan and Security Agreement (Accounts
           and Inventory) dated October 28, 1999 between TROY Group
           and Comerica Bank-California............................   Incorporated by reference to Exhibit 10.16 to
                                                                      TROY Group's Annual Report on Form 10-K
                                                                      for the fiscal year ended November 30, 1999
                                                                      (File No. 000-24413).

  10.18    Variable Rate Installment Note dated October 20, 1998 in
           favor of Comerica Bank-California.......................   Incorporated by reference to Exhibit 10.18 to
                                                                      TROY Group's Registration Statement on Form
                                                                      S-1 (File No.  333-51523).

  10.19    Variable Rate Installment Note dated October 20, 1998 in
           favor of Comerica Bank-California.......................   Incorporated by reference to Exhibit 10.19 to
                                                                      TROY Group's Registration Statement on Form
                                                                      S-1 (File No.  333-51523).

  10.20    Acquisition Note dated October 28, 1999 in favor of
           Comerica Bank - California .............................   Incorporated by reference to Exhibit 10.19 to
                                                                      Troy Group's Annual Report on Form 10-K for
                                                                      the fiscal year ended November 30, 1999 (File
                                                                      No.  000-24413).


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<Page>

<S>        <C>                                                         <C>
  10.21    Guaranty dated October 20, 1998 by the majority
           stockholders............................................    Incorporated by reference to Exhibit 10.20 to
                                                                       TROY Group's Registration Statement on Form
                                                                       S-1 (File No.  333-51523).

  10.22    Letter dated October 3, 1997 to RAGCO from TROY Group...
                                                                       Incorporated by reference to Exhibit 10.21 to
                                                                       TROY Group's Registration Statement on Form
                                                                       S-1 (File No.  333-51523).

  10.23    Form of Subscription Agreement..........................    Incorporated by reference to Exhibit 10.23 to
                                                                       TROY Group's Registration Statement on Form
                                                                       S-1 (File No.  333-51523).

  10.24    Reseller Agreement dated April 1, 1996 between TROY
           Group and Hewlett-Packard Company (1)...................    Incorporated by reference to Exhibit 10.24 to
                                                                       TROY Group's Registration Statement on Form
                                                                       S-1 (File No.  333-51523).

  10.25    Joinder Agreement dated March 3, 2000 between TROY AMDev
           and Comerica Bank - California..........................    Incorporated by reference to Exhibit 10.25 to
                                                                       TROY Group's Annual Report on Form 10-K for
                                                                       the fiscal year ended November 30, 2000 (File
                                                                       No. 000-24413).

  10.26    Amendment No. 2 to Loan and Security Agreement (Accounts
           and Inventory) dated October 1, 2000 among TROY Group,
           TROY Systems International, TROY XCD and Comerica
           Bank-California.........................................    Incorporated by reference to Exhibit 10.26 to
                                                                       TROY Group's Annual Report on Form 10-K for the
                                                                       fiscal year ended November 30, 2000 (File No.
                                                                       000-24413).

  10.27    Asset Purchase Agreement, dated as of May 30, 2001,
           among TROY Group, Extended Systems of Idaho and Extended
           Systems Incorporated....................................    Incorporated by reference to Exhibit 2.1 to
                                                                       TROY Group's Current Report on Form 8-K filed
                                                                       on June 14, 2001 (File No. 000-24413).

  10.28    Separation Agreement and Release Letter, dated as of
           November 1, 2001 between TROY Group and Robert S. Messina.  Filed herewith.

  21.1     Subsidiaries of the Registrant..........................    Filed herewith.


                                      E-4
<Page>

<S>        <C>                                                        <C>
  23.1     Consent of McGladrey & Pullen, LLP, Independent Auditors   Filed herewith.
</Table>

---------------------------------

(1)      Confidential treatment has been requested with respect to designated
         portions contained within such document. Such portions have been
         omitted and filed separately with the Commission pursuant to Rule 406
         of the Securities Act of 1933, as amended.


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