TROY GROUP INC, S-1/A, 1999-07-20

TROY GROUP INC
S-1/A, 1999-07-20
COMPUTER & OFFICE EQUIPMENT

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 20, 1999

REGISTRATION NO. 333-51523
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------

AMENDMENT NO. 6
TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933
--------------------------

TROY GROUP, INC.

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 3570 33-0807798
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

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

2331 SOUTH PULLMAN STREET
SANTA ANA, CALIFORNIA 92705
(949) 250-3280

(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------------

PATRICK J. DIRK
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
TROY GROUP, INC.
2331 SOUTH PULLMAN STREET
SANTA ANA, CALIFORNIA 92705
(949) 250-3280

(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------

COPIES TO:

<TABLE>
<S> <C>
THOMAS C. THOMAS, ESQ. OBY T. BREWER III, ESQ.
MICHAEL J. KOLAR, ESQ. MICHAEL S. WACHHOLZ, ESQ.
Oppenheimer Wolff & Donnelly LLP Morris, Manning & Martin, L.L.P.
101 Park Center Plaza, Suite 300 1600 Atlanta Financial Center
San Jose, California 95113 3343 Peachtree Road, N.E.
(408) 795-3000 Atlanta, Georgia 30326
(404) 233-7000
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM AMOUNT OF
TITLE OF OF EACH CLASS OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE (1) REGISTRATION FEE
<S> <C> <C>
Common stock, $0.01 par value per share....................... $25,875,000 $7,194
</TABLE>

(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(a).

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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<PAGE>

SUBJECT TO COMPLETION, DATED JULY 20, 1999

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY CHANGE. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES, AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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2,500,000 SHARES

[TROY GROUP, INC. LOGO]

COMMON STOCK
------------

This is an initial public offering of shares of Troy Group, Inc. All of the
2,500,000 shares of common stock are being offered by Troy. We anticipate that
the initial public offering price will be between $7.00 and $9.00 per share.

Prior to this offering, there has been no public market for our common
stock. Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol "TROY."
----------------

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 5.
---------------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
Public offering price................................................... $ $
Underwriting discounts and commissions.................................. $ $
Proceeds, before expenses, to Troy...................................... $ $
</TABLE>

We have granted the underwriters a 30-day option to purchase up to an
additional 375,000 shares of common stock to cover over-allotments.

The underwriters expect to deliver shares on or about , 1999.

[CRUTTENDEN ROTH LOGO]

[PENNSYLVANIA MERCHANT GROUP LOGO]

[H.C. WAINWRIGHT & CO. LOGO]

THE DATE OF THIS PROSPECTUS IS , 1999
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TROY OUTPUT ENHANCEMENT PRODUCTS

Software, firmware, hardware and imaging supplies that enhance the
functionality of standard output devices.

[Schematic diagram showing enhanced functionality of Troy printer]

TROY CONNECTIVITY PRODUCTS

Software, firmware and hardware that enable and improve communications over
networks and the Internet.

[Schematic diagram showing Troy Connectivity Solutions enabling Internet output
to various output devices.]
<PAGE>
PRODUCTS UNDER DEVELOPMENT

TROY INTERNET CHECK

Will enable e-merchants to print a guaranteed check at the merchant's
location instantly over the Internet.

[Schematic diagram showing remote Internet printing of MICR encoded check at
e-merchant]

TROY INTERNET PRINTING SOLUTION

Will enable a user at one location to print at another location over the
Internet regardless of the computing platform or protocol.

[Schematic diagram showing Internet printing connectivity among various output
devices]
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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 12
Dividend Policy........................................................... 12
Capitalization............................................................ 13
Dilution.................................................................. 14
Unaudited Pro Forma Consolidated Statement of Operations.................. 15
Selected Consolidated Financial Data...................................... 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 20
Business.................................................................. 32
Management................................................................ 43
Certain Transactions...................................................... 49
Principal Stockholders.................................................... 51
Description of Capital Stock.............................................. 52
Shares Eligible for Future Sale........................................... 55
Underwriting.............................................................. 56
Legal Matters............................................................. 58
Experts................................................................... 58
Additional Information.................................................... 58
Index to Combined Financial Statements.................................... F-1
</TABLE>

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

THROUGH AND INCLUDING , 1999 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO A DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING
AS AN UNDERWRITER AND WITH RESPECT TO AN UNSOLD ALLOTMENT OR SUBSCRIPTION.
<PAGE>
PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
IT IS NOT COMPLETE AND MAY NOT CONTAIN ALL THE INFORMATION THAT YOU SHOULD
CONSIDER IN INVESTING IN OUR COMMON STOCK. WE ENCOURAGE YOU TO READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING THE SECTION TITLED "RISK FACTORS" AND THE
FINANCIAL STATEMENTS AND THE NOTES TO THOSE FINANCIAL STATEMENTS.

OUR BUSINESS

We are a leading worldwide provider of enterprise output solutions.
Enterprise output solutions are the software, firmware and hardware that allow
computer data to be presented in printed form, and which are designed to meet
the needs of an entire organization rather than a single department or group.
These solutions enable organizations to electronically transmit and output
information across computer networks that allow data from one location to be
shared, used and printed at multiple locations, which are known as distributed
computing environments. Our solutions consist of connectivity and output
enhancement products that are compatible with most operating systems and
protocols. Our connectivity products include software, firmware and hardware
that enable output devices such as printers and fax machines to better
communicate over networks and the Internet. Our output enhancement products
include software, firmware, hardware and imaging supplies that enhance the
functionality of these output devices. Our products and solutions reduce costs,
decrease processing time, enhance data integrity, provide security and allow
companies to facilitate e-commerce and better manage business processes.

