UNITED STATES SECURITIES AND EXCHANGE COMMISSION ~~Washington, DC 20549~~

Washington, DC 20549

FORM 10-Q

(Mark One)
ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended August 31, 2003.
		For the quarterly period ended August 31, 2004.
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission File Number: 000-24413

TROY GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware	33-0807798
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2331 South Pullman Street Santa Ana, California	92705
(Address of principal executive offices)	(Zip code)
(949) 250-3280
(Registrant’s telephone number, including area code)

TROY GROUP, INC.

(Exact name of registrant as specified in its charter)

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

2331 South Pullman Street Santa Ana, California		92705
(Address of principal executive offices)		(Zip code)

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

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 ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes o No ý

As of ~~September~~October 3014, ~~2003~~2004, 10,~~653~~639,~~605~~877 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 $11,291,952.

TROY GROUP, INC.

Quarterly Report on Form 10-Q for the

Quarterly Period Ended ~~August~~May 31, ~~2003~~ 2004

INDEX

PART I: FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets August 31, 2003 and November 30, 2002
	Condensed Consolidated Balance Sheets at August 31, 2004 (unaudited) and November 30, 2003
	Consolidated Statements of Operations for the Three and Nine Months ended August 31, 2003 and 2002
	Condensed Consolidated Statements of Income for the Three and Nine Months ended August 31, 2004 and 2003 (unaudited)
	Consolidated Statements of Cash Flows for the Nine Months ended August 31, 2003 and 2002
	Condensed Consolidated Statements of Cash Flows for the Nine Months ended August 31, 2004 and 2003 (unaudited)
	Notes to Consolidated Financial Statements
	Condensed Consolidated Statement of Stockholders’ Equity for the Nine Months ended August 31, 2004 (unaudited)
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Notes to Condensed Consolidated Financial Statements (unaudited)
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 4.	Controls and Procedures
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
PART II: OTHER INFORMATION
Item 4.	Controls and Procedures
Item 1.	Legal Proceedings
PART II: OTHER INFORMATION
Item 2.	Changes in Securities and Use of Proceeds
Item 1.	Legal Proceedings
Item 3.	Defaults Upon Senior Securities
Item 5.	Other Information
Item 4.	Submission of Matters to a Vote of Security Holders
Item 6.	Exhibits and Reports on Form 8-K
Item 5.	Other Information
SIGNATURE
Item 6.	Exhibits and Reports on Form 8-K
EXHIBIT INDEX

PART I: FINANCIAL INFORMATION

ITEM 1 –- FINANCIAL STATEMENTS

TROY GROUP, INC. ~~CONSOLIDATED BALANCE SHEETS~~

~~(in thousands,~~CONDENSED ~~except~~CONSOLIDATED ~~per~~BALANCE ~~share amounts)~~SHEETS

	August 31, 2003		November 30, 2002
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	8,894	$	6,615
Investment in available-for-sale securities	—		497
Accounts receivable, less allowance for doubtful accounts of $640 and $884	7,781		9,227
Income tax refund receivable	—		1,076
Inventories	5,331		5,540
Prepaid expenses and other	724		440
Deferred tax assets	3,715		3,715
Total current assets	26,445		27,110
Equipment and leasehold improvements, net	2,228		2,039
Other assets, including notes receivable from stockholders $2,071 and $2,123	4,130		4,390
Total assets	$	32,803	$	33,539
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt	$	76	$	73
Accounts payable	2,296		4,138
Accrued expenses	2,894		2,218
Deferred revenue	1,124		1,364
Total current liabilities	6,390		7,793
Long-term debt, net of current portion	64		120
Stockholders’ equity:
Preferred stock, par value $.01 per share, authorized 5,000,000 shares, issued none	—		—
Common stock, par value $.01 per share; authorized 50,000,000 shares,issued 10,974,170 shares in 2003, and 10,969,657 shares in 2002	110		110
Additional paid-in capital	21,122		21,113
Retained earnings, including accumulated other comprehensive income of$134 and none	6,292		5,578
	27,524		26,801
Less cost of treasury stock – 320,565 common shares in 2003 and 2002	1,175		1,175
Total stockholders’ equity	26,349		25,626
Total liabilities and stockholders’ equity	$	32,803	$	33,539

(in thousands, except share data)

See Notes to Consolidated Financial Statements.

	August 31, 2004			November 30, 2003 (a)
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	4,215		$	1,727
Investment in available-for-sale securities	6,754			8,000
Accounts receivable, less allowance for doubtful accounts $351 in 2004; $393 in 2003	7,421			8,419
Inventories, net	5,826			4,891
Prepaid expenses and other	1,129			1,414
Deferred tax assets	2,789			2,789
Total current assets	28,134			27,240
Equipment and leasehold improvements, net	2,942			3,213
Goodwill	281			281
Receivable from stockholders	1,903			1,903
Deferred tax assets	1,191			1,330
Other assets	619			993
Total assets	$	35,070		$	34,960

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,105		$	2,172
Accrued expenses	3,744			4,322
Deferred revenue	1,965			1,807
Total current liabilities	7,814			8,301
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 10,642,677 shares in 2004; 10,974,170 shares in 2003	107			110
Additional paid-in capital	19,921			21,122
Accumulated other comprehensive income	34			33
Retained earnings	7,202			6,598
	27,264			27,863
Less cost of treasury stock, 2,800 shares in 2004; 331,493 shares in 2003	(8		)	(1,204		)
Total stockholders’ equity	27,256			26,659
Total liabilities and stockholders’ equity	$	35,070		$	34,960

(a) Derived from the audited consolidated financial statements for the year ended November 30, 2003

See Notes to Condensed Interim Consolidated Financial Statements.

TROY GROUP, INC.

CONDENSED CONSOLIDATED ~~STATEMENTS~~ STATEMENTS OF ~~OPERATIONS~~INCOME

(Unaudited)

(in thousands, except per share amounts)

	Three Months Ended August 31,						Nine Months Ended August 31,
	2003			2002			2003			2002
	2004			2003			2004			2003
Net sales	$	1413,~~671~~208		$	1314,~~649~~671		$	4241,~~474~~248		$	4142,~~245~~474
Cost of goods sold	97,~~636~~871			109,~~314~~636			2624,~~267~~899			26,~~958~~267
Gross profit	5,~~035~~337			35,~~335~~035			16,~~207~~349			1416,~~287~~207
Operating expenses:
Selling, general and administrative	3,~~590~~819			3,~~415~~590			11,~~302~~909			11,~~282~~302
Research and development	1,~~265~~146			1,~~696~~265			3,~~957~~482			53,~~221~~957
Amortization of intangible assets	1118			3011			3369			9033
Operating income (loss)	169			(1,806		)	915			(2,306		)
Operating income	354			169			889			915
Interest income	1339			1713			3993			9639
Interest expense	(1—		)	(31		)	(92		)	(339		)
Income (loss) before income taxes	181			(1,792		)	945			(2,243		)
Income before income taxes	393			181			980			945
Provision for income taxes (credits)	74			(627		)	366			(786		)
Provision for income taxes	150			74			376			366
Net income (loss)	$	107		$	(1,165	)	$	579		$	(1,457	)
Net income	$	243		$	107		$	604		$	579
Net income (loss) per share:
Net income per share:
Basic	$	.0102		$	(.1101	)	$	.0506		$	(.1405	)
Diluted	$	.0102		$	(.1101	)	$	.0506		$	(.1405	)
Shares used in per share computations:
Basic	10,~~653~~640			10,~~649~~653			10,~~651~~641			10,~~646~~651
Diluted	10,~~653~~655			10,~~649~~653			10,~~651~~648			10,~~646~~651

See Notes to ~~Consolidated~~ Condensed Interim Consolidated Financial Statements.

TROY GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Nine Months Ended August 31,
	2003			2002
	2004			2003
Cash flows from operating activities:
Net income (loss)	$	579		$	(1,457	)
Net income	$	604		$	579
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	~~889~~799			~~980~~889
Provision for (recovery of) doubtful accounts	130			(212		)
Impairment of long-lived assets	284			—
Loss on disposal of furniture	99			—
Provision for (recovery of) doubtful accounts	(42		)	130
Accrued interest on available for sale securities	—			(85		)
Loss on disposal of furniture	—			99
Changes in working capital components: (Increase) decrease in:
Changes in working capital components:
Accounts receivable	1,316			2,526
(Increase) decrease in:
Income tax refund receivable	1,076			(314		)
Accounts receivable	1,040			1,316
Inventories	209			2,116
Income tax refund receivable	—			1,076
Prepaid expenses and other	(284		)	(449		)
Inventories	(935		)	209
Prepaid expenses and other	285			(284		)
Deferred taxes	139			—
Increase (decrease) in:
Accounts payable	(~~1,842~~67		)	(1,~~927~~842		)
Accrued expenses	~~784~~(578		)	~~(103~~784		)
Deferred revenue	~~(240~~158		)	(~~167~~240		)
Net cash provided by operating activities	21,~~716~~687			~~908~~2,716
Cash flows from investing activities:
Purchase of equipment and leasehold improvements	(~~936~~389		)	(~~302~~936		)
Purchase of available-for-sale securities	—			(1,449		)
Maturities of available-for-sale securities	1,246			497
Maturities of available-for-sale securities	497			5,393
Increase in other assets, net	(49		)	46
Increase in other assets, net	46			(319		)
Net cash provided by (used in) investing activities	808			(393		)
Net cash provided by (used in) investing activities	(393		)	3,323
Cash flows from financing activities:
Payments on notes payable	~~(53~~—		)	(5253		)
Proceeds from issuance of common stock	9—			~~149~~9
Purchase of treasury stock	—(8		)	~~(79~~—		)
Net cash provided by (used in) financing activities	(44		)	18
Net cash used in financing activities	(8		)	(44		)
Net increase in cash and cash equivalents	2,279			4,249
Effect of foreign currency translation	1			—
Cash and cash equivalents, beginning of period	6,615			1,210
Net increase in cash and cash equivalents	2,488			2,279
Cash and cash equivalents, end of period	$	8,894		$	5,459
Cash and cash equivalents, beginning of period	1,727			6,615
Cash and cash equivalents, end of period	$	4,215		$	8,894

See Notes to ~~Consolidated~~ Condensed Interim Consolidated Financial Statements.

TROY GROUP, INC.

~~NOTES~~CONDENSED TO CONSOLIDATED STATEMENT OF ~~FINANCIAL~~STOCKHOLDERS’ ~~STATEMENTS~~EQUITY

(Unaudited)

(in thousands except share amounts)

									Accumulated Other Comprehensive Income									Total Stockholders’ Equity			Comprehensive Income (Loss)
	Common Stock					Additional							Treasury Stock
	Number					Paid-in					Retained		Number
	of Shares		Amount			Capital					Earnings		of Shares		Amount

Balance, November 30, 2003	10,974,170		$	110		$	21,122		$	33	$	6,598	331,493		$	(1,204	)	$	26,659		$	—
Retirement of treasury stock	(331,493	)	(3		)	(1,201		)	—		—		(331,493	)	1,204			—			—
Purchase of common stock for the treasury	—		—			—			—		—		2,800		(8		)	(8		)	—
Foreign currency translation adjustment, net of tax	—		—			—			1		—		—		—			1			1

Net income	—		—			—			—		604		—		—			604			604
Balance, August 31, 2004	10,642,677		$	107		$	19,921		$	34	$	7,202	2,800		$	(8	)	$	27,256		$	605

See Notes to Condensed Interim Consolidated Financial Statements

TROY GROUP, INC.

NOTES TO CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

(unaudited)

Note 1. Basis of Presentation

The accompanying unaudited consolidated financial statements of TROY Group, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted ~~accounting~~in ~~principles~~the United States of America for interim ~~financial~~ financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include ~~all~~ all of the information and footnotes required by ~~generally~~accounting ~~accepted~~principles ~~accounting~~generally ~~principles~~accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of ~~normal~~ normal recurring accruals and adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended August 31, ~~2003~~ 2004 are not necessarily indicative of the results that may be expected for the year ending November 30, ~~2003~~2004. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for its fiscal year ended November 30, ~~2002 (File No~~ 2003. ~~000-24413).~~

Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation –- Transition and Disclosure,” prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock option plans. As allowed by SFAS No. 123, the Company has elected to continue to account for its employee stock-based compensation plan using the intrinsic value method in accordance with Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations, which does not require compensation to be recorded if the consideration to be received is at least equal to the fair value of the common stock to be received at the measurement date. Under the requirements of SFAS No. 123, non-employee stock-based transactions require compensation to be recorded based on the fair value of the securities issued or the services received, whichever is more reliably measurable.