Our products have been adopted in a wide variety of industries, including
telecommunications, financial services, computer hardware, automotive, personnel
and others. We have more than 4,300 active customers and have sold our products
in 55 countries. Our customers include companies such as AT&T Corporation,
BankAmerica Corporation, Brother Industries, Eastman Kodak, Farmer's Insurance
Group, Ford Motor Company, IBM, Manpower, State Farm Insurance and Wells Fargo &
Company. We market our products to Fortune 1000 companies through a direct sales
force and to other businesses through our network of distributors and
value-added resellers. Since 1993, we have had a strategic relationship with
Hewlett-Packard, covering development and marketing of our output enhancement
products. This relationship has evolved to include our network and Internet
technology. We also have strategic relationships with ADP, IBM, Standard
Register and Wind River.

OUR MARKET

The emergence and adoption of networks and the Internet is rapidly changing
the way organizations generate and distribute information. Historically, most
business information was created using legacy computer systems, printed and
delivered to users through physical means such as facsimiles, hand deliveries,
inter-office mail and the postal service. Technologies are now available to
effectively distribute information electronically to multiple end users both
within and outside an organization. In addition, many organizations are now
looking for entirely new output solutions that enable information to be
distributed to any number of output devices using the Internet. We believe
traditional information distribution and enterprise output solutions have not
kept pace with these technological advancements and new business requirements.
The lack of common computing platforms, protocols and other standards has
limited an organization's ability to take advantage of these technologies. As a
result, we believe that there is a need for enterprise output solutions that
allow organizations to electronically transmit and output information across
distributed computing environments without regard to protocol.

OUR CONNECTIVITY PRODUCTS

Our network connectivity products include print server firmware and hardware
products and a software-only solution. These products enable an organization to
distribute and output information across distributed computing environments. Our
network connectivity products are recognized worldwide for supporting a large
number of protocols and network operating systems. As a result, they are well
suited for enterprises that have deployed many different kinds of networks,
computers and operating systems over wide geographic areas.

Our current Internet connectivity product, PrintraNet, is a software and
firmware solution that enables a user at one location to print to another
location over the Internet. PrintraNet offers a

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number of advantages, including lower cost and higher quality than fax
transmissions, and eliminates software compatibility issues associated with
e-mail. Our Internet connectivity products under development will be designed to
enable output devices, including currently installed printers manufactured by
Hewlett-Packard, IBM, Lexmark and Xerox, to communicate over the Internet
regardless of the sending device's protocol. In addition, we will provide our
multi-protocol solutions to these and other output device manufacturers and end
users to allow new output devices to communicate over the Internet. We believe
that we will have significant competitive advantages in this market because we
were one of the first to develop Internet printing technology and have extensive
protocol experience.

OUR OUTPUT ENHANCEMENT PRODUCTS

Our output enhancement products include software, firmware, hardware and
imaging supplies that enable standard laser printers to print MICR lines
(magnetic ink characters used on checks and other financial documents),
graphics, barcodes and forms. These products also enable a printer to perform
other functions not offered by most printer manufacturers such as auditing and
status checking, and provide security. Our MICR technology, including
proprietary imaging supplies, has helped us to become a worldwide leader in
financial document printing solutions.

By combining our MICR enhanced distributed output solutions with our
Internet software, we are currently developing technology that will offer the
capability to print a MICR encoded check remotely, including over the Internet.
This check will have all of the same attributes of a traditional check and will
be presented by a merchant through normal banking channels. We believe that this
capability will offer us a significant new growth opportunity due to the rapid
rise in e-commerce and the limited payment methods available to today's
e-commerce consumer. Our integrated solution will allow e-commerce consumers to
pay for goods and services with a check in a similar manner and with comparable
speed and security as is available for credit cards.

OUR BUSINESS STRATEGY

Our objective is to be a leading worldwide provider of enterprise output
solutions. Our strategy for achieving this objective includes:

- Accelerating the development and marketing of our Internet products;

- Introducing and enhancing products through research and development;

- Expanding and seeking new OEM relationships;

- Acquiring related businesses, products or technologies;

- Leveraging strategic alliances; and

- Expanding distribution channels to increase our focus on selling to
mid-size and smaller businesses.

OUR HISTORY AND STRUCTURE

We were originally incorporated in California in 1996 and reincorporated in
Delaware in May 1998. We are the result of various mergers and acquisitions
involving a company originally founded in 1982 by our existing shareholders. In
October 1998, we merged XCD Incorporated, a leading supplier of connectivity
solutions, into our subsidiary, Troy XCD, Inc. As discussed below under "Recent
Development," in May 1999 we acquired the remaining outstanding shares of
Telgate Equipment Corporation, a Canadian software development company now
referred to as Troy Telgate. Today, our subsidiaries include Troy XCD, Troy
Telgate and Troy Systems International, Inc. Our principal executive offices are
located at 2331 South Pullman Street, Santa Ana, California 92705, and our
telephone number at that location is (949) 250-3280. Our trademarks include
TROY-Registered Trademark- and PrintraNet-TM-. Other trademarks, trade names or
service marks used in this prospectus belong to their holders.
------------------------

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF MANY FACTORS, INCLUDING THE
RISKS FACED BY US DESCRIBED UNDER "RISK FACTORS" BEGINNING ON PAGE 5.

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RECENT DEVELOPMENT

On May 8, 1999, we acquired the remaining outstanding shares of Telgate
Equipment Corporation for a net amount of $242,000 in cash and 58,700 shares of
our common stock. Prior to the acquisition, we owned approximately 25% of
Telgate's outstanding stock. This new subsidiary, now referred to as Troy
Telgate, is engaged in developing software that will allow remote printing of a
MICR encoded check over the Internet.

For the nine months ended April 30, 1999, Troy Telgate reported revenue of
$1,015,000 and net income of $72,000 based upon its unaudited financial
information.

THE OFFERING

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<S> <C>
Common stock offered............................ 2,500,000 shares
Common stock to be outstanding after the
offering...................................... 10,230,130 shares
Use of proceeds................................. For working capital and general corporate purposes,
including possible acquisitions, and to repay
indebtedness. See "Use of Proceeds" on page 12.
Proposed Nasdaq National Market symbol.......... TROY
</TABLE>

The table above and, unless otherwise specified, other references to our
outstanding common stock in this prospectus exclude:

- 1,564,298 shares reserved for issuance under our stock option plans, under
which options to acquire 326,957 shares are outstanding at a weighted
average exercise price of $0.42 per share and options to acquire 555,000
shares will be granted upon completion of the offering at an exercise
price equal to the offering price,

- 200,000 shares reserved for issuance under our 1998 Employee Stock
Purchase Plan, which will commence upon completion of the offering,

- up to 350,000 shares issuable upon exercise of outstanding warrants, of
which 250,000 have an exercise price of $3.50 per share, 50,000 have an
exercise price of $7.00 per share and 50,000 that will have an exercise
price equal to the price to the public in this offering, and

- 250,000 shares issuable upon exercise of the representatives' warrants.

See "Management--Stock Option and Incentive Plan" on page 47, "Description
of Capital Stock" on page 52 and "Underwriting" on page 56.

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SUMMARY CONSOLIDATED AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following is a summary of more complete financial information provided
in our pro forma and consolidated financial statements. On October 30, 1998,
Troy and Troy Systems converted from S corporations to C corporations for
federal and state income tax purposes. The pro forma net income and pro forma
diluted net income per share data in this table give effect to the October 30,
1998 conversion by Troy and Troy Systems from S corporations to C corporations
for federal and state income tax purposes and assume that Troy and Troy Systems
were subject to corporate income taxes at an effective combined federal and
state income tax rate of 40.0% for the periods presented. Please see Note 1
beginning on page F-7 in the notes to our consolidated financial statements.

Operating income for the fiscal year ended November 30, 1998 includes a
charge of $857,000 for in-process research and development in connection with
the Troy XCD acquisition. Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" beginning on page 20 and Note 2
beginning on page F-11 in the notes to our consolidated financial statements.

The as adjusted balance sheet data below give effect to the sale of
2,500,000 shares of common stock that we are offering, assuming an initial
public offering price of $8.00 per share and the application of the estimated
net proceeds of this offering. See "Use of Proceeds" on page 12.

<TABLE>
<CAPTION>
MAY 31, 1999
----------------------
ACTUAL AS ADJUSTED
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<S> <C> <C>
BALANCE SHEET DATA:
Cash...................................................................................... $ 42 $ 13,581
Working capital........................................................................... 7,595 23,281
Total assets.............................................................................. 22,420 35,391
Short-term notes payable.................................................................. 1,247 --
Current portion of long-term debt......................................................... 959 59
Long-term debt, net of current portion.................................................... 2,564 367
Stockholders' equity...................................................................... 10,915 28,230
</TABLE>

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RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW
AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE DECIDING TO INVEST IN SHARES
OF OUR COMMON STOCK. IF THE EVENTS DESCRIBED BELOW OCCUR, OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF FUTURE OPERATIONS COULD BE MATERIALLY
ADVERSELY AFFECTED. THIS COULD CAUSE THE TRADING PRICE OF OUR COMMON STOCK TO
DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.

WE HAVE RECENTLY EXPANDED OUR BUSINESS TO OFFER CONNECTIVITY SOLUTIONS AND DO
NOT HAVE EXTENSIVE EXPERIENCE IN DEVELOPING AND MARKETING PRODUCTS FOR THIS
MARKET

Until recently, we focused mainly on developing and selling output
enhancement solutions that enabled businesses to distribute and print financial
documents. In October 1998, we acquired Troy XCD, including its products and
management. Following this acquisition, we expanded our business to offer output
solutions that allow enterprises to distribute and print information across
multi-protocol computing environments both within and outside the organization.
Because this is a recent focus for us, we do not have extensive experience in
this area, and we cannot assure you that we will be successful in developing or
marketing these types of connectivity solutions. In addition, our new focus on
connectivity solutions could cause our historical business to suffer. If we are
not successful in developing or selling connectivity solutions or if our
historical business declines as a result of our efforts in this area, our
business will be materially and adversely affected. See "Business--Industry"
beginning on page 32 and "--Business Strategy" beginning on page 35.

OUR INTERNET OUTPUT SOLUTIONS ARE STILL UNDER DEVELOPMENT AND EVEN IF
SUCCESSFULLY DEVELOPED MAY NOT GAIN MARKET ACCEPTANCE

Our Internet output solutions, including our e-commerce check payment
solution, are still under development, and we cannot assure you that we will be
able to complete these development efforts successfully or on a timely basis. In
addition, we cannot assure you that our Internet output solutions, even if
successfully developed, will be accepted by the marketplace. See
"Business--Industry" beginning on page 32 and "--Products Under Development" on
page 37.

WE FACE RISKS ASSOCIATED WITH OUR STRATEGY OF GROWING THROUGH ACQUISITIONS

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

- we have limited experience in making acquisitions,

- we may not be able to assimilate the acquired products, technologies or
businesses into our ongoing business,

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

- we may find it difficult to retain key employees of the acquired
businesses,

- an acquisition may dilute our stockholders' equity if additional equity
securities are issued, and

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

See "Business--Business Strategy" beginning on page 35.

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MANY OF OUR COMPETITORS HAVE SUBSTANTIALLY GREATER RESOURCES, AND THIS
COMPETITION MAY RESULT IN PRICE REDUCTIONS, LOWER GROSS MARGINS AND LOSS OF
MARKET SHARE

We face significant competition in developing and selling enterprise output
solutions. Many of our competitors 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. Any of these results could reduce our
earnings. See "Business--Competition" beginning on page 40.

OUR GROWTH STRATEGY FOCUSES TO A SIGNIFICANT EXTENT ON OUR INTERNET OUTPUT
SOLUTIONS AND THEREFORE DEPENDS ON THE CONTINUED DEVELOPMENT AND GROWTH OF THE
INTERNET

Our growth strategy depends to a significant extent on developing and
marketing our Internet output solutions. The successful implementation of this
strategy therefore depends on the continued development and growth of the
Internet. Rapid growth in the use of and interest in the Internet is a recent
development, and we cannot be certain that this growth will continue or that a
sufficiently broad base of organizations will use the Internet as a medium to
distribute and print information. The Internet may not prove to be a viable
medium for distributing and printing information for a number of reasons,
including:

- inadequate development of the necessary network infrastructure for
communication, access and server reliability,

- lack of development of complementary products, such as high-speed
communication lines,

- security and confidentiality concerns,

- delays in the development of or adoption of new standards and protocols
required to handle increased levels of Internet activity, and

- increased government regulation.