The following table illustrates the effect on net income ~~(loss)~~ and net income ~~(loss)~~ per share had compensation costs for the stock-based compensation plan ~~been~~ been determined based on ~~grant~~the ~~date~~ fair values of awards ~~under~~on the ~~provisions~~grant date under the provisions of SFAS No. 123, for the three-month and nine-month periods ended August 31 , 2004 and 2003 (~~unaudited;~~amounts in thousands, except per share data):

	Three months ended August 31,						Nine months ended August 31,
	2004			2003			2004			2003
Net income applicable to common stockholders:
As reported	$	243		$	107		$	604		$	579
Less total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effects	(119		)	(99		)	(451		)	(301		)
Pro forma	$	124		$	8		$	153		$	278

Net income per share applicable to common stockholders, basic and diluted:
As reported	$	.02		$	.01		$	.06		$	.05
Pro forma	$	.01		$	—		$	.01		$	.03

	Three months ended August 31,						Nine months ended August 31,
	(amounts in thousands, except per share data)						(amounts in thousands, except per share data)
	2003			2002			2003			2002
Net income (loss) applicable to common stockholders As reported	$	107		$	(1,165	)	$	579		$	(1,457	)
Less total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effects	(99		)	(178		)	(301		)	(609		)
Proforma	$	8		$	(1,343	)	$	278		$	(2,066	)
Net income (loss) per share applicable to common stockholders, basic and diluted
As reported	$	.01		$	(.11	)	$	.05		$	(.14	)
Proforma	$	—		$	(.13	)	$	.03		$	(.19	)

Recent Accounting Pronouncements

~~Certain reclassifications~~In ~~have~~May ~~been~~2003 ~~made~~the toFinancial ~~the~~Accounting ~~income~~Standards ~~statement~~Board ~~with~~(FASB) noissued Statement ~~effect~~of onFinancial ~~net income~~Accounting orStandards ~~stockholders~~(SFAS) ~~equity~~No. 150, Accounting for Certain Financial

Note 2. Inventories

In the third quarter of fiscal 2003, the Company adjusted the inventory reserve for the wireless and connectivity products from a projected one-year usage to a projected six-month usage to more closely match the risk from changes in the technology of the product components. As a result, the inventory reserve was increased by $381,000, and net income was reduced by $229,000.

Inventories consisted of the following as of August 31, 2003 and November 30, 2002 (amounts in thousands):

	August 31, 2003 unaudited			November 30, 2002
Raw materials	$	5,038		$	5,136
Work-in-process	687			205
Finished goods	2,902			4,112
Reserve for slow moving and obsolete inventories	(3,296		)	(3,913		)
Total	$	5,331		$	5,540

Note 3. Goodwill and Intangible Assets

The Company adopted SFAS No. 142 effective December 1, 2002 and performed the initial transitional impairment test as of that date. The provisions of SFAS No. 142 require that the Company allocate its goodwill to its various reporting units, determine the carrying value of those businesses, and estimate the fair value of the reporting units so that a two-step goodwill impairment test can be performed. The Company’s reporting units are consistent with its operating segments, which are the same as the reportable segments, identified in Note 6. In the first step of the goodwill impairment test, the fair value of each reporting unit is compared to its carrying value. If the fair value exceeds the carrying value, goodwill is not impaired and no further testing is performed. If the carrying value exceeds the fair value,

~~then the~~Instruments ~~second~~with ~~step~~Characteristics ~~must~~of beboth Liabilities ~~performed~~and Equity, ~~and~~which ~~the~~requires ~~implied~~that ~~fair~~certain financial ~~value~~instruments ofpreviously ~~the~~presented ~~reporting unit’s~~as ~~goodwill~~equity ~~must~~or temporary equity be presented ~~determined~~as liabilities. Such instruments include mandatory redeemable preferred and ~~compared~~common tostock, ~~the~~and ~~carrying~~certain ~~value~~options ofand ~~the~~warrants. SFAS No.150 ~~goodwill~~is effective for ~~the~~financial ~~reporting~~instruments ~~unit.~~issued, Ifentered ~~the~~into ~~carrying~~or ~~value~~modified after May 31, 2003 and is generally effective at the beginning of athe ~~reporting~~first ~~unit’s~~interim ~~goodwill~~period ~~exceeds~~beginning ~~its~~after ~~implied~~June 15, ~~fair~~2003. The ~~value,~~adoption ~~then~~of anSFAS ~~impairment~~No.150 did ~~loss~~not ~~equal~~have toan effect on the ~~difference~~ isCompany’s ~~recorded~~financial position or results of its operations.

~~The fair~~In ~~value~~2003, of the ~~Company’s~~Financial ~~reporting~~Accounting ~~units~~Standards ~~was~~Board ~~determined~~issued ~~using~~FASB Interpretation ~~the~~No. 46 ~~income~~(FIN 46), ~~approach~~Consolidation ~~under~~of ~~which~~Variable ~~the~~Interest ~~fair~~Entities, ~~value~~an Interpretation of Accounting Research Bulletin No. 51, as revised. Prior to FIN 46, a ~~reporting~~company ~~unit~~generally isincluded ~~calculated~~another ~~based~~entity onin the company’s financial statements only if it controlled the ~~present~~entity ~~value~~through ownership of ~~estimated~~the ~~future~~majority ~~cash~~voting ~~flows~~interests. FIN ~~Based~~46 onrequires certain variable interest entities to be consolidated by the ~~results~~primary beneficiary of ~~its~~the ~~transitional~~entity ~~impairment~~if ~~test,~~the equity investors in the ~~Company~~entity ~~has~~do ~~determined~~not ~~that~~have nothe ~~impairment~~characteristics of ~~goodwill~~a ~~existed~~controlling asfinancial ofinterest ~~December 1,~~or ~~2002.~~do ~~However,~~not ~~future~~have ~~goodwill~~sufficient ~~impairment tests~~equity ~~could~~at ~~result~~risk infor the aentity ~~charge~~ to ~~earnings.~~finance ~~The~~its ~~Company~~activities ~~will~~without ~~continue~~additional tosubordinated financial ~~evaluate~~support ~~goodwill~~from onother anparties. The ~~annual~~Company adopted ~~basis~~FIN as46 ofeffective with the ~~beginning~~quarter ofending ~~the~~May ~~fourth~~31, ~~quarter~~2004, and ~~whenever~~has determined ~~events~~it ~~and~~does ~~changes~~not inhave ~~circumstances~~any ~~indicate~~variable interest entities that ~~there~~are ~~may~~required to be ~~a potential~~consolidated ~~impairment~~in its financial statements.

~~The Company’s~~Note ~~intangible assets subject to amortization at August 31, 2003 and November 30, 2002 are composed of (amounts in thousands):~~2. Inventories

	Weighted Average Remaining Life	August 31, 2003 unaudited							November 30, 2002
		Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Customer Lists	2 years	$	25	$	(19	)	$	6	$	25	$	(16	)	$	9
Core Technology	6 years	392		(162		)	230		392		(132		)	260
Total amortizable intangible assets		$	417	$	(181	)	$	236	$	417	$	(148	)	$	269

Inventories consisted of the following at August 31, 2004 and November 30, 2003 (amounts in thousands):

Amortization expense related to intangible assets was $11,000 and $30,000 for the three-month periods and $33,000 and $90,000 for the nine-month periods ended August 31, 2003 and 2002, respectively.

	August 31, 2004			November 30, 2003
	(unaudited)
Raw materials	$	2,914		$	4,671
Work-in-process	1,039			401
Finished goods	4,189			2,264
Reserve for slow moving and obsolete inventories	(2,316		)	(2,445		)
Total	$	5,826		$	4,891

~~Estimated future~~Note ~~amortization~~3. Other ~~expense related to purchased intangible assets at August 31, 2003 is as follows:~~Assets

Fiscal year:	(In thousands)
2003 (Remaining 3 months)	$	11
2004	44
2005	42
2006	40
2007	40
Thereafter	59
Total	$	236

Other assets consisted of the following at August 31, 2004 and November 30, 2003 (amounts in thousands):

	August 31, 2004		November 30, 2003
	(unaudited)
Customer list, net of accumulated amortization 2004 $22 and 2003 $20	$	3	$	5
Core technology, net of accumulated amortization 2004 $285 and 2003 $236	107		156
Purchased software, net of accumulated amortization 2004 $133 and 2003 $120	—		13
Software development costs, net of accumulated amortization 2004 $718 and 2003 $359	—		359
Cash surrender value of officers’ life insurance	509		460
	$	619	$	993

Note 4. Goodwill and Intangible Assets

The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, effective December 1, 2002 and performed the initial transitional impairment test as of that date. The provisions of SFAS No. 142 require that the Company allocate its goodwill to its various reporting units, determine the carrying value of those businesses, and estimate the fair value of the reporting units so that a two-step goodwill impairment test can be performed. The Company’s reporting units represent components of its operating segments, which are the same as the reportable segments, identified in Note 11. In the first step of the goodwill impairment test, the fair value of each reporting unit is compared to its carrying value. If the fair value exceeds the carrying value, goodwill is not impaired and no further testing is performed. If the carrying value exceeds the fair value, then the second step must be performed, and the implied fair value of the reporting unit’s goodwill must be determined and compared to the carrying value of the goodwill for the reporting unit. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then an impairment loss equal to the difference is recorded.

For the year ended November 30, 2003, no impairment loss was recognized. However, future goodwill impairment tests

Oncould ~~December~~result 1,in ~~2002~~a ~~the~~charge ~~Company~~to ~~completed~~earnings. ~~the~~The ~~allocation~~Company ofwill ~~goodwill~~continue ~~(including~~to ~~amounts~~evaluate ~~previously~~goodwill ~~classified~~on asan ~~assembled workforce)~~annual tobasis ~~its reportable segments~~ as ~~part~~ of ~~its transitional impairment~~the ~~test.~~beginning ~~Goodwill~~of ~~allocated to~~ the ~~Company’s~~fourth ~~reportable~~fiscal ~~segments~~quarter, asand ofwhenever ~~November 30,~~events ~~2002~~ and changes in ~~the carrying amount of goodwill for the nine-month~~ ~~period~~circumstances ~~ended~~indicate ~~August~~that ~~31,~~there ~~2003~~may ~~are~~be asa ~~follows~~potential ~~(amounts in thousands):~~impairment.

	Wireless & Connectivity		Security Printing Solutions		Total
Balance at November 30, 2002	$	—	$	235	$	235
Goodwill adjustment for previously classified assembled workforce	—		46		46
Balance at August 31, 2003	$	—	$	281	$	281

On December 1, 2002, the Company completed the allocation of goodwill (including amounts previously classified as assembled workforce) to its reportable segments as part of its transitional impairment test. Goodwill allocated to the Company’s reportable segments as of November 30, 2003 and August 31, 2004 are as follows (amounts in thousands):

If the provisions of SFAS No. 142 had been in effect for all periods presented, the Company’s net income (loss) and net income (loss) per share would have been as follows for the three- and nine-month periods ended August 31, 2003 and 2002:

	Wireless & Connectivity		Secure Payment Systems		Total
Balance at November 30, 2003	$	—	$	281	$	281
Balance at August 31, 2004 (unaudited)	$	—	$	281	$	281

	Three months ended August 31,					Nine months ended August 31,
	(amounts in thousands, except per share data)					(amounts in thousands, except per share data)
	2003		2002			2003		2002
Net income (loss):
As reported	$	107	$	(1,165	)	$	579	$	(1,457	)
Add back amortization of goodwill, net of taxes	—		13			——		34
Net income (loss), as adjusted	$	107	$	(1,152	)	$	579	$	(1,423	)
Net income (loss) per share, basic and diluted
As reported	$	.01	$	(.11	)	$	.05	$	(.14	)
Add back amortization of goodwill, net of taxes	—		—			—		—
Net income (loss) per share, basic and diluted, net of taxes	$	.01	$	(.11	)	$	.05	$	(.14	)

The Company’s intangible assets subject to amortization at August 31, 2004 and November 30, 2003 are composed of (amounts in thousands):

	August 31, 2004							November 30, 2003
	(unaudited)
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Customer Lists	$	25	$	(22	)	$	3	$	25	$	(20	)	$	5
Core Technology	392		(285		)	107		392		(236		)	156
Purchased Software	133		(133		)	—		133		(120		)	13

Total amortizable intangible assets	$	550	$	(440	)	$	110	$	550	$	(376	)	$	174

In the second quarter of fiscal 2004, management evaluated the long-lived intangible assets for impairment using the methodology described above and determined that the asset representing the capitalized software development costs for ACH software was impaired. As a result, the unamortized amount of $284,000 at April 30, 2004 was written off in the second quarter.

Amortization expense related to intangible assets was approximately $18,000 and $11,000 for each of the three-month periods and $69,000 and $33,000 for each of the nine-month periods ended August 31, 2004 and 2003, respectively.

Estimated future amortization expense related to purchased intangible assets at August 31, 2004 is as follows:

Fiscal year:	(In thousands)
2004 (3 months)	$	24
2005	75
2006	11
Total	$	110

Note 5. Line of Credit

The Company has a $5.0 million line-of-credit agreement with Comerica Bank. As of August 31, 2004, 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 (4.50 % at August 31, 2004) less 0.25% or the bank’s LIBOR rate (2.00 % at August 31, 2004) plus 2% and are limited to 80% of eligible accounts receivable and 50% of eligible inventories if total liabilities to tangible effective net

~~Note~~worth is greater than two to one. No 4formula is required if total liabilities to tangible effective net worth is less than two to one. In connection with the line-of-credit agreement, the Company has a $650,000 standby letter-of-credit sub-limit, of which approximately $80,000 was outstanding at August 31, 2004. ~~Stock~~This ~~Option~~line of credit is secured by substantially all of the Company’s assets. The borrowing arrangement requires the Company to comply with certain financial covenants and ~~Stock~~other ~~Warrant~~restrictions, ~~Plans~~including its ability to pay dividends, and as of August 31, 2004 the Company was in compliance with those covenants. As of August 31, 2004, the Company had approximately $4.9 million in availability under the line of credit. The line-of-credit borrowings are due on demand. The agreement may be terminated by either party at any time.

~~During~~Note ~~the nine months ended August 31, 2003, the Company did not grant any options to employees~~6. Stock ~~The~~Option ~~following is a summary of total outstanding options~~ and ~~stock~~Stock ~~warrants~~Warrant ~~at August 31, 2003:~~Plans

	Options and Warrants Outstanding				Options and Warrants Exercisable
Range of Exercise Prices	Number of Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Number of Shares	Weighted- Average Exercise Price
$2.85 – 4.51	662,666	$	3.93	6.8 years	359,456	$	3.78
6.31 – 8.75	486,000	7.31		5.8 years	394,821	7.30
13.16 – 14.25	15,000	13.52		6.3 years	4,999	13.52
	1,163,666				759,276

During the nine months ended August 31, 2004, the Company granted 40,000 stock options to employees and a director. The following is a summary of total outstanding options and stock warrants at August 31, 2004:

At August 31, 2003, there were 1,688,000 shares remaining available for grant under the Company’s option plans.

Range of Exercise Prices	Options and Warrants Outstanding
	Number of Shares	Weighted - Average Exercise Price		Weighted - Average Remaining Contractual Life	Options and Warrants Exercisable
					Number of	Weighted - Average
					Shares	Exercise Price
$ 2.85 - $ 4.51	617,666	$	3.88	4.43	403,082	$	3.88
$ 6.63 - $ 8.75	460,000	7.32		4.72	441,163	7.30
$13.16 - $14.25	15,000	13.52		5.26	9,998	13.52
$ 2.85 - $14.25	1,092,666	$	5.46	4.62	854,243	$	5.76

~~Note~~At ~~5. Net~~August ~~Income~~31, ~~(Loss)~~2004, ~~Per~~there ~~Share~~were 1,714,000 shares remaining available for grant under the Company’s stock option plan.

~~The~~Note ~~following~~7. Net ~~table~~Income ~~sets~~Per ~~forth the computation of basic and diluted net loss per share:~~Share

	Three months ended August 31,					Nine months ended August 31,
	(amounts in thousands, except per share data)					(amounts in thousands, except per share data)
	2003		2002			2003		2002
Numerator for basic and diluted net income (loss) per share:
Net income (loss)	$	107	$	(1,165	)	$	579	$	(1,457	)
Denominator for basic net income (loss) per share – weighted-average shares outstanding	10,653		10,649			10,651		10,646
Effect of employee stock options and warrants	—		—			—		—
Denominator for diluted net income (loss) per share	10,653		10,649			10,651		10,646
Net income (loss) per share:
Basic	$	.01	$	(.11	)	$	.05	$	(.14	)
Diluted	$	.01	$	(.11	)	$	.05	$	(.14	)

The following table sets forth the computation of basic and diluted net income per share (amounts in thousands, except per share data):

Note 6. Segment Information

	Three months ended August 31,				Nine months ended August 31,
	2004		2003		2004		2003

Numerator for basic and diluted net income per share:
Net income	$	243	$	107	$	604	$	579

Denominator for basic net income per share
Weighted-average shares outstanding	10,640		10,653		10,641		10,651
Effect of employee stock options and warrants	15		—		7		—
Denominator for diluted net income per share	10,655		10,653		10,648		10,651

Net income per share:
Basic	$	.02	$	.01	$	.06	$	.05
Diluted	$	.02	$	.01	$	.06	$	.05

~~The~~Note ~~following~~8. Contractual ~~tables~~Obligations ~~summarize net sales~~ and ~~net~~Commercial ~~income (loss) by the Company’s operating segments, Security Printing Solutions and Wireless and Connectivity, and unallocated corporate for the three and nine months ended August 31, 2003 and 2002:~~Commitments

The Company has the following minimum non-cancelable contractual obligations and commercial commitments (amounts in thousands):

	Three months ended August 31,						Nine months ended August 31,
	Total			Fiscal 2004			Fiscal 2005-07			Fiscal 2008
	(amounts in thousands)						(amounts in thousands)
Related party operating lease	$	1,096		$	143		$	858		$	95
	2003			2002			2003			2002
Other operating leases	380			182			198			—
Net sales:
Split dollar life insurance policy			**			**			**			**
Security Printing Solutions	$	10,819		$	10,547		$	31,257		$	32,134
Total	$	1,476		$	325		$	1,056		$	95
Wireless and Connectivity	3,852			3,157			11,217			9,314
Less intersegment revenue	—			(55		)	—			(203		)
	$	14,671		$	13,649		$	42,474		$	41,245
Net income (loss):
Security Printing Solutions	$	1,292		$	379		$	4,028		$	2,914
Wireless and Connectivity	(460		)	(813		)	(157		)	(2,068		)
Unallocated Corporate	(725		)	(731		)	(3,292		)	(2,303		)
	$	107		$	(1,165	)	$	579		$	(1,457	)

~~Certain~~The ~~reclassifications~~annual ~~have~~commitments ~~been~~reflected ~~made~~in to the ~~August 31,~~table ~~2002~~above ~~segment~~are ~~information~~based toon ~~conform to the August 31, 2003 presentation~~our ~~(amounts~~November 30 ~~in thousands)~~year-end.

	August 31, 2003		November 30, 2002
Segment Assets:
Security Printing Solutions	$	11,072	$	11,637
Wireless and Connectivity	10,875		10,339
Unallocated Corporate	17,524		24,478
	$	39,471	$	46,454

The Company leases its operating facilities under non-cancelable operating lease agreements, including certain operating facilities from a company related through common ownership, which expire through 2008. The related-party lease requires monthly payments of approximately $23,800.

~~The~~**As ~~following~~of ~~schedule~~August is31, ~~presented~~2004 and November 30, 2003, we had a balance of advanced payments of $1,903,000 to ~~reconcile~~affiliated stockholders in connection with ~~August~~the 31purchase of split dollar life insurance policies. The Company and the stockholders have executed split-dollar agreements governing the unsecured non-interest bearing advances. The advances are due upon the death, ~~2003~~termination or retirement of the Company’s Chairman, Chief Executive Officer and ~~November~~majority stockholder. We 30previously had committed to making payments on the split dollar life insurance policies based on continued employment; however, the Sarbanes-Oxley Act of 2002 ~~segment~~prohibits ~~assets~~extensions of credit in the form of a personal loan to certain Company insiders after July 29, 2002. As a result, since July 29, 2002 we have not funded the ~~amounts~~annual ~~reported~~premium inpayments on these policies. If the ~~Company’s~~SEC ~~consolidated~~issues ~~financial~~new ~~statements~~regulations ~~(amounts~~or other guidance that causes us to reevaluate our position, we may demand payment on the advances and terminate our participation in ~~thousands)~~these arrangements.

	August 31, 2003			November 30, 2002
Total assets of reportable segments	$	39,471		$	46,454
Intersegment receivables	(6,434		)	(12,681		)
Investment in subsidiaries	(234		)	(234		)
Consolidated assets	$	32,803		$	33,539

Note 9. Major Vendors

~~Note~~The Company purchases key components from a vendor and also sells products to this same vendor. Purchases from this vendor for the nine months ended August 31, 2004 and 2003 were: $7,967,000 and $7,268,000, respectively. ~~Cash~~Net ~~Flow~~payable ~~Information~~balances to this vendor as of August 31, 2004 and November 30, 2003 were: $197,000 and $149,000, respectively.

~~Supplemental~~Note ~~disclosure~~10. ofMajor ~~cash flow information~~Customers

	Nine months ended
	(amounts in thousands)
	August 31, 2003		August 31, 2002
Cash paid during the period for:
Interest	$	8	$	46
Income taxes	$	513	$	13

There were no customers that accounted for 10% or more of net sales in the three and nine months of fiscal 2004, or fiscal 2003.

Note 11. Segment Information and Geographical Information

Segment Information

The following tables summarize net sales and net income by the Company’s operating segments, Secure Payment Systems and Wireless and Connectivity Solutions, for the three months and nine months ended August 31, 2004 and 2003 (amounts in thousands):

	Three months ended August 31,						Nine months ended August 31,
	(unaudited)						(unaudited)
	2004			2003			2004			2003

Net Sales:
Secure Payment Systems	$	9,976		$	10,819		$	29,371		$	31,257
Wireless and Connectivity Solutions	3,232			3,852			11,877			11,217
	$	13,208		$	14,671		$	41,248		$	42,474

Net Income:
Secure Payment Systems	$	553		707			812			840
Wireless and Connectivity Solutions	(310		)	(600		)	(208		)	(261		)
	$	243		$	107		$	604		$	579

ITEM 2.

	August 31, 2004		November 30, 2003
	(unaudited)
Segment Assets:
Secure Payment Systems	$	30,089	$	29,083
Wireless and Connectivity Solutions	10,917		11,281
	$	41,006	$	40,364

~~MANAGEMENT’S~~The following schedule is presented to reconcile August 31, 2004 ~~DISCUSSION~~and ~~AND~~November 30, ~~ANALYSIS~~2003 OFsegment assets to the amounts reported in the Company’s consolidated financial statements (amounts in thousands).

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

	August 31, 2004			November 30, 2003
	(unaudited)
Total assets of reportable segments	$	41,006		$	40,364
Inter-segment receivables	(5,702		)	(5,170		)
Investment in subsidiaries	(234		)	(234		)
Consolidated assets	$	35,070		$	34,960

~~The~~Geographical ~~following~~Information ~~discussion~~(amounts ~~and analysis should be read~~ in ~~conjunction with our Consolidated Financial Statements and related Notes~~ included in this report. 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.thousands)

Various risks and uncertainties could cause actual results to differ materially from those expressed in forward-looking statements. These risks and uncertainties include our ability to consolidate operations and reduce costs; the continued demand for printed financial documents; our ability to offset the expected decline in sales of our wired connectivity products; the success of the measures we implemented to address inventory accounting controls; the market acceptance of products incorporating wireless printing technologies; our ability to hire and retain qualified management, technology and other personnel; the impact of competition from existing and new technologies and companies; and the other factors set forth in our annual report on Form 10-K 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.

	Three months ended August 31,				Nine months ended August 31,
	(unaudited)				(unaudited)
	2004		2003		2004		2003

Net Sales:
United States	$	10,643	$	11,667	$	33,010	$	33,575
All Other Countries	2,565		3,004		8,238		8,899
	$	13,208	$	14,671	$	41,248	$	42,474

WeNote ~~own or have rights to trademarks that we use in connection with the sale of our products~~12. ~~TROY®, eCheck Secure™, PrintraNet™, TROYmark™,~~ ~~StarACH™,~~Cash ~~Etherwind™,~~Flow Windconnect™, Windport™, EtherSync™, Exact MICR Technology™ (ExMT™) and Exact Positioning Technology™ (ExPT™) are among the trademarks that we own. This report also makes reference to trademarks and trade names of other companies.Information

~~Recent~~Supplemental ~~Developments~~disclosure of cash flow information (amounts in thousands):

On September 18, 2003, TROY Group, Inc. (“TROY”) announced that its stockholders had voted against approval of the merger agreement between TROY and Dirk Inc., a company controlled by Patrick J. Dirk, the founder of TROY, and his family members, pursuant to which Mr. Dirk and his family members would have acquired the outstanding shares of TROY common stock that they do not already own at a price of $2.76 per share in cash.

	Nine months ended August 31,
	(unaudited)
	2004		2003
Cash paid during the period for:
Interest	$	2	$	8
Income taxes	$	191	$	513
Supplemental disclosure of non-cash activities:
Retirement of treasury stock	$	1,204	$	—

~~Although Mr.~~Note Dirk and his family members had sufficient share ownership to approve the merger agreement under applicable law, the merger agreement was also conditioned on the affirmative vote of the holders of a majority of the shares cast either “for” or “against” the merger agreement, excluding the shares held by Mr13. ~~Dirk~~Income and his family members and the officers and directors of TROY. At a special meeting of stockholders held on September 18, 2003, these “unaffiliated stockholders” voted against approval of the merger agreement. Following this special meeting of stockholders, the Board of Directors of TROY terminated the merger agreement and dissolved the Special Committee.Taxes

12Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards 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 it is determined to be more likely than not that some portion or all of the deferred tax assets will not be realized. In evaluating the need for a valuation allowance, the Company considers future taxable income and prudent and feasible tax planning strategies. The Company has placed substantial

~~Background~~12

~~TROY~~reliance ~~Group,~~on ~~Inc.~~its iscurrent aprojections ~~worldwide provider~~ of ~~enterprise~~ ~~output~~future ~~solutions,~~taxable ~~which~~income. The ~~include~~Company ~~products~~re-assesses ~~and~~its ~~services~~projections ~~for~~of ~~enterprises or~~taxable ~~businesses,~~income ~~that~~on ~~are~~a ~~used~~quarterly inbasis. If ~~producing~~it anis ~~output~~determined inthat ~~a process. For~~ the ~~past~~Company would ~~three~~not ~~years~~be weable ~~have~~to ~~been~~realize ~~expanding~~all ~~beyond~~or ~~our~~part ~~core~~of ~~business~~its indeferred ~~digital~~tax ~~check printing~~assets ~~systems~~in ~~and~~the ~~related consumables by developing electronic payment~~future, ~~systems~~which ~~and~~would ~~wired~~include ~~and~~the ~~wireless~~Company’s ~~print~~failure ~~servers~~to ~~and~~materially ~~networking~~meet ~~solutions. Most~~its projections of taxable ~~this~~income, ~~new~~an ~~product~~adjustment ~~expansion~~to ~~was accomplished through~~ the ~~acquisition~~carrying ~~and~~value ~~further~~of ~~investment~~the indeferred ~~five~~tax ~~small~~assets ~~technology~~would ~~companies. These acquisitions~~be ~~have~~charged ~~been~~to ~~organized~~income ~~under~~in the ~~two~~period ~~primary~~in ~~business~~which ~~segments: Security~~such ~~Printing~~determination ~~Solutions~~was ~~(previously TROY~~made ~~Systems)~~ and ~~Wireless~~may ~~and~~affect ~~Connectivity~~our ~~Solutions~~annual ~~(previously~~effective ~~TROY~~income ~~Wireless)~~tax rate.