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

Because we focus on output solutions that allow enterprises to distribute
and print information, our business depends on the continued demand for printed
documents. Demand for these solutions could decline if businesses and
organizations move toward "paperless" environments and reduce their dependence
on printed documents. In addition, our output enhancement solutions are
dependent on the demand for printed financial documents. Demand for printed
financial documents may be reduced as a result of competition from alternate
financial document delivery or payment methods, such as electronic banking,
electronic commerce, on-line services and other electronic media. We cannot
assure you that changes in the business environment or competition from
alternate financial document delivery or payment methods will not significantly
erode the demand for our products and cause our business to suffer. See
"Business--Industry" beginning on page 32 and "--Business Strategy" beginning on
page 35.

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
characterize the market for our current products. Our existing and
development-stage products may easily become obsolete if our competitors
introduce newer or better technologies. To be successful, we must continually

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enhance our existing products and develop and introduce new products. If we fail
to adequately anticipate or respond to technological developments or customer
requirements, or if we are significantly delayed in developing and introducing
products, our business will suffer. See "Business--Business Strategy" beginning
on page 35 and "--Research and Development" beginning on page 39.

A LARGE CUSTOMER ACCOUNTS FOR A MATERIAL PORTION OF OUR SALES AND OUR EARNINGS
WILL SUFFER IF WE LOSE THIS CUSTOMER

For the six months ended May 31, 1999, Cannon IV, Inc., one of our
consumable products resellers, accounted for 10.9% of our net sales. This
reseller also accounted for 17.1% of our net sales for the fiscal year ended
November 30, 1998, and 16.6% of our net sales for the fiscal year ended November
30, 1997. We believe that a significant portion of this reseller's sales are to
a single customer. We also sell products directly to the reseller's customer.
Direct sales to Cannon IV's significant customer were 5.2% of our net sales for
the six months ended May 31, 1999, 6.8% of net sales for the fiscal year ended
November 30, 1998, and 5.7% of net sales for the fiscal year ended November 30,
1997. We cannot assure you that this reseller will continue to buy products from
us, or that we or this reseller will continue to be able to sell our products to
its significant customer. There would be a material adverse effect on our
business if sales to this reseller or direct or indirect sales to its
significant customer decline or cease for any reason. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview" beginning on page 21.

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 ADP, Hewlett-Packard, IBM, Standard Register and Wind
River. These relationships include supply, OEM and marketing 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. See "Business--Strategic Relationships" beginning on page
39.

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 20.5% of our net sales in the six
months ended May 31, 1999. International sales represented 16.2% of sales in
fiscal 1998 and 13.7% of sales in fiscal 1997. 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 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

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would cause our business to suffer. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" beginning on page 20.

PATRICK J. DIRK WILL CONTINUE TO OWN A MAJORITY OF OUR SHARES AND WILL BE ABLE
TO ELECT OUR BOARD AND CONTROL OUR BUSINESS AND OPERATIONS

After the offering, Patrick J. Dirk, our Chairman of the Board, President
and Chief Executive Officer, will beneficially own 5,692,857 shares of common
stock, or 55.6% of the shares of common stock outstanding. As a result, Mr. Dirk
will be able to elect our Board of Directors and control our business and
operations. See "Principal Stockholders" on page 51.

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 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 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 earnings are below
financial analysts' expectations in any quarter, our stock price is likely to
drop. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" beginning on page 20.

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. See "Business--Patents and Proprietary Rights"
beginning on page 41.

WE DEPEND ON OUR EXECUTIVE OFFICERS FOR OUR SUCCESS

We are significantly dependent upon Patrick J. Dirk 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. We do not have
employment or noncompete agreements with any of our executive officers, other
than with Robert S. Messina, our Executive Vice President. See "Management"
beginning on page 43.

COMPLIANCE WITH GOVERNMENT REGULATIONS MAY CAUSE US TO INCUR UNFORESEEN EXPENSES

Our business is 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

8
<PAGE>
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. See "Business--Environmental and Regulatory Matters" beginning on
page 41.

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

From December 1989 to October 30, 1998, Troy and Troy Systems elected S
corporation status under the Internal Revenue Code. Although we believe that
Troy and Troy Systems met the S corporation requirements under the Code during
this period, the IRS has not challenged or made a determination as to our
status. If the IRS determines that Troy or Troy Systems did not meet the Code
requirements for S corporations, we could be liable for unpaid federal and state
income taxes for all or a part of the time that we elected S corporation status,
plus interest and possible penalties. See "Use of Proceeds" beginning on page 12
and "Certain Transactions" beginning on page 49.

OUR MANAGEMENT WILL HAVE BROAD DISCRETION TO USE THE PROCEEDS OF THIS OFFERING

We intend to use the majority of the proceeds of this offering for working
capital and general corporate purposes, including possible acquisitions.
Approximately $4.3 million will be used to repay indebtedness. We have not
identified any more specific uses for the balance. As a result, our management
will have broad discretion to use a significant portion of the net proceeds as
we may determine. See "Use of Proceeds" beginning on page 12.

OUR BUSINESS COULD BE ADVERSELY AFFECTED BY YEAR 2000 COMPLIANCE ISSUES

Many computer systems and applications use two-digit date fields to identify
a given year. The so-called "Year 2000" or "Y2K" problem is the failure of
date-sensitive computing systems and applications to properly recognize and
process dates into and after the year 2000. These problems may cause incorrect
processing of financial and operational information, and could result in
business interruptions. We are currently seeking to identify and remediate our
Year 2000 risk. We have assessed the Year 2000 compliance status of our existing
software and hardware products, as well as our own internal software, hardware
and other non-information technology systems (such as telephones, environmental
systems and others). Based on our assessment, we believe that we have identified
necessary corrective actions to address Year 2000 problems in these areas, and
do not anticipate incurring significant additional costs to achieve Year 2000
compliance. Although we believe that our assessment was appropriate, we cannot
assure you that we have identified all the potential Year 2000 issues in our
products and internal systems. Additionally, while we have evaluated the Year
2000 compliance of our material vendors, distributors and other significant
business partners and believe that they are or will become Year 2000 compliant
on a timely basis, we have no assurance that they will successfully achieve Year
2000 compliance for their products and internal systems. If we or one of our
significant business partners fails to identify and correct all Year 2000
problems, there could be a material adverse effect on our business. Our
customers' Year 2000 issues could also cause them to delay purchases of our
products, which could impact our business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Compliance with Year
2000" beginning on page 27.