~~Security~~Management ~~Printing~~currently ~~Solutions~~believes ~~provides state-of-~~the~~-art payment~~ ~~systems~~deferred ~~ranging~~tax ~~from~~assets ~~high~~are ~~security~~more ~~digital~~likely than ~~check~~not ~~printing systems~~ to ~~electronic~~ ~~payment~~be ~~and~~realized ~~funds~~based ~~transfer~~on ~~solutions. Our~~current ~~systems~~expectations ~~are~~of ~~used~~future toearnings ~~transfer funds between bank accounts~~and ~~using~~available ~~paper~~tax ~~checks~~planning ~~or electronic ACH (Automated Clearing House) processes~~strategies. ~~Our~~Deferred ~~products~~tax ~~provide~~assets ~~our customers with payment solutions that offer security, speed, flexibility~~ and ~~efficiency. Chase Manhattan, Citigroup, Del Monte Foods,~~liabilities ~~Deutsche~~are ~~Bank,~~adjusted ~~Federal~~for ~~Express,~~the ~~The~~effects ~~Federal~~of ~~Reserve,~~changes ~~Fidelity~~in ~~Investments,~~tax ~~GMAC Commercial,~~laws ~~Heinz USA, Hewlett Packard, IBM, Maersk Line Ltd., Marsh USA, Monsanto, NCR Corporation, Progressive Insurance, Safeway Stores, Unisys, VISA USA,~~ and ~~Xerox~~rates ~~are~~on ~~among~~ the ~~TROY~~date ~~customers that purchased payment products~~of ~~during the last 12 months~~enactment.

~~Wireless~~The ~~and~~net ~~Connectivity~~deferred ~~Solutions~~tax ~~provides~~assets ~~hardware and software solutions that enable enterprises to share intelligent devices like printers either wirelessly or using traditional networks. We~~ have been aclassified ~~supplier~~on of hardwired network printing solutions since 1991. Our wireless products include several devices which exchange information via Bluetooth™ and 802.11b short-range radio connections. Brother Industries, Ltd., Seiko Epson Corporation and DaimlerChrysler AG are among the ~~Wireless and Connectivity Solutions customers that have purchased~~accompanying ~~these~~consolidated ~~products~~balance ~~during~~sheets ~~the~~as ~~last~~follows 12(in ~~months.~~thousands):

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 network of distributors and value-added resellers and a direct sales force. More than 5,000 customers have purchased our products and services during the last 12 months.

	August 31, 2004		November 30, 2003

Current assets	$	2,789	$	2,789
Long-term assets	1,191		1,330
	$	3,980	$	4,119

InNote ~~the~~14. ~~first~~Proposed ~~nine months of fiscal 2003, there were no customers who accounted for 10% of the Company’s net sales.~~Merger

13On May 26, 2004, we announced that TROY had entered into a merger agreement (the “Merger”) with Dirk, Inc., a company controlled by Patrick Dirk, the founder of TROY, and his family members (Mergerco), pursuant to which Mr. Dirk and his family will acquire the outstanding shares of TROY common stock that they do not already own. TROY expects the Merger to close in November 2004. The Merger is subject to approval by TROY stockholders as required under applicable state law, to completion of financing arrangements necessary to accomplish the Merger, and to certain other closing conditions. On October 7, 2004, we filed a Definitive Proxy Statement on Schedule 14A and Amendment No.4 to Schedule 13E-3 in connection with the proposed Merger.

~~Results~~Note ~~of Operations~~15. Litigation

In connection with the Prior Merger Proposal, on November 21, 2002, Tom Lloyd filed an action in the Superior Court of the State of California in and for Orange County against TROY and its directors, alleging that defendants breached their fiduciary duties in connection with the Prior Merger Proposal by attempting to provide the Dirk family with preferential treatment in connection with their efforts to complete a sale of TROY. The ~~following~~complaint ~~table~~sought ~~sets~~to ~~forth~~enjoin an acquisition of TROY by the Dirk family, as well as attorneys’ fees. Following termination of the Prior Merger Proposal, the plaintiff filed a motion for dismissal of the ~~periods~~action and award of attorney’s fees and expenses of ~~indicated~~$387,250. TROY ~~certain~~filed ~~information~~a ~~derived~~motion ~~from~~in ~~our~~support of ~~consolidated~~the ~~statements~~plaintiff’s motion for dismissal of the action and in opposition to ~~operations~~plaintiff’s ~~expressed~~motion asfor fees. On March 4, 2004 the court issued a ~~percentage~~ruling granting the motion for dismissal with prejudice, and granting the motion for attorney’s fees of ~~net~~$175,000. ~~sales:~~On April 30, 2004, TROY filed a notice of appeal. TROY has accrued an estimate of expenses to be incurred in connection with this litigation in fiscal 2003 in excess of the deductible amount, which was recorded as an expense in fiscal 2002.

	Three Months Ended August 31,				Nine Months Ended August 31,
	2003		2002		2003		2002
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	65.7		75.6		61.8		65.4
Gross profit	34.3		24.4		38.2		34.6
Selling, general and administrative expenses	24.5		25.0		26.7		27.3
Research and development expenses	8.6		12.4		9.3		12.7
Amortization of intangible assets	0.1		0.2		0.1		0.2
Operating income (loss)	1.1		(13.2	)	2.1		(5.6	)
Interest income	0.1		0.1		0.1		0.2
Interest expense	—		—		—		—
Income (loss) before income taxes	1.2		(13.1	)	2.2		(5.4	)
Provision for income taxes (credits)	0.5		(4.6	)	0.9		(1.8	)
Net income (loss)	0.7	%	(8.5	)%	1.3	%	(3.6	)%

Following the announcement of the merger, Osmium Partners LLC (“Osmium”), Ralph Hamer (“Hamer”), Roy Liedtkie (“Liedtkie”), Tilson Growth Fund, L.P. (“Tilson”), and Ray Stanley (“Stanley”) filed purported class action complaints in the California Superior Court for Orange County against TROY and our directors. In all five actions plaintiffs allege that defendants breached their fiduciary duties in connection with the merger by attempting to provide the Dirk family with preferential treatment in connection with their efforts to complete a sale of TROY. Plaintiffs in all five actions seek declaratory relief, an order enjoining the acquisition, and attorneys’ fees. The Liedtkie complaint also names Mergerco and seeks damages. Pursuant to a stipulated order, Osmium, Hamer, Liedtkie and Tilson have been consolidated, and these four plaintiffs have adopted the allegations of the Tilson complaint. On September 13, 2004 defendants filed a demurrer to the Tilson complaint, and on September 21, they filed a demurrer to the Stanley complaint. On September 17, Osmium and Stanley filed a motion for class certification. On September 23, 2004, Liedtkie submitted a stipulation and proposed Order dismissing his action with prejudice. That stipulation is subject to Court approval. Discovery has commenced, but no trial date has been set in any of these actions. If these actions are successful in enjoining the transaction, it could have a material adverse effect on our business, financial position, or results of operations. Currently, the amount of such an adverse effect cannot be estimated.

~~Three Months Ended August 31, 2003 Compared to Three Months Ended August 31, 2002~~13

~~Net Sales. Our~~On ~~net~~September ~~sales were $14.~~7 ~~million for the~~, ~~three~~2004, ~~months~~TROY, ~~ended~~Mergerco, ~~August~~and ~~31,~~the ~~2003,~~Dirk ~~with~~Family ~~$10.8~~Trust ~~million~~commenced ~~attributable~~an toaction ~~Security~~against ~~Printing~~Westar ~~Solutions~~Capital ~~and~~LLC ~~$3.9~~(“Westar”) ~~million~~in ~~attributable~~the toUnited ~~Wireless~~States ~~and~~District ~~Connectivity Solutions. Net~~Court ~~sales~~for in the ~~three~~ ~~months~~Central ~~ended~~District ~~August~~of 31California, ~~2003~~for ~~increased~~violations byof ~~$1.0~~the ~~million,~~Williams ~~or 7.5%~~Act, ~~from $13.7~~tortious ~~million~~interference inwith ~~the~~contract, ~~three~~tortious ~~months~~interference ~~ended~~with ~~August~~prospective 31economic advantage, ~~2002. The~~and ~~increase~~unfair inbusiness ~~sales was primarily due to a $0~~practices.~~7 million~~ ~~increase~~The incomplaint ~~sales~~alleges ofin ~~both~~this ~~wired~~regard ~~and~~that ~~wireless~~Westar’s ~~and~~purported ~~connectivity~~offers ~~products and a~~to ~~$0.3~~purchase ~~million~~all ~~increase~~of inthe ~~revenue~~outstanding ~~from~~stock ~~our~~of ~~StarACH™~~TROY ~~software. Although~~are ~~sales~~nothing ofmore ~~our~~than ~~wired connectivity~~shams ~~products~~designed ~~increased~~to indisrupt the ~~third~~market ~~quarter~~for ofTROY ~~fiscal~~common ~~2003,~~stock weand ~~anticipate~~the ~~that~~proposed merger ~~sales~~between ofTROY ~~wired~~and ~~connectivity~~Mergerco. The ~~products, which constitute a significant portion of~~complaint ~~our~~seeks ~~overall~~damages ~~sales~~ of ~~Wireless~~an ~~and~~unspecified ~~Connectivity~~amount ~~Solutions,~~as ~~will~~well ~~decline~~ as ~~these products~~injunctive ~~are~~relief. Westar athas ormoved ~~approaching~~to ~~end~~dismiss ofthe ~~life.~~ complaint, ~~Net~~and ~~sales~~set ~~were~~a ~~not~~hearing ~~significantly~~date ~~affected~~of byOctober ~~price changes~~25.

~~Cost~~Note ~~of Goods Sold~~16. ~~Cost~~Guarantees of goods sold decreased by $0.7 million, or 6.6%, to $9.6 million in the three months ended August 31, 2003 from $10.3 million in the three months ended August 31, 2002, primarily due to cost reductions from the consolidation of manufacturing facilities. Inventory adjustments of $0.7 million and severance costs of $0.2 million in 2002 were offset by a $0.9 million increase in the inventory reserve in 2003. Cost of goods sold as a percentage of net sales decreased to 65.7% in the three months ended August 31, 2003 from 75.6% in the three months ended August 31, 2002. Cost of goods sold as a percent of sales will fluctuate based on shifts in the mix of products sold.Indemnities

Gross Profit. Gross profit increased by $1.7 million to $5.0 million in the three months ended August 31, 2003 from $3.3 million in the three months ended August 31, 2002, primarily due to increased sales of wired and wireless connectivity products ($0.3 million), increased software revenue ($0.2 million), and cost reductions from the consolidation of manufacturing facilities. Gross profit as a percentage of net sales increased to 34.3% in the three months ended August 31, 2003 from 24.4% in the three months ended August 31, 2002.Indemnifications

14In the ordinary course of business, TROY enters into contractual arrangements under which TROY may agree to indemnify the third party in the arrangement from any losses incurred relating to services performed on behalf of TROY or for losses arising from certain events as defined within the particular contract, which may include litigation or claims relating to past performance. These arrangements include, but are not limited to, TROY’s indemnification of its officers and directors to the maximum extent under the laws of the state of Delaware, the indemnification of its lessors for certain claims arising from the use of the facilities, and the indemnification of its bank for certain claims arising from the bank’s grants of credit to TROY. Such indemnification obligations may not be subject to maximum loss clauses. Historically, payments, if any, or if made or required related to these indemnifications have been immaterial.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $0.2 million, or 5.1%, to $3.6 million in the three months ended August 31, 2003 from $3.4 million in the three months ended August 31, 2002. General and administrative expenses in the third quarter of fiscal 2003 included $0.5 million in professional fees related to the proposed merger described above under Recent Developments, which were offset by cost savings from reductions in staff. Selling, general and administrative expenses as a percentage of net sales decreased to 24.5% in the three months ended August 31, 2003 from 25.0% in the three months ended August 31, 2002.Warranty

~~Research and~~TROY ~~Development~~accrues ~~Expenses. Research~~for ~~and development~~warranty ~~expenses~~expense ~~decreased~~at ~~by $0.4 million, or 25.4%, to $1.3 million in~~ the ~~three months~~time ~~ended~~revenue ~~August~~is ~~31,~~recognized ~~2003~~and ~~from~~maintains ~~$1.7~~a ~~million~~warranty inaccrual ~~the three months ended August 31, 2002, primarily due to reduced spending~~ for ~~Security Printing Solutions~~ ~~products.~~estimated ~~The~~future ~~total~~warranty ~~research~~obligations ~~and~~based ~~development~~upon ~~expenses for~~ the ~~third~~relationship ~~quarter of~~between ~~fiscal~~historical ~~2003 included $0.8 million for Security Printing Solutions~~ and ~~$0.5 million~~anticipated ~~for~~warranty ~~Wireless~~costs and ~~Connectivity Solutions. Research and development expenses as a percentage of net~~ sales ~~was 8~~volumes.6% To in the ~~three~~extent ~~months~~TROY ~~ended~~experiences ~~August~~increased ~~31,~~warranty ~~2003~~claim ~~compared~~activity toor ~~12.4%~~increased incosts ~~the~~associated ~~three~~with ~~months~~servicing ~~ended August 31, 2002. We expect~~those ~~research and development activities to focus primarily on our security printing solutions products and to a lesser extent on enhancements to our wireless networking products. However~~claims, weits ~~have~~warranty ~~the~~accrual ~~ability~~will toincrease ~~redirect~~resulting ~~our~~in ~~research~~decreased ~~and~~gross ~~development activities as needed based on our product strategies and market opportunities~~profit. ~~We forecast and budget research and development expenses by segment, but not by project.~~ The ~~anticipated~~standard ~~timing~~warranty ~~for~~period ~~the~~for ~~commercialization~~TROY’s ofproducts ~~any~~ranges offrom ~~our~~one ~~development~~month ~~efforts~~to isfive ~~not currently known~~years.

~~Amortization of~~Deferred Intangible Assets. Amortization of intangible assets decreased by $19,000 to $11,000 in the three months ended August 31, 2003 from $30,000 in the three months ended August 31, 2002. This decrease resulted from no amortization of goodwill in fiscal 2003 compared to amortization of $19,000 in fiscal 2002.Revenue

~~Operating Income~~TROY ~~(Loss). Operating~~offers ~~income~~fixed-price ~~increased by $2.0 million~~support toor ~~income~~maintenance ofcontracts, ~~$0.2~~including ~~million~~extended ~~in the three months ended August 31~~warranties, ~~2003~~to ~~from~~its ~~a loss of $1~~customers.8 Revenue ~~million~~from inequipment ~~the~~maintenance ~~three~~contracts on ~~months~~check ~~ended~~printing ~~August~~equipment ~~31,~~and ~~2002. The~~software ~~operating~~is ~~income~~recorded as adeferred ~~percentage~~income ~~of net~~when ~~sales~~billed ~~was~~and ~~1.1%~~is inrecognized ~~the~~straight-line ~~three~~over ~~months~~the ~~ended~~term ~~August 31, 2003 compared to loss~~ of ~~(13.2)%~~ in the ~~three months ended August 31, 2002~~contract.

Interest Income. Interest income decreased by $4,000 to $13,000 in the three months ended August 31, 2003 from $17,000 in the three months ended August 31, 2002. This decrease was the result of reductions in our investment in available-for-sale securities due to working capital requirements and lower rates of interest on invested securities.14

~~Interest Expense. Interest~~ITEM ~~expense decreased by $~~2~~,000 to $1,000 in the three months ended August 31, 2003 from $3,000 in the three months ended August 31, 2002~~.

~~Income Taxes. Income~~MANAGEMENT’S ~~taxes~~DISCUSSION ~~increased~~AND toANALYSIS a $74,000 tax expense in the three months ended August 31, 2003 from a $627,000 tax credit in the three months ended August 31, 2002. This increase is a result of increased income before income taxes. Income tax expense (credit) as a percentage of pretax income (loss) was 40.9% in the three months ended August 31, 2003 compared to (35.0)% in the three months ended August 31, 2002.OF

15FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~Nine~~The following discussion and analysis should be read in conjunction ~~Months~~with ~~Ended~~our ~~August~~Consolidated 31Financial Statements and related Notes included in this report. 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 ~~2003~~those ~~Compared~~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. Such forward looking statements include, but are not limited to, ~~Nine~~statements ~~Months~~regarding ~~Ended~~the ~~August~~proposed merger 31with Dirk, ~~2002~~Inc., our ability to finance our operating activities, our critical accounting policies and recent accounting pronouncements, international sales, compliance with laws and regulations, benefits of our ERP system, our current litigation and our efforts to defend such litigation.

~~Net Sales. Our~~Various ~~net~~risks ~~sales~~and ~~were~~uncertainties ~~$42.5~~could ~~million~~cause ~~for~~actual ~~the nine~~results ~~months~~to ~~ended~~differ materially ~~August~~from ~~31,~~those ~~2003,~~expressed ~~with~~in ~~$31~~forward-looking statements.3 These risks ~~million~~and ~~attributable~~uncertainties toinclude, ~~Security Printing~~but ~~Solutions~~are ~~and~~not ~~$11.2~~limited ~~million attributable~~ to, ~~Wireless~~completion ~~and~~of ~~Connectivity~~the ~~Solutions. Net~~proposed ~~sales~~merger, in the ~~nine~~continued ~~months ended~~demand ~~August~~for ~~31,~~printed ~~2003~~financial ~~increased~~documents; bythe useful ~~$1.2~~life ~~million,~~of orour ~~3.0%~~products, ~~from~~the ~~$41.2~~market ~~million~~acceptance inof products incorporating wireless printing technologies; the ~~nine~~impact ~~months~~of ~~ended~~competition ~~August~~from ~~31,~~existing ~~2002,~~and ~~primarily~~new technologies ~~due~~and tocompanies; ~~increased~~the ~~sales~~impact of ~~our~~litigation regarding the proposed ~~wired~~merger; ~~connectivity~~and ~~products,~~the ~~partially~~other ~~offset~~factors byset ~~decreased~~forth ~~sales~~below ofunder ~~Security Printing~~the ~~Solutions~~heading ~~products. The~~“Certain ~~decline~~Important inFactors” ~~Security~~and ~~Printing~~in ~~Solutions~~our ~~sales~~other ~~was~~periodic ~~primarily~~reports ~~due~~and toother adocuments ~~$0.7~~that ~~million~~we ~~reduction~~file infrom ~~sales~~time to atime ~~major~~with ~~distributor~~the ~~that~~Securities ~~declared~~and ~~Chapter 11~~Exchange ~~bankruptcy~~Commission. These inforward-looking ~~May~~statements ~~2003. Although~~speak ~~sales of~~only ~~our~~as ~~wired~~of ~~connectivity~~the ~~products~~date hereof. We ~~increased~~expressly indisclaim ~~the~~any ~~first~~obligation ~~nine~~or ~~months~~undertaking ofto ~~fiscal~~release ~~2003,~~publicly weany ~~anticipate~~updates ~~that~~or ~~sales~~revisions ofto ~~wired~~any ~~connectivity~~forward-looking ~~products,~~statements ~~which constitute~~contained aherein ~~significant~~to ~~portion~~reflect ofany change in our ~~overall~~expectations ~~sales~~with ofregard ~~Wireless~~thereto ~~and~~or ~~Connectivity~~any ~~Solutions,~~change ~~will~~in ~~decline~~events, asconditions ~~these products are at~~ or ~~approaching~~circumstances ~~end~~on ~~of life. Net~~which ~~sales~~any ~~were~~such ~~not~~statement ~~significantly~~is ~~affected by price changes~~based.

~~Cost of~~We ~~Goods~~own ~~Sold. Cost~~or ofhave ~~goods~~rights ~~sold~~to ~~decreased~~trademarks bythat ~~$0.7~~we ~~million, or~~use ~~2.6%,~~in toconnection ~~$26.3~~with ~~million in~~ the sale ~~nine~~of ~~months~~our ~~ended August 31~~products. TROY®, ~~2003 from $27.0~~eCheck ~~million~~Secure™, inPrintraNet™, ~~the~~TROYmark™, ~~nine~~StarACH™, ~~months ended August 31~~Etherwind™, ~~2002~~Windconnect™, ~~primarily due to inventory~~Windport™, ~~adjustments of $1.2 million and severance costs of $0.2 million in 2002~~EtherSync™, ~~which were~~Exact ~~partially~~MICR ~~offset~~Technology™ by(ExMT™) aand ~~$1.0~~Exact ~~million~~Positioning ~~increase in the inventory reserve in~~Technology™ ~~2003,~~(ExPT™) ~~and~~are ~~cost~~among ~~reductions from~~ the ~~consolidation~~trademarks ofthat ~~manufacturing facilities~~we own. ~~Cost~~This ofreport ~~goods~~also ~~sold as a~~makes ~~percentage~~reference ~~of net sales decreased~~ to ~~61.8%~~trademarks inand ~~the~~trade ~~nine~~names ~~months~~of ~~ended~~other ~~August 31, 2003 from 65~~companies.~~4% in the nine months ended May 31, 2002.~~

~~Gross Profit. Gross~~All ~~profit~~references ~~increased by $1.9 million~~ to ~~$16.2~~ ~~million~~“TROY,” ~~in the nine months ended August 31~~“we,” ~~2003~~“us” ~~from~~or ~~$14.3~~“our” ~~million~~means ~~in the~~TROY ~~nine months ended August 31~~Group, ~~2002~~Inc. ~~primarily due to increased sales of wired~~ ~~connectivity~~and ~~products~~its ~~($0.6 million)~~subsidiaries, ~~the~~except ~~inventory~~where ~~adjustments~~it ~~described above,~~is ~~and~~made ~~cost~~clear ~~reductions~~that ~~from~~ the ~~consolidation~~term ofmeans ~~manufacturing~~only ~~facilities. Gross profit as a percentage of net sales increased to 38.2% in~~ the ~~nine~~parent ~~months ended August 31, 2003 from 34~~company.~~6% in the nine months ended August 31, 2002.~~

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $11.3 million in the nine months ended August 31, 2003 and 2002. General and administrative expenses in the first nine months of fiscal 2003 included $1.5 million in professional fees related to the proposed merger described above under Recent Developments, which were offset by cost savings from reductions in staff. Selling, general and administrative expenses as a percentage of net sales decreased to 26.7% in the nine months ended August 31, 2003 from 27.3% in the nine months ended August 31, 2002.

~~Research and~~On ~~Development~~May ~~Expenses. Research~~26, ~~and~~2004, ~~development expenses~~we ~~decreased~~announced bythat ~~$1.3~~TROY ~~million,~~had orentered ~~24.2%,~~into toa ~~$3.9~~merger agreement ~~million in~~ (the ~~nine months~~“Merger”) ~~ended~~with ~~August~~Dirk, 31Inc., ~~2003~~a ~~from~~company ~~$5.2~~controlled ~~million~~by inPatrick Dirk, the ~~nine~~founder ~~months~~of ~~ended August 31~~TROY, ~~2002,~~and ~~due~~his tofamily ~~reduced~~members, ~~spending~~pursuant into ~~both~~which ~~Wireless and Connectivity and Security Printing Solutions~~Mr. ~~The~~Dirk ~~total research~~ and ~~development~~his family ~~expenses~~will ~~for~~acquire the ~~first~~ ~~nine~~outstanding ~~months~~shares of ~~fiscal~~TROY ~~2003~~common ~~included~~stock ~~$2.5~~that ~~million~~they ~~for Security Printing~~do ~~Solutions~~not ~~and~~already $1own.4 TROY ~~million~~expects ~~for~~the ~~Wireless and Connectivity Solutions. Research~~Merger ~~and~~to ~~development~~close ~~expenses~~in asNovember ~~a percentage of net sales was 9~~2004.3% The inMerger ~~the nine~~is ~~months~~subject ~~ended~~to ~~August~~approval ~~31,~~by ~~2003~~TROY ~~and~~stockholders ~~12.7%~~as inrequired ~~the~~under ~~nine~~applicable ~~months ended August 31,~~state ~~2002.~~law, Weto ~~expect~~completion ~~research~~of ~~and~~financing ~~development~~arrangements ~~activities~~necessary to ~~focus~~accomplish ~~primarily on our~~the ~~security~~Merger, ~~printing solutions products~~ and to acertain ~~lesser~~other ~~extent~~closing onconditions. On ~~enhancements~~October ~~to our~~7, ~~wireless networking products. However~~2004, we ~~have~~filed ~~the~~a ~~ability to redirect our~~Definitive ~~research~~Proxy ~~and~~Statement ~~development activities as needed based~~ on ~~our~~Schedule 14A ~~product strategies~~ and ~~market~~Amendment ~~opportunities~~No. We ~~forecast and~~4 ~~budget~~to ~~research and development expenses by segment, but not by~~Schedule 13E-3 ~~project. The~~in ~~anticipated~~connection ~~timing~~with ~~for~~ the ~~commercialization~~ ofproposed ~~any of our development efforts is not currently known~~Merger.

16Background

~~Amortization of~~TROY ~~Intangible~~offers ~~Assets. Amortization~~a offull ~~intangible~~range ~~assets decreased~~of byproducts ~~$57,000~~ to ~~$33,000~~its customers in ~~the~~two ~~nine~~primary product ~~months~~lines: ~~ended~~Secure ~~August~~Payment ~~31,~~Systems ~~2003~~and ~~from~~Wireless and Connectivity Solutions. ~~$90~~Secure Payment Systems include Security Printing Solutions,~~000~~ inwhich enable the secure ~~nine~~printing ~~months~~and ~~ended~~management ~~August~~of 31checks, ~~2002. This~~and ~~decrease~~Financial ~~resulted~~Service ~~from~~Solutions, which noenable ~~amortization~~secure ofelectronic ~~goodwill~~payments. inWireless ~~fiscal~~and Connectivity Solutions ~~2003~~includes ~~compared~~hardware and software solutions that enable enterprises to ~~amortization~~share intelligent ofdevices, ~~$57~~such as printers,~~000~~ ineither ~~fiscal~~wirelessly ~~2002~~or using traditional networks.

~~Operating Income~~Our ~~(Loss). Operating~~products ~~income~~have ~~(loss)~~been ~~increased~~adopted by ~~$3.2 million~~a towide ~~income~~variety of ~~$0.9~~industries including ~~million~~electronic inbill ~~the~~payment ~~nine~~utilities, ~~months~~retail ~~ended~~and ~~August~~brokerage 31firms, telecommunications, ~~2003~~financial ~~from a~~services, ~~loss~~insurance, ofcomputer ~~$2.3~~hardware, automotive, ~~million~~personnel inand ~~the~~others. We ~~nine~~market ~~months~~our ~~ended~~products ~~August~~in ~~31,~~55 ~~2002. The~~countries and ~~operating~~had ~~income~~more asthan a7,000 ~~percentage~~active ofcustomers ~~net sales~~in ~~was~~the 2past year.2% In in the first nine months ~~ended~~of ~~August~~fiscal 312004, ~~2003~~there ~~compared~~were tono ~~loss~~customers ~~of (5.6)%~~who inaccounted ~~the~~for ~~nine~~10% ~~months~~or more ~~ended~~of ~~August~~our ~~31,~~net ~~2002~~sales.