A SIGNIFICANT NUMBER OF SHARES ARE OR WILL BECOME AVAILABLE FOR SALE AND THEIR
SALE COULD DEPRESS OUR COMMON STOCK PRICE

Sales of a substantial number of shares of our common stock in the public
market after this offering could adversely affect the market price for our
common stock and make it more difficult for us to sell equity securities at
times and prices that we determine to be appropriate. Of our 10,230,130 shares
of common stock outstanding after the offering, 2,500,000 shares sold in the
offering

9
<PAGE>
are expected to be freely tradable. The remaining 7,730,130 shares will be
restricted shares. All of our existing stockholders have agreed that they will
not, without the prior written consent of Cruttenden Roth Incorporated, directly
or indirectly sell any of these restricted shares for 180 days after the date of
this prospectus. After this lock-up period expires, 1,265,358 of these
restricted shares will be eligible for immediate public sale. Volume limitations
and other conditions of Rule 144 will apply to public sale of the balance of the
restricted shares although certain holders have been granted registration rights
which, if exercised, would cause their shares to be registered and eligible for
immediate sale. Public sales after this offering may include shares issued under
outstanding options and warrants. We also intend to file one or more
Registration Statements on Form S-8 following this offering. Under these
Registration Statements, holders of vested stock options may generally exercise
and immediately sell their shares to the public. See "Shares Eligible for Future
Sale" on page 55.

POSSIBLE ISSUANCES OF PREFERRED STOCK AND ANTI-TAKEOVER PROVISIONS COULD AFFECT
THE PRICE OF OUR COMMON STOCK

Our Certificate of Incorporation authorizes our Board of Directors to issue
up to 5,000,000 shares of Preferred Stock. The Board can fix the rights,
preferences, privileges and restrictions (including voting rights) of shares of
Preferred Stock without stockholder approval. We do not presently intend to
issue shares of Preferred Stock. However, your rights as a holder of common
stock will be subject to, and may be adversely affected by, the rights of any
future Preferred Stock holders. Preferred Stock issuances may also cause
significant dilution in your interests as a stockholder. By issuing Preferred
Stock, we could also make it more difficult for a third party to acquire us.

Our stockholders do not have the right to cumulate their votes to elect
directors. In addition, we are subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law. These provisions, along
with Mr. Dirk's significant voting control and the ability of our Board of
Directors to issue shares of Preferred Stock, could prevent or delay any change
in our control. In turn, this could adversely affect common stock market prices.
See "Description of Capital Stock" beginning on page 52.

THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK, AND TRADING PRICES
OF OUR COMMON STOCK MAY BE VOLATILE

There is currently no public market for our common stock. We cannot assure
you that an active trading market for our common stock will develop, or, if one
develops, that trading will continue. We will establish the initial public
offering price through our negotiations with the representatives of the
underwriters and you should not view the price as any indication of prices that
will prevail in the trading market. The stock market from time to time
experiences significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. These broad market fluctuations
may adversely affect the market price of our common stock. In addition, market
prices for shares of our common stock are likely to be highly volatile. Some
specific factors which may have a significant effect on common stock market
prices include:

- fluctuations in our operating results,

- our announcements or our competitors' announcements of technological
innovations or new products,

- regulatory actions,

- developments regarding patents or proprietary rights, and

- changes in stock market analyst recommendations regarding our common
stock, other comparable companies or the technology industry generally.

See "Underwriting" beginning on page 56.

10
<PAGE>
NEW INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION

The initial public offering price for a share of common stock is
substantially higher than the pro forma net tangible book value per share of
common stock. If you purchase shares of common stock in the offering, you will
incur immediate and substantial dilution. Dilution is an accounting concept that
refers to the difference between what an investor pays for shares of a company
and the book value of the shares immediately after the transaction. Whenever the
book value is less than the investor paid, the investor suffers dilution.
Additional dilution in your shares is likely to occur upon exercise of
outstanding stock options and warrants. See "Dilution" on page 14.

WE DO NOT INTEND TO PAY DIVIDENDS

We intend to use any future earnings to grow our business and do not intend
to pay dividends in the foreseeable future. See "Dividend Policy" on page 12.

11
<PAGE>
USE OF PROCEEDS

The net proceeds to us from the sale of the 2,500,000 shares of common stock
that we are offering are estimated to be approximately $17.3 million after
deducting the underwriting discount and estimated offering expenses. If the
underwriters' over-allotment option is exercised in full, we estimate that net
proceeds will be $20.0 million.

The net proceeds from the offering will be used for working capital and
general corporate purposes, including acquisitions, and to repay indebtedness
under our term loans and revolving line of credit with Comerica Bank-California.
Potential acquisitions could include other technologies, product lines or
businesses that are complementary to our business. As of the date of this
prospectus, we have not designated any other specific use for the net proceeds
of the offering. Accordingly, our management will retain broad discretion in
deciding how to use a substantial portion of the net proceeds of the offering.
We are conducting the offering at this time to ensure that we have sufficient
capital for acquisitions when suitable candidates are identified and to enable
us to more readily use our common stock in acquisitions. See "Business--Business
Strategy" on page 35. Pending the uses described above, we intend to invest the
net proceeds of the offering in short-term, interest-bearing securities. We have
no current arrangements, commitments or understandings to acquire any business.