Interest Income. Interest income decreased by $57,000 to $39,000 in the nine months ended August 31, 2003 from $96,000 in the nine months ended August 31, 2002. This decrease is the result of reductions in our investment in available-for-sale securities due to working capital requirements and lower rates of interest on invested securities.15

~~Interest Expense. Interest~~Results ~~expense~~of decreased by $24,000 to $9,000 in the nine months ended August 31, 2003 from $33,000 in the nine months ended Augsut 31, 2002. This decrease was due to reductions in the balance due on notes payable.Operations

~~Income Taxes. Income~~The ~~taxes~~following ~~increased~~table tosets ~~a $0.4 million tax expense in the nine months ended August 31~~forth, ~~2003~~for ~~from a $0.8 million tax credit in~~ the ~~nine~~periods ~~months ended August 31~~indicated, ~~2002.~~ certain ~~This~~information ~~increase~~derived isfrom aour ~~result~~consolidated statements of ~~increased~~ income ~~before~~expressed ~~income taxes. Income tax expense (credit)~~ as a ~~percentage~~ percentage of ~~pretax~~net ~~income (loss) was 38.7% in the nine months ended August 31, 2003 compared to (35.0)% in the nine months ended August 31, 2002.~~sales:

Liquidity and Capital Resources

	Three Months Ended August 31,				Nine Months Ended August 31,
	2004		2003		2004		2003

Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	59.6		65.7		60.4		61.8
Gross profit	40.4		34.3		39.6		38.2
Selling, general and administrative expenses	28.9		24.5		28.9		26.6
Research and development expenses	8.7		8.6		8.4		9.3
Amortization of intangible assets	0.1		0.1		0.2		0.1
Operating income	2.7		1.1		2.2		2.2
Interest income	0.3		0.1		0.2		0.1
Interest expense	—		—		—		—
Income before income taxes	3.0		1.2		2.4		2.3
Provision for income taxes	1.2		0.5		.9		0.9
Net income	1.8	%	0.7	%	1.5	%	1.4	%

~~Cash~~Three ~~flows~~Months ~~provided~~Ended ~~by operating activities were $2.7 million in the nine months ended~~ August 31, ~~2003~~2004 ~~compared~~Compared to ~~$0.9 million in~~ ~~the~~Three ~~nine~~Months ~~months~~Ended ~~ended~~ August 31, ~~2002. This increase in cash flows provided was primarily due to increased net income, a refund of income taxes, and improved collections of accounts receivable.~~2003

~~Cash~~Net flows used in investing activities were $0.4 million in the nine months ended August 31, 2003 compared to cash flows provided by investing activities of $3.3 million in the nine months ended August 31, 2002. Included in cash flows provided by investing activities in the nine months ended August 31, 2002 was $3.9 million in net maturities of available-for-sale securities.Sales

~~Cash~~Net ~~flows~~sales ~~used in financing activities were $44,000 in the nine months ended August 31, 2003 compared to cash flows provided~~ by ~~financing~~ ~~activities~~product ofsegment ~~$18,000~~and inrelated ~~the~~percent ~~nine~~changes ~~months~~are ~~ended August 31, 2002, due~~as ~~to reduced proceeds from issuance of common stock.~~follows:

We have a $5.0 million line-of-credit agreement with Comerica Bank. As of Augsut 31, 2003, 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 (4.00 % at August 31, 2003) less 0.25% or the bank’s LIBOR rate (1.12 % at August 31, 2003) 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. No formula is required if total liabilities to tangible effective net worth is less than two to one. In connection with the line-of-credit agreement, we have a $650,000 standby letter-of-credit sub-limit, of

	Three months ended August 31,
	(amounts in millions)
	2004		2003		Percent Change
Net sales:
Secure Payment Systems	$	10.0	$	10.8	(7.4	)%
Wireless and Connectivity Solutions	3.2		3.9		(17.9	)%
	$	13.2	$	14.7	(10.0	)%

17Net sales in the three months ended August 31, 2004 decreased by $1.5 million, or 10.0%, to $13.2 million from $14.7 million in the three months ended August 31, 2003. The decrease in sales was primarily due to a $0.8 million decrease in revenue from MICR printers and supplies and StarACH software, both in our Secure Payment Systems segment and a $0.7 million decline in sales of our Wireless and Connectivity print server sales and royalties. The decline in Secure Payment Systems products was primarily due to increased competition and an overall decline in check printing. The decline in Wireless and Connectivity products was primarily due to timing of orders and increased competition. Net sales were not significantly affected by price changes.

~~which~~Gross approximately $80,000 was outstanding at August 31, 2003. This line of credit is secured by substantially all of our assets. Our borrowing arrangement requires us to comply with certain financial covenants. As of August 31, 2003, we had approximately $4.9 million in availability under the line of credit. The line-of-credit borrowings are due on demand. The agreement may be terminated by either party.Profit

WeGross ~~believe that existing cash balances~~profit, ~~cash~~related ~~generated by~~percent ~~operating~~changes ~~activities,~~ and ~~funds~~percent ~~available under our credit facility will be sufficient to finance our operating activities for at least the next 12 months, which will include expenditures~~ of ~~approximately~~total ~~$1.9~~sales ~~million for toner compounding equipment, and approximately $400,000 for a new ERP system. To the extent that the funds generated from these sources~~ are ~~insufficient to finance our operating activities, we would~~as ~~need to raise additional funds through public or private financing. We cannot assure you that additional financing, if required, will be available on terms favorable to us, or at all.~~follows:

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 August 31, 2003, Troy had purchased approximately 320,565 shares of common stock in the open market under this stock repurchase program, at an average price of $3.67 per share. Approximately $2.8 million remains available for future common stock repurchases.

	Three months ended August 31,
	(amounts in millions)						Percent of Total Sales
					Percent		August 31,
	2004		2003		Change		2004		2003
Gross profit	$	5.3	$	5.0	6.0	%	40.4	%	34.3	%

~~Critical~~Gross ~~Accounting~~profit ~~Policies~~increased in the three months ended August 31, 2004 from the three months ended August 31, 2003, primarily due to increased gross profit on Wireless and Connectivity products, partially offset by decreased gross ~~Estimates~~profit on Secure Payment Systems. Gross profit on Wireless and Connectivity products in 2003 was reduced by a $0.9 increase in the inventory reserve. Gross profit on Secure Payment Systems declined in 2004 due to lower revenue. Gross profit as a percent

~~We reaffirm the critical accounting policies and our use of estimates as reported in our Annual Report on Form 10-K for our fiscal year ended November 30, 2002.~~16

~~ITEM~~of 3sales will fluctuate based on shifts in the mix of products sold . ~~QUANTITATIVE~~Gross ~~AND~~profit was ~~QUALITATIVE~~not ~~DISCLOSURES~~significantly ~~ABOUT~~affected ~~MARKET~~by ~~RISK~~price changes.

~~Market risk is the risk of loss to future earnings~~Selling, ~~to fair~~General 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~~Administrative ~~market changes~~Expenses. ~~Market risk is attributed to all market sensitive financial instruments, including long-term debt.~~

~~We do not utilize derivative financial instruments. Accordingly~~Selling, ~~our~~general ~~exposure to market risk is through our foreign currency transactions~~ and ~~through~~administrative ~~our bank debt which bears interest at variable rates. We do not hedge our exposure to foreign currency fluctuations. Rather~~expenses, werelated ~~monitor~~percent ~~our foreign currency exposure on a monthly basis. Principal foreign currencies are the Euro~~changes and ~~the~~percent ~~Canadian Dollar. The bank debt is a revolving line~~ of ~~credit. Borrowings~~total ~~under~~sales ~~the line of credit bear interest at the lesser of the bank’s reference rate (4.00 % at August 31, 2003) less 0.25% or the bank’s LIBOR rate (1.12 % at August 31, 2003) plus 2% and~~ are ~~limited~~as 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. At August 31, 2003, 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.follows:

	Three months ended August 31,
	(amounts in millions)						Percent of Total Sales
					Percent		August 31,
	2004		2003		Change		2004		2003
Selling, general and administrative expenses	$	3.8	$	3.6	6.4	%	28.9	%	24.5	%

~~ITEM~~The 4increase in selling, general and administrative expenses was primarily due to increases in costs associated with professional fees, partially offset by cost savings from reductions in staff and foreign currency translation gains. ~~CONTROLS~~General ~~AND~~and ~~PROCEDURES~~administrative expenses in the third quarter of fiscal 2004 included $1.2 million in professional fees related to the currently proposed Merger to take TROY private and $0.3 million reduction in bad debt expense. General and administrative expenses in the third quarter of fiscal 2003 included $0.5 million in professional fees related to the year-end audit and the previously proposed merger to take TROY private.

~~(a)~~Research ~~Evaluation of disclosure controls~~ and ~~procedures.~~Development We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosureExpenses. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

~~Based~~Research ~~on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer~~ and ~~Chief~~development ~~Financial Officer have concluded that~~expenses, ~~subject~~ torelated ~~the~~percent ~~limitations~~changes ~~noted above, our disclosure controls~~ and ~~procedures~~percent ~~were~~of ~~effective~~total tosales ~~ensure~~are ~~that~~as ~~material information relating to TROY is made known to them by others, particularly during the period in which this Quarterly Report on Form 10-Q was being prepared.~~follows:

(b) Changes in internal controls. There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with the evaluation described in Item 4(a) above that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

	Three months ended August 31,
	(amounts in millions)						Percent of Total Sales
					Percent		August 31,
	2004		2003		Change		2004		2003
Research and development expenses	$	1.1	$	1.3	(9.4	)%	8.7	%	8.6	%

19Research and development expenses decreased in the three months ended August 31, 2004 compared to the three months ended August 31, 2003, primarily due to reduced spending for Secure Payment Systems products. The total research and development expenses for the third quarter of fiscal 2004 included $0.6 million for Secure Payment Systems and $0.5million for Wireless and Connectivity Solutions. We have the ability to redirect our research and development activities as needed based on our product strategies and market opportunities. We forecast and budget research and development expenses by segment, but not by project. The anticipated timing for the commercialization of any of our development efforts is not currently known.

~~PART~~Amortization ~~II: OTHER~~of Intangible Assets. Amortization of intangible assets ~~INFORMATION~~increased by $7,000 to $18,000 in the three months ended August 31, 2004 from $11,000 in the three months ended August 31, 2004.

~~ITEM~~Operating 1Income. As -a ~~LEGAL~~result of the above factors, operating income increased by $0.2 million to ~~PROCEEDINGS~~$0.4 million in the three months ended August 31, 2004 from $0.2 million in the three months ended August 31, 2003. The operating income as a percentage of net sales was 2.7% in the three months ended August 31, 2004 compared to 1.2% in the three months ended August 31, 2003.

OnInterest November 21, 2002, Tom Lloyd filed an action in the Superior Court of the State of California in and for Orange County against TROY and its directors, alleging that the defendants breached their fiduciary duties by attempting to provide the Dirk family with preferential treatment in connection with their efforts to complete a sale of TROY (the “Lloyd Action”)Income. ~~The complaint in the Lloyd Action sought to enjoin an acquisition of TROY by the Dirk family, as well as attorneys’ fees.~~ OnInterest ~~June~~income ~~25,~~was ~~2003~~$39,000 ~~TROY announced that it had reached an agreement~~ in ~~principle to settle~~ the ~~Lloyd~~three ~~Action,~~months ~~subject~~ended toAugust ~~court approval and other conditions~~31, ~~including~~ ~~consummation~~2004 ~~of the proposed merger agreement between TROY~~ and ~~Dirk,~~ ~~Inc.~~$13,000 ain ~~company~~the ~~controlled~~three bymonths ~~Patrick~~ended J.August ~~Dirk and his family members. On September 18~~31, 2003~~, TROY announced that its stockholders had voted against approval of the merger agreement between TROY and Dirk Inc~~. ~~As a result, defendants have asked plaintiff to dismiss the action as moot. Plaintiff has not responded to this request. Discovery has commenced in this action, but no trial date has been set.~~

~~ITEM~~Interest 2Expense. There -was ~~CHANGES~~no INinterest ~~SECURITIES~~expense ~~AND~~in ~~USE~~the OFthree ~~PROCEEDS~~months ended August 31, 2004 compared to $1,000 in the three months ended August 31, 2003, due to the payment of the note payable in fiscal 2003.

~~Not~~Income ~~applicable~~Taxes. Income tax expense was $0.2 million in the three months ended August 31, 2004 compared to $0.1 million in the three months ended August 31, 2003. Income tax expense as a percentage of pretax income was 38.2% in the three months ended August 31, 2004 compared to 40.9% in the three months ended August 31, 2003. The decrease in the effective tax rate in fiscal 2004 compared to fiscal 2003 was primarily due to a higher proportion in fiscal 2003 of foreign source income which has a higher effective tax rate.

~~ITEM 3 - DEFAULTS UPON SENIOR SECURITIES~~17

~~Not~~Nine ~~applicable.~~Months Ended August 31, 2004 Compared to Nine Months Ended August 31, 2003

~~ITEM~~Net ~~4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS~~Sales

ANet ~~Special~~Sales Meeting of Stockholders was held on September 18, 2003, to consider and vote upon a proposal to approve an Agreement and Plan of Merger pursuant to which Dirk, Inc., a newly formed Delaware corporation controlled by ~~Patrick~~product ~~Dirk,~~segment ~~the founder of TROY,~~ and ~~his family~~related ~~members,~~percent ~~would~~changes beare ~~merged with and into TROY. The Merger was subject to~~as follows:

(1) approval by the holders of a majority of the outstanding shares of TROY’s common stock, and

	Nine months ended August 31,
	(amounts in millions)
	2004		2003		Percent Change
Net sales:
Secure Payment Systems	$	29.3	$	31.3	(6.4	)%
Wireless and Connectivity Solutions	11.9		11.2		6.3	%
	$	41.2	$	42.5	(2.9	)%

~~(2) approval~~Net bysales in the ~~holders~~nine months ended August 31, 2004 decreased by $1.3 ofmillion aor ~~majority~~2.9% ofto ~~the~~$41.2million ~~shares~~from of$42.5 ~~TROY’s~~million ~~common~~in ~~stock~~the ~~cast~~nine ~~either~~months ~~“for”~~ended August or31, 2003. The decrease in sales ~~“against”~~was ~~the~~primarily ~~Agreement~~due to a $1.2 million decrease in revenue from MICR printers and supplies ~~Plan~~and ofa ~~Merger~~$0.8 ~~(excluding~~million ~~shares~~decrease ~~beneficially~~in ~~owned~~revenue from StarACH software, both in our Secure Payment Systems segment partially offset by ~~Dirk,~~$0.7 ~~Inc~~million increase in revenue from Wireless and Connectivity print server sales and royalties., ~~the~~The decline ~~Dirk~~in ~~family~~Secure ~~members~~Payment Systems products was primarily due to increased competition and ~~any~~an ~~officers~~overall ordecline ~~directors~~in ofcheck ~~Dirk,~~printing. The increase in Wireless ~~Inc~~and Connectivity was primarily due to large orders received in the first half of 2004. orNet ~~TROY)~~sales were not significantly affected by price changes.

20Gross Profit

~~The~~Gross ~~voting~~profit, ~~results~~related ~~were as~~percent changes and percent of total sales are as follows:

	For		Against		Abstain
	Nine months ended August 31,
(1) Approval by holders of a majority of the outstanding shares	7,761,962		1,488,727		23,425
	(amounts in millions)							Percent of Total Sales
(2) Approval by holders of a majority of the shares cast either “for” or “against,” excluding shares beneficially owned by Dirk, Inc., the Dirk family members and any officers or directors of Dirk, Inc. or TROY.	702,112		1,438,727		N/A
						Percent		August 31,
	2004			2003		Change		2004		2003
Gross profit	$	16.3		$	16.2	0.9	%	39.6	%	38.2	%

~~ITEM~~Gross 5profit -increased ~~OTHER~~in the nine months ended August 31, 2004 from ~~INFORMATION~~the nine months ended August 31, 2003, primarily due to increased sales and margins on Wireless and Connectivity products largely offset by decreased sales of Secure Payment Systems products described above and the impairment charge of $0.3 million related to ACH software (see Note 4). Gross profit on Wireless and Connectivity products in 2003 was reduced by a $0.9 million increase in the inventory reserve. Gross profit as a percent of sales will fluctuate based on shifts in the mix of products sold. Gross profit was not significantly affected by price changes.

~~None~~Selling, General and Administrative Expenses.

~~ITEM~~Selling, 6general -and ~~EXHIBITS~~administrative ~~AND~~expenses, ~~REPORTS~~related ONpercent ~~FORM~~changes and ~~8-K~~percent of total sales are as follows:

(a) Exhibits.

	Nine months ended August 31,
	(amounts in millions)							Percent of Total Sales
					Percent			August 31,
	2004		2003		Change			2004			2003
Selling, general and administrative expenses	$	11.9	$	11.3		5.4	%		28.9	%		26.6	%

Exhibit Number		Description
31.1		Rule 13a-14(a) Certification of Chief Executive Officer.
31.2		Rule 13a-14(a) Certification of Chief Financial Officer.
32.1		Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

The increase in selling, general and administrative expenses was primarily due to increases in professional fees. General and administrative expenses in the nine months of fiscal 2004 included $2.7 million in professional fees related to the 2003 year-end audit, the currently proposed Merger to take TROY private, the deductible portion of our director and officers insurance policy related to the recent litigation regarding the currently proposed Merger described under Legal Proceedings, and the

~~(b) Reports on Form 8-K~~18

Onimplementation ~~July~~of ~~14,~~our ~~2003,~~new ~~the~~ERP ~~Company~~system. General ~~filed~~and aadministrative ~~Current~~expenses ~~Report~~in the onnine ~~Form~~months ~~8-K~~of ~~dated~~fiscal ~~July 11,~~ 2003 ~~under~~included ~~Item 9~~$1.5 ~~regarding~~million ain ~~press~~professional ~~release~~fees ~~announcing its financial~~related ~~results~~to ~~for~~ the ~~second~~year-end ~~quarter~~audit and ~~six~~the ~~months~~previously ~~ended~~proposed ~~May~~merger ~~31,~~to ~~2003~~take TROY private.

OnResearch September 19, 2003, the Company filed a Current Report on Form 8-K dated September 18, 2003 under Item 5. regarding a press release announcing that its stockholders had voted against approval of the merger agreement between the Company and ~~Dirk~~Development ~~Inc~~Expenses., a company controlled by Patrick J. Dirk, the founder of the Company, and his family members, pursuant to which Mr. Dirk and his family members would have acquired the outstanding shares of the Company common stock that they do not already own at a price of $2.76 per share in cash.

21Research and development expenses, related percent changes and percent of total sales are as follows:

SIGNATURES

	Nine months ended August 31,
	(amounts in millions)						Percent of Total Sales
					Percent		August 31,
	2004		2003		Change		2004		2003
Research and development expenses	$	3.5	$	4.0	(12.0	)%	8.4	%	9.3	%

~~Pursuant~~Research toand development expenses decreased in the ~~requirements~~nine ofmonths ended August 31, 2004 compared to the ~~Securities~~nine ~~Exchange~~months ~~Act~~ended ofAugust ~~1934~~31, ~~as amended~~2003, primarily due to reduced spending for Secure Payment Systems products. The total research and development expenses for the ~~registrant~~nine ~~has~~months ~~duly~~of fiscal ~~caused~~2004 ~~this~~included ~~report~~$2.1 million for Secure Payment Systems and $1.4 million for Wireless and Connectivity Solutions. We have the ability to beredirect our ~~signed~~research and development activities as needed based on ~~its~~our ~~behalf~~product strategies and market opportunities. We forecast and budget research and development expenses by segment, but not by project. The anticipated timing for the ~~undersigned~~commercialization ~~thereunto~~of ~~duly~~any ~~authorized~~of our development efforts is not currently known.

	TROY GROUP, INC.
October 10, 2003	/S/ Patrick J. Dirk
	Patrick J. Dirk
	Chairman, President and Chief Executive Officer
	/S/ James W. Klingler
October 10, 2003	James W. Klingler
	Vice President-Finance, Treasurer and Chief Financial Officer

Amortization of Intangible Assets. Amortization of intangible assets increased by $36,000 to $69,000 in the nine months ended August 31, 2004 from $33,000 in the nine months ended August 31, 2004.

22Operating Income. As a result of the above factors, operating income was unchanged at $0.9 million in the nine months ended August 31, 2004 and August 31, 2003. Operating income as a percentage of net sales was unchanged at 2.2% in the nine months ended August 31, 2004 and August 31, 2003.

Interest Income. Interest income increased by $54,000 to $93,000 in the nine months ended August 31, 2004 from $39,000 in the nine months ended August 31, 2003. This increase was the result of increases in our investment in available-for-sale securities.

Interest Expense. Interest expense was $2,000 in the nine months ended August 31, 2004 compared to $9,000 in the nine months ended August 31, 2003, due to the payment of the note payable in fiscal 2003.

Income Taxes. Income tax expense was $0.4 million in the nine months ended August 31, 2004 and August 31, 2003. Income tax expense as a percentage of pretax income was 38.2% in the nine months ended August 31, 2004 compared to 38.7% in the nine months ended August 31, 2003. The decrease in the effective tax rate in fiscal 2004 compared to fiscal 2003 was primarily due to a higher proportion in fiscal 2003 of foreign source income which has a higher effective tax rate.

Liquidity and Capital Resources

Cash flows provided by operating activities were $1.7 million in the nine months ended August 31, 2004 compared to $2.7 million provided by operating activities in the nine months ended August 31, 2003. This decrease in cash flows provided by operating activities was primarily due to a tax refund in 2003. Cash flows provided by operating activities in 2004 included reductions in accounts receivable offset by increases in inventory and decreases in accrued expenses. Cash flows provided by operating activities in fiscal 2003 included income tax refunds, collections of accounts receivable, and increases in accrued expenses partially offset by decreases in accounts payable.

Cash flows provided by investing activities were $0.8 million in the nine months ended August 31, 2004 compared to $0.4 million used in investing activities in the nine months ended August 31, 2003. Cash flows used included capital expenditures of $0.4 million in fiscal 2004 and $0.9 million in fiscal 2003, offset by $1.2 million in maturities of available-for-sale securities during 2004 and $0.5 million in 2003.

Cash flows used in financing activities were $8,000 in the nine months ended August 31, 2004 compared to cash flows used in financing activities of $44,000 in the nine months ended August 31, 2003. The decrease in cash used in financing activities primarily resulted from the payment of the note payable in fiscal 2003,

We have a $5.0 million line-of-credit agreement with Comerica Bank. As of August 31, 2004, 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 (4.50% at August 31, 2004) less 0.25% or the bank’s LIBOR rate (2.00% at August 31, 2004) 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. No formula is required if total liabilities to tangible effective net worth is less than two to one. In connection with the line-of-credit agreement, we have a $650,000 standby letter-of-credit sub-limit, of which approximately $80,000 was outstanding at August 31, 2004. This line of credit is secured by substantially all of our assets. Our borrowing arrangement requires us to comply with certain financial covenants and other restrictions, including our ability to pay dividends and as of August 31, 2004 we were in compliance with those covenants. As of August 31, 2004, we had approximately $4.9 million in availability under the line of credit. The line-of-credit borrowings are due on demand. The agreement may be terminated by either party.

We have completed a commitment letter with Comerica Bank in connection with the proposed Merger described above under Recent Developments. This commitment will increase our current line of credit from $5.0 million to $7.0 million and is subject to customary conditions, including the negotiation, execution and delivery of definitive documentation. As of August 31, 2004 we have not executed definitive documents. Execution of the loan documents is anticipated at or around the effective time of the proposed Merger.

We believe that existing cash balances of $4.2 million, our investments of $6.8 million, 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, which will include capital expenditures of approximately $0.5 million. 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 other forms of financing. We cannot assure you that additional financing, if required, 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 August 31, 2004, TROY had purchased approximately 334,293 shares of common stock in the open market under this stock repurchase program, at an average price of $3.63 per share. In February 2004, TROY retired 331,493 shares purchased under the program. Approximately $2.8 million remains available for future common stock repurchases.

Critical Accounting Policies and Estimates

Application of Critical Accounting Policies

Critical accounting policies are defined as those that are the most important to the accurate portrayal of our financial condition and results of operations. Critical accounting policies require management’s subjective judgment and may produce materially different results under different assumptions and conditions. Our operations are affected by numerous factors including continued demand for printed documents, development and market acceptance of wireless products, changes in technologies and new laws and government regulations and policies. We cannot predict what impact, if any, the occurrence of these or other events might have on our 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, the carrying value and fair value of long-lived and intangible assets and the realizability of deferred tax assets. The following are our critical accounting policies:

Inventories

We value inventories at the lower of cost or market determined on a first-in, first-out basis. We use a standard cost system for purposes of determining cost. The standards are adjusted periodically to ensure they approximate actual costs. We include materials, labor and manufacturing overhead in the cost of inventories. We write down the carrying value of our inventory to market value based upon assumptions about future demand and market conditions. We compare current inventory levels on a product basis to our current sales forecasts in order to assess our inventory balance. Our sales forecasts are based on economic conditions and trends (both current and projected), anticipated customer demand, expected future products and other assumptions. Our estimates may differ from actual results due to the quality, quantity and mix of products in inventory, customer preferences and economic conditions and as a result, additional write-downs may be required.

Capitalization of software development costs

Costs incurred in the research, design and development of software for sale to others as a separate product or embedded in a product and sold as part of the product as a whole are charged to expense until technological feasibility is established. Thereafter, software development costs are capitalized until the products are offered for sale, and amortized to product cost of sales on a straight-line basis over the lesser of five years or the estimated economic lives of the respective products, beginning when the products are offered for sale. At each balance sheet date, we compare the unamortized capitalized costs to the net realizable value of that product. The net realizable value is the estimated future gross revenues from that product reduced by the estimated future costs of completing and disposing of that product, including the costs of performing maintenance and customer support required to satisfy our responsibility set forth at the time of sale. For developed software components of a product or process marketed as an integral part of that product or process and not sold separately, we evaluate net realizable value of that component with the total system. We determine net realizable value considering many of the same factors we use in establishing reserves for estimated obsolete or excess inventory.

Long-lived and other intangible assets

Depreciation and amortization of our long-lived assets is provided using the straight-line method over their estimated useful lives. Changes in circumstances such as the passage of new laws or changes in regulations, technological advances, changes to our business model or changes in the capital strategy could result in the actual useful lives differing from initial estimates. In those cases where we determine that the useful life of a long-lived asset should be revised, we will depreciate the net book value in excess of the estimated residual value over its revised remaining useful life. Factors such as changes in the planned use of equipment, customer attrition, contractual amendments or mandated regulatory requirements could result in shortened useful lives.

For long-lived assets, other than goodwill, Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, requires the evaluation for impairment whenever events or changes in circumstances have indicated that an asset may not be recoverable. Long-lived assets evaluated for impairment are grouped with other assets to the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows (excluding interest charges) is less than the carrying value of the assets, the assets will be written down to the estimated fair value, and the loss recognized in income from continuing operations in the period in which the determination is made. Management has determined that no impairment of long-lived assets existed at November 30, 2003. In the second quarter of fiscal 2004, management evaluated the long-lived intangible assets for impairment using the methodology described in SFAS No. 144, and determined that the asset representing the capitalized software development costs for ACH software was impaired. As a result, the unamortized amount of $284,000 at April 30, 2004 was written off in the second quarter.