Our bank term loans had outstanding balances of approximately $397,000 and
$2,700,000 as of May 31, 1999. The first of these term loans bears interest at
the bank's reference rate (7.75% as of May 31, 1999) and matures on November 1,
2000. The second of these term loans bears interest at the bank's reference rate
plus 0.50% and matures on November 1, 2003. Our revolving line of credit had an
outstanding balance of approximately $1,247,000 as of May 31, 1999 and bears
interest at .25% below the bank's reference rate. As of May 31, 1999, the
interest rate on our revolving line of credit was 7.50%. The revolving line of
credit has no expiration date. The proceeds from the term loans and the
revolving line of credit were used for working capital and to fund the Troy XCD
and Troy Telgate acquisitions.

DIVIDEND POLICY

Following the completion of the offering, our Board of Directors intends to
retain our earnings, if any, to support our operations and to finance expansion,
and does not intend to declare or pay cash dividends on the common stock in the
foreseeable future. Any dividends will be at the discretion of the Board of
Directors and will depend on our financial condition, results of operations,
capital requirements and such other factors as our Board of Directors may deem
relevant. In addition, our current revolving credit facility prohibits us from
paying cash dividends except for distributions for tax payments and pro rata
adjustments thereto.

12
<PAGE>
CAPITALIZATION

The following table sets forth our capitalization and short-term notes
payable as of May 31, 1999, and as adjusted to give effect to the sale of
2,500,000 shares of common stock that we are offering, assuming an initial
public offering price of $8.00 per share and the application of the estimated
net proceeds of this offering. This table should be read in conjunction with our
consolidated financial statements and related notes appearing elsewhere in this
prospectus. See "Use of Proceeds" on page 12 and "Description of Capital Stock"
beginning on page 52.

<TABLE>
<CAPTION>
MAY 31, 1999
----------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
(IN THOUSANDS)
Short-term notes payable.................................................................. $ 1,247 $ --
--------- -----------
--------- -----------
Current portion of long-term debt......................................................... $ 959 $ 59
--------- -----------
--------- -----------
Long-term debt, net of current portion.................................................... $ 2,564 $ 367

Stockholders' equity:
Preferred stock, $0.01 par value per share, 5,000,000 shares authorized; no shares
issued and outstanding................................................................ -- --
Common stock, $0.01 par value per share, 50,000,000 shares authorized; 7,730,130 shares
issued and outstanding, actual; 10,230,130 shares issued and outstanding, as
adjusted.............................................................................. 77 102
Additional paid-in capital.............................................................. 2,349 19,639
Retained earnings....................................................................... 8,489 8,489
--------- -----------

Total stockholders' equity............................................................ 10,915 28,230
--------- -----------
Total capitalization.............................................................. $ 13,479 $ 28,597
--------- -----------
--------- -----------
</TABLE>

13
<PAGE>
DILUTION

Our net tangible book value as of May 31, 1999 was approximately $7.3
million or $0.94 per share. Net tangible book value per share represents our
total tangible assets less our total liabilities, divided by the number of
shares of our common stock outstanding.

After giving effect to the sale of the shares of common stock that we are
offering and after deducting underwriting discounts, commissions and estimated
offering expenses, and without taking into account any other changes in our net
tangible book value after May 31, 1999, our net tangible book value as of May
31, 1999 would have been approximately $25.2 million, or $2.46 per share. This
represents an immediate increase in net tangible book value of $1.52 per share
to our existing stockholders and an immediate dilution in net tangible book
value of $5.54 per share to new investors in this offering. Dilution is an
accounting concept that refers to the difference between what an investor pays
for shares of a company and the book value of the shares immediately after the
transaction. Whenever the book value is less than the investor paid, the
investor suffers dilution. The dilution to investors in the offering is as
illustrated in the following table:

<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share....................................... $ 8.00
Net tangible book value per share as of May 31, 1999................................ $ 0.94
Increase per share attributable to new investors in this offering................... 1.52
---------
Adjusted net tangible book value per share after the offering(1)...................... 2.46
---------
Dilution per share to new investors................................................... $ 5.54
---------
---------
</TABLE>

The following table summarizes, as of May 31, 1999, the number of shares of
common stock purchased from us by existing stockholders and by new investors in
the offering, the total consideration reflected in our accounts and the average
price paid per share. The table assumes an initial public offering price of
$8.00 per share and that no shares are purchased in the offering by existing
stockholders. To the extent existing stockholders purchase shares in the
offering, their percentage ownership, total consideration and average
consideration per share will be greater than is shown.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............................. 7,730,130 75.6% $ 1,933,000 8.8% $ 0.25
New investors...................................... 2,500,000 24.4 20,000,000 91.2 8.00
------------ ----- ------------- -----
Totals........................................... 10,230,130 100.0% $ 21,933,000 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>

14
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

The following unaudited pro forma consolidated statement of operations is
presented to give effect to the October 30, 1998 acquisition of Troy XCD as if
the acquisition had been completed on December 1, 1997. Our historical statement
of operations data are derived from our audited consolidated financial
statements for the year ended November 30, 1998 included elsewhere in this
prospectus, and reflect

- a pro forma adjustment for income taxes on S corporation income; and

- one month of operations of Troy XCD from the date of acquisition, October
30, 1998 to November 30, 1998.

The historical statement of operations data of Troy XCD includes eleven
months of operations consisting of the audited results of operations of Troy XCD
for the nine months ended September 30, 1998, (for which financial statements
are included elsewhere in this prospectus) and the unaudited results of
operations from December 1, 1997 to December 31, 1997 and from October 1, 1998
to October 30, 1998. The pro forma condensed consolidated statement of
operations does not necessarily indicate the results of operations which would
have occurred had the acquisition been completed at such time, nor does it
necessarily indicate future results that may be expected. The unaudited pro
forma condensed consolidated statements of operations should be read in
conjunction with our historical consolidated financial statements and those of
Troy XCD, including the notes thereto, that are included elsewhere in this
prospectus.