Goodwill

We adopted Statement of Financial Accounting Standards (SFAS) No. 142 Goodwill and Other Intangible Assets effective December 1, 2002 and performed our initial transitional impairment test as of that date. The provisions of SFAS No. 142 require that we allocate our goodwill to our various reporting units, determine the carrying value of those businesses, and estimate the fair value of the reporting units so that a two-step goodwill impairment test can be performed. Our reporting units represent components of our operating segments, which are the same as the reportable segments, identified in Note 11. In the first step of the goodwill impairment test, the fair value of each reporting unit is compared to its carrying value. If the fair value exceeds the carrying value, goodwill is not impaired and no further testing is performed. If the carrying value exceeds the fair value, then the second step must be performed, and the implied fair value of the reporting unit’s goodwill must be determined and compared to the carrying value of the goodwill for the reporting unit. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then an impairment loss equal to the difference is recorded. For the year ended November 30, 2003, no impairment loss was recognized. Our annual impairment testing date is the beginning of the fiscal fourth quarter, which is September 1.

Revenue recognition

We recognize revenue from the sale of our check printing equipment and supplies and print servers to end users, distributors, original equipment manufacturers (OEM) and resellers when the price is fixed and determinable, the product is shipped and the title is transferred to the buyer, with economic substance, net of an allowance for estimated returns, as long as no

significant post-delivery obligations exist and collection of the resulting receivable is probable and not contingent on resale of the product. Revenue from equipment maintenance contracts on check printing equipment is recorded as deferred income when billed and is recognized straight-line over the term of the contract. We provide for estimated reserves based upon our historical rates of returns and allowances. Actual returns in any future period are inherently uncertain and thus may differ from our estimates. We accrue for warranty expense at the time revenue is recognized and maintain a warranty accrual for estimated future warranty obligations based upon the relationship between historical and anticipated warranty costs and sales volumes. To the extent we experience increased warranty claim activity or increased costs associated with servicing those claims, our warranty accrual will increase resulting in decreased gross profit.

We recognize revenue from software arrangements of our StarACH™ software in accordance with Statement of Position (“SOP”) 97-2, Software Revenue Recognition as amended by SOP 98-9, Modification of SOP 97-2 with Respect to Certain Transactions. Revenue is recognized when persuasive evidence of an arrangement exists and delivery has occurred, provided the fee is fixed or determinable, collectibility is probable and the arrangement does not require significant customization or modification of the software. For arrangements where the software requires significant customization or modification, we recognize revenue for the software license and consulting services portion of the arrangement using the completed contract method of accounting under SOP 81-1. Contracts are considered complete upon customer acceptance. Maintenance revenue for the StarACH™ software is recognized ratably over the term of the maintenance contract, typically 12 months.

Revenue from software license agreements with OEMs for print servers whereby we provide ongoing support over the term of the contract is recognized when the licensed software is incorporated into the OEMs’ products.

Allowance for doubtful accounts

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. The amount of the reserve is based on historical experience and our analysis of the accounts receivable outstanding. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required which would result in an additional expense in the period such determination was made.

Off-balance sheet financings and liabilities

Other than lease commitments and legal contingencies incurred in the normal course of business, we do not have any off-balance sheet financing arrangements or liabilities. We do not have any majority-owned subsidiaries or any interests in, or relationships with, any material special-purpose entities that are not included in the consolidated financial statements, except for a related party lease arrangement.

Comprehensive Income

Management has determined that the functional currency of its foreign subsidiary located in Canada is the local currency, while the functional currency of its foreign subsidiary located in Germany is the U.S. dollar. Assets and liabilities of our foreign subsidiary whose local currency is the functional currency are translated into U.S. dollars at the period-end exchange rates. Income and expenses are translated at the average exchange rate for the period and the resulting translation adjustments are accumulated as a separate component of stockholders’ equity, which totaled $34,000 and $33,000 at August 31, 2004 and November 30, 2003, respectively. The German subsidiary’s financial statements are remeasured at month-end exchange rates for monetary assets and liabilities, and historical exchange rates for non-monetary assets and liabilities and equity. Income and expenses are translated at the average exchange rate for the period, and translation adjustments are included in income for foreign entities whose functional currency is the U.S. dollar. Foreign currency gains and losses from transactions denominated in other than respective local currencies are included in income.

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 carry forwards 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 it is determined to be more likely than not that some portion or all of the deferred tax assets will not be realized. In evaluating the need for a valuation allowance, we consider future taxable income and prudent and feasible tax planning strategies. We have placed substantial reliance on our current projections of future taxable income. We re-assess our projections of taxable income on a quarterly basis. If it is determined

that we would not be able to realize all or part of our deferred tax assets in the future, which would include our failure to materially meet our projections of taxable income, an adjustment to the carrying value of the deferred tax assets would be charged to income in the period in which such determination was made and may affect our annual effective income tax rate.

We currently believe the deferred tax assets are more likely than not to be realized based on current expectations of future earnings and available tax planning strategies. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Stock-based compensation

As allowed by Statement of Financial Accounting Standards (SFAS) No. 123, we have elected to continue to account for our employee stock-based compensation plan using the intrinsic value method in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations, which does not require compensation to be recorded if the consideration to be received is at least equal to the fair value of the common stock to be received at the measurement date. Non-employee stock-based transactions are accounted for under the requirements of SFAS 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.

Recent Accounting Pronouncements

In May 2003 FASB issued Statement of Financial Accounting Standards (SFAS) No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which requires that certain financial instruments previously presented as equity or temporary equity be presented as liabilities. Such instruments include mandatory redeemable preferred and common stock, and certain options and warrants. SFAS No.150 is effective for financial instruments issued, entered into or modified after May 31, 2003 and is generally effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No.150 is not expected to have a material effect on the Company’s financial position or results of its operations.

In 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51, as revised. Prior to FIN 46, a company generally included another entity in the company’s financial statements only if it controlled the entity through ownership of the majority voting interests. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. We have adopted FIN 46 effective with the quarter ending May 31, 2004, and we have determined that we do not have any variable interest entities that are required to be consolidated in our financial statements.

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, but are not limited to, those set forth below.

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 in large part 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. 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.

Although we have re-engineered certain of our wired connectivity products in a manner that we believe will extend their useful life, there can be no assurance that this will be the case.

Although we have re-engineered certain of our wired connectivity products in a manner that we believe will extend their useful lives, there can be no assurance that this will be the case. Should these changes not extend the useful life of these

products, we anticipate that sales of these products will begin to decline, in which case it would be necessary for us to offset this potential decline through increased sales of other products. There is no assurance that we will be successful in achieving increased sales in other products.

The success of our wireless solutions depends on our ability to develop and introduce on a timely basis new products for existing and emerging wireless communications markets 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 on a timely basis. Due to the intensely competitive nature of the wireless market, any delay in the

commercial availability of new products could materially and adversely affect our business. In addition, if we are unable to develop or obtain access to emerging wireless networking technologies as they become available, or are unable to design, develop and introduce on a timely basis products based on these emerging technologies, our future operating results would be materially and adversely affected. To date, our wireless solutions have not gained market acceptance or had any meaningful commercial impact, and there can be no assurance that our wireless solutions will ever gain market acceptance or have a commercial impact. In addition, there can be no assurance that our wireless 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 secure payment system products and wireless and connectivity products. 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.

We face increased competition in developing and selling secure payment systems as well as our wireless and connectivity solutions. Many of our competitors in this market 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 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, HP, IBM, Novell, and Standard Register. 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 20.0% of our net sales in the nine months ended August 31, 2004 and represented 21.0% of our net sales in the nine months ended August 31, 2003. 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:

• foreign governments may impose tariffs, quotas and taxes;

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

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

• 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. In addition, currency fluctuations could result in transaction or translation gains or losses which could have an effect on our net sales and profits.

Our quarterly operating results fluctuate as a result of many factors.

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

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

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

• the availability and cost of components and materials;

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

• 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 revenues or earnings are below expectations in any quarter, our stock price is likely to drop.

Patrick J. Dirk and his family members beneficially own approximately 67% of our common stock and this concentration of ownership allows them to control all matters requiring stockholder approval, which could delay or prevent a change in control of TROY and limits the trading volume for our shares.

Patrick J. Dirk and his family members beneficially own approximately 67% of our outstanding common stock. As a result, Mr. Dirk and his family members are able to control all matters requiring stockholder approval, including election of directors, and could delay or prevent a change in control of TROY. In addition, because of the significant percentage of outstanding shares beneficially owned by Mr. Dirk and his family members and the fact that they have not historically traded their shares to any significant extent, the trading volume for shares of our common stock has been, and continues to be, limited. As a result, many stockholders may not be able to sell their shares without a significant impact on the market price of our common stock.

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.

The impact of the litigation associated with the Merger and the costs associated with the proposed Merger could have a negative financial impact on TROY.

As described under Legal Proceedings, following the announcement of the proposed Merger, several parties filed purported class action complaints in the California Superior Court for Orange County. If these actions are successful in enjoining the

Merger, or the action is successful in obtaining damages, it could have a material adverse effect on our business, financial position, or results of operation. In addition, the costs associated with defending these actions and completing the Merger could have a negative financial impact on TROY.

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.

ITEM 3. 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 foreign currency transactions and through our bank debt which bears interest at variable rates. We do not hedge our exposure to foreign currency fluctuations. Rather, we monitor our foreign currency exposure on a monthly basis. Principal foreign currencies are the Euro and the Canadian Dollar. The bank debt is a revolving line of credit. Borrowings under the line of credit bear interest at the lesser of the bank’s reference rate (4.50 % at August 31, 2004) less 0.25% or the bank’s LIBOR rate (2.00 % at August 31, 2004) plus 2% and are limited to 80% of eligible accounts receivable and 50% inventory . As of August 31, 2004, 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.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures. We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. In the first quarter of fiscal 2004, we began the implementation of a new ERP system. Although this new ERP system has not yet been fully implemented, we expect that, once fully implemented, it will improve our overall disclosure controls and procedures.

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that, subject to the limitations noted above, our disclosure controls and procedures were effective to ensure that material information relating to TROY is made known to them by others, particularly during the period in which this Quarterly Report on Form 10-Q was being prepared.

(b) Changes in internal controls. There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with the evaluation described in Item 4(a) above that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. In the first fiscal quarter of 2004, we began the implementation of a new ERP system. Although this new ERP system has not yet been fully implemented, we expect that, once fully implemented, it will improve our internal controls over financial reporting.

PART II: OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

In connection with the Prior Merger Proposal, on November 21, 2002, Tom Lloyd filed an action in the Superior Court of the State of California in and for Orange County against TROY and its directors, alleging that defendants breached their fiduciary duties in connection with the Prior Merger Proposal by attempting to provide the Dirk family with preferential treatment in connection with their efforts to complete a sale of TROY. The complaint sought to enjoin an acquisition of TROY by the Dirk family, as well as attorneys’ fees. Following termination of the Prior Merger Proposal, the plaintiff filed a motion for dismissal of the action and award of attorney’s fees and expenses of $387,250. TROY filed a motion in support of the plaintiff’s motion for dismissal of the action and in opposition to plaintiff’s motion for fees. On March 4, 2004 the court issued a ruling granting the motion for dismissal with prejudice, and granting the motion for attorney’s fees of $175,000. On April 30, 2004, TROY filed a notice of appeal. TROY has accrued an estimate of expenses to be incurred in connection with this litigation in fiscal 2003 in excess of the deductible amount, which was recorded as an expense in fiscal 2002.

On September 7, 2004, TROY, Mergerco, and the Dirk Family Trust commenced an action against Westar Capital LLC (“Westar”) in the United States District Court for the Central District of California, for violations of the Williams Act, tortious interference with contract, tortious interference with prospective economic advantage, and unfair business practices. The complaint alleges in this regard that Westar’s purported offers to purchase all of the outstanding stock of TROY are nothing more than shams designed to disrupt the market for TROY common stock and the proposed merger between TROY and Mergerco. The complaint seeks damages of an unspecified amount as well as injunctive relief. Westar has moved to dismiss the complaint, and set a hearing date of October 25.

ITEM 5 - OTHER INFORMATION

As disclosed in our Form 8-K filed June 18, 2004, on June 16, 2004, the Audit Committee of our Board of Directors approved a change in our independent accountants. The Committee selected Corbin & Company LLP to replace BDO Seidman LLP, who resigned effective June 15, 2004.

ITEM 6 - EXHIBITS

Exhibit Number		Description

2.1		First Amendment of the Agreement and Plan of Merger, dated October 5, 2004, by and between TROY Group, Inc. and Dirk, Inc.

31.1		Rule 13a-14(a) Certification of Chief Executive Officer.

31.2		Rule 13a-14(a) Certification of Chief Financial Officer.

32.1		Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	TROY GROUP, INC.


October 15, 2004	/s/ Patrick J. Dirk
	Patrick J. Dirk
	Chairman, President and Chief Executive Officer

October 15, 2004	/s/ Dennis C. Fairchild
	Dennis C. Fairchild
	Senior Vice President and Chief Financial Officer

EXHIBIT INDEX

Exhibit Number		Description of Document

2.1		First Amendmant of the Agreement and Plan of Merger, dated October 5, 2004, by and between TROY Group, Inc. and Dirk, Inc.

31.1		Rule 13a-14(a) Certification of Chief Executive Officer.

31.2		Rule 13a-14(a) Certification of Chief Financial Officer.

32.1		Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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