15
<PAGE>
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1998

<TABLE>
<CAPTION>
HISTORICAL
---------------------------- PRO FORMA
TROY GROUP, TROY XCD, ----------------------------
INC. INC. ADJUSTMENTS COMBINED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales......................................... $ 35,758,000 $ 5,070,000 $ -- $ 40,828,000
Cost of goods sold................................ 21,496,000 3,352,000 -- 24,848,000
------------- ------------- ------------- -------------
Gross profit................................ 14,262,000 1,718,000 -- 15,980,000
Operating expenses................................ 9,797,000 3,170,000 (571,000 (1) 12,396,000
------------- ------------- ------------- -------------
Operating income (loss)..................... 4,465,000 (1,452,000) 571,000 3,584,000
Interest expense.................................. 101,000 164,000 120,000(2) 385,000
------------- ------------- ------------- -------------
Income (loss) before income taxes........... 4,364,000 (1,616,000) 451,000 3,199,000
Pro forma provision for income taxes.............. 1,993,000 (596,000) (143,000 (3) 1,254,000
------------- ------------- ------------- -------------
Net income (loss)........................... $ 2,371,000 $ (1,020,000) $ 594,000 $ 1,945,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income per share:
Basic......................................... $ 0.32 $ 0.25
------------- -------------
------------- -------------
Diluted....................................... $ 0.31 $ 0.25
------------- -------------
------------- -------------
Weighted-average shares outstanding:
Basic......................................... 7,514,000 157,000(4) 7,671,000
------------- ------------- -------------
------------- ------------- -------------
Diluted....................................... 7,745,000 171,000(4) 7,916,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

NOTE TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
GENERAL

On October 30, 1998, the Company completed the acquisition of Troy XCD in a
transaction that has been accounted for as a purchase. The cost of the
acquisition (including closing costs) was funded through bank borrowings and the
issuance of common stock.

Troy XCD operations for the one month period ended October 30, 1998 includes
a deferred compensation charge of $1,250,000. This amount was included in the
liabilities of Troy XCD assumed by us and was, or will be, paid subsequent to
October 30, 1998.

Pro forma condensed consolidated statement of operations adjustments:

(1) Amortization with respect to intangibles acquired in the acquisition of
Troy XCD, net of adjustment for in process research and development
expense of $857,000 that is not a recurring cost. The following lists the
acquired intangible assets of Troy XCD and their cost and estimated
lives:

<TABLE>
<CAPTION>
INTANGIBLE ASSET COST LIFE
- ---------------------------------------------------- ---------- ---------
<S> <C> <C>
Customer list....................................... $ 100,000 5 years
Core technology..................................... 953,000 7 years
Assembled workforce................................. 150,000 5 years
Goodwill............................................ 863,000 7 years
</TABLE>

(2) Increase in interest expense resulting from the financing of Troy XCD
acquisition. This amount is based upon an assumed increase in our bank
borrowings of $1,638,000, equal to the cash purchase price of Troy XCD,
and using our 1998 weighted average bank interest rate of

16
<PAGE>
7.875%. Our borrowings bear interest at a variable rate based upon the
reference rate per annum announced by our bank. Based upon the debt
incurred in connection with this acquisition, a 1/8% increase in the
interest rates would cause the annual interest expense to increase by
approximately $2,000.

(3) Adjustment to provision for income taxes to reflect the tax benefit of
other intangibles amortization and interest expense at 40%.

(4) Adjustment to reflect the weighted average number of shares of common
stock and the dilutive effect of stock warrants issued in connection with
the acquisition for the full fiscal year.

17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The consolidated data presented below as of and for the fiscal years ended
November 30, 1996, 1997 and 1998 are derived from our audited consolidated
financial statements, included elsewhere in this prospectus. The consolidated
financial data as of and for the fiscal years ended November 30, 1994 and 1995
are derived from our audited consolidated financial statements which are not
included in this prospectus. The consolidated financial data as of and for the
six months ended May 31, 1998 and 1999 are derived from our unaudited
consolidated financial statements included elsewhere in this prospectus. Such
unaudited consolidated financial statements have been prepared by us on a basis
consistent with our annual audited consolidated financial statements and, in the
opinion of our management, contain all normal recurring adjustments necessary
for a fair presentation of the consolidated financial position and the results
of operations for the applicable periods. Operating results in the six months
ended May 31, 1999 are not necessarily indicative of the results that may be
expected in the entire fiscal year ending November 30, 1999 or any subsequent
period. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 20, our consolidated financial statements and
related notes beginning on page F-1 and other financial information included
elsewhere in this prospectus.

Pro forma net income and pro forma diluted net income per share data give
effect to the October 30, 1998 conversion by Troy and Troy Systems from S
corporations to C corporations for federal and state income tax purposes and
assume that Troy and Troy Systems were subject to corporate income taxes at an
effective combined federal and state income tax rate of 40.0%. See Note 1
beginning on page F-7 in the notes to our consolidated financial statements.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED NOVEMBER 30, MAY 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
Net sales......................................... $ 17,583 $ 21,477 $ 28,161 $ 33,434 $ 35,758 $ 18,322 $ 23,466
Cost of goods sold................................ 10,566 13,560 17,408 19,597 21,496 10,756 14,167
--------- --------- --------- --------- --------- --------- ---------
Gross profit...................................... 7,017 7,917 10,753 13,837 14,262 7,566 9,299
Selling, general and administrative expenses...... 5,058 5,594 5,234 6,622 6,394 3,424 4,036
Research and development expenses................. 1,378 1,748 2,041 2,521 2,546 1,228 1,742
Purchased in process research and development..... -- -- -- -- 857 -- --
--------- --------- --------- --------- --------- --------- ---------
Operating income.................................. 581 575 3,478 4,694 4,465 2,914 3,521
Interest expense.................................. 217 342 361 262 101 69 162
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes (credit)............... 364 233 3,117 4,432 4,364 2,845 3,359
Provision for income taxes (credit)............... 37 (80) 50 35 (70) 43 1,334
--------- --------- --------- --------- --------- --------- ---------
Net income........................................ $ 327 $ 313 $ 3,067 $ 4,397 $ 4,434 $ 2,802 $ 2,025
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma provision for income taxes.............. $ 146 $ 93 $ 1,247 $ 1,773 $ 1,993 $ 1,138
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Pro forma net income.............................. $ 218 $ 140 $ 1,870 $ 2,659 $ 2,371 $ 1,707
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Pro forma diluted net income per share............ $ 0.03 $ 0.02 $ 0.25 $ 0.34 $ 0.31 $ 0.22 $ 0.25
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted-average diluted shares outstanding....... 7,500 7,500 7,500 7,759 7,745 7,807 8,020
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>

18
<PAGE>

<TABLE>
<CAPTION>
NOVEMBER 30, MAY 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash....................................... $ -- $ -- $ 42 $ 100 $ 308 $ 40 $ 42
Working capital............................ 955 1,426 3,910 5,173 5,806 5,951 7,595
Total assets............................... 8,312 9,597 11,324 11,749 18,918 13,480 22,420
Short terms notes payble................... 1,000 1,880 1,612 -- 1,190 615 1,247
Current portion of long-term debt.......... 1,305 990 688 754 959 402 959
Long-term debt, net of current portion..... 1,183 2,067 1,521 1,280 2,374 771 2,564
Stockholders' equity....................... 865 1,153 4,102 5,948 8,265 7,252 10,915
</TABLE>

19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidated
financial statements and related notes appearing elsewhere in this prospectus.
The following discussion and other parts of this prospectus contain
forward-looking information that involves risks and uncertainties. Our actual
results could differ materially from those anticipated by forward-looking
information due to many factors, including those set forth under "Risk Factors"
beginning on page 5 and elsewhere in this prospectus.

BACKGROUND

We are a leading worldwide provider of enterprise output solutions that
enable organizations to electronically transmit and output information across
distributed computing environments. Our products consist of connectivity and
output enhancement solutions that work with many operating systems and
protocols. We were originally incorporated in California in 1996 and were
reincorporated in Delaware in May 1998. We are the result of various mergers and
acquisitions involving a company originally founded in 1982 by the existing
shareholders. In October 1998, we acquired Troy XCD, a leading supplier of
connectivity solutions. In May, 1999, we acquired Troy Telgate, a Canadian
software development company.

Prior to the offering, Troy and Troy Systems elected to be treated for
federal and state income tax purposes as S corporations, except that Troy
Systems elected to be taxed as a C corporation under California income tax laws.
On October 30, 1998, Troy and Troy Systems terminated their S corporation
elections. The statements of operations data for all periods prior to October
30, 1998 include a pro forma provision for federal and state income taxes as if
we were subject to federal and state corporate income taxes for all such
periods. This pro forma provision is computed using an effective combined
federal and state income tax rate of 40.0%. See Note 1 in the notes to our
consolidated financial statements.

Effective October 1, 1997, as amended through June 8, 1999, we issued
warrants to a consultant to purchase up to 250,000 shares of our common stock.
The warrants vest upon the occurrence of two separate performance conditions.
Warrants to purchase 50,000 shares will vest when we complete this offering with
the remainder vesting on completion of certain acquisitions. The exercise price
of the 50,000 warrants vesting upon completion of this offering will equal the
offering price. The exercise price for the 200,000 warrants vesting upon certain
acquisitions is set at $3.50 per share. The effect of the warrants will be
recorded as the performance conditions are met at the then current fair value of
the warrants vested. The warrants expire five years after vesting. In connection
with the acquisition of Troy XCD, 50,000 of these warrants vested under the
acquisition criteria. As a result, we recorded $210,000 for these warrants as
part of the purchase price of Troy XCD. Another 50,000 of these warrants vested
on May 8, 1999 in connection with the Troy Telgate acquisition. We recorded
$214,000 for these warrants as part of the purchase price in that transaction.
Amounts recorded in connection with the vesting of the remaining warrants to
purchase 100,000 shares could materially impact our financial statements.

On October 30, 1998 in connection with the purchase of Troy XCD, we issued
warrants to another consultant to purchase 50,000 shares of common stock at
$7.00 per share and recorded another purchase price adjustment of $69,000 for
that transaction. The warrants were exercisable immediately when issued and
expire five years after the October 30, 1998 grant date.

For legal services being provided in connection with this offering, in May
1998 we issued a warrant to purchase up to 50,000 shares of our common stock at
$3.50 per share. This warrant was amended in June 1999 to make it immediately
exercisable. The effect of this warrant was recorded in June 1999 at the then
current fair value when the warrant was amended and became vested. See
"Description of

20
<PAGE>
Capital Stock--Warrants" on page 53 and Note 9 beginning on page F-15 in the
notes to our consolidated financial statements included elsewhere in this
prospectus.

OVERVIEW

Net sales are generated from the sale of our connectivity and output
enhancement products and services. We recognize revenue from the sale of our
products when the goods are shipped to the customer and we recognize service
revenue over the period of the contract on a straight-line basis. In the six
months ended May 31, 1999 and the fiscal years ended November 30, 1998 and 1997,
a reseller of our imaging supplies, Cannon IV Inc., accounted for 10.9%, 17.1%
and 16.6%, respectively, of our net sales, of which we believe a significant
portion was sold to a single customer. We also sell our products directly to
this reseller's significant customer. Direct sales to Cannon IV's significant
customer were 5.2%, 6.8% and 5.7% of our net sales for the six months ended May
31, 1999, the fiscal year ended November 30, 1998 and the fiscal year ended
November 30, 1997, respectively. We do not have a written or oral contract with
Cannon IV or its significant customer. All sales are made through purchase
orders.

Cost of goods sold includes direct material and labor, warranty expenses,
license fees and manufacturing and service overhead. Inventories are stated at
the lower of cost (first-in, first-out) or market. Equipment is depreciated
using the straight-line method over the estimated useful life of the equipment.
Improvements to leased property are amortized over the lesser of the life of the
lease or the life of the improvements.

Selling, general and administrative expenses include the costs of the sales,
marketing and customer support staffs, other marketing expenses, management and
administrative personnel costs, professional services, legal and accounting fees
and administrative operating costs. We expense all of these costs when incurred.

Research and development expenses include costs associated with the
development of new products and significant enhancements of existing products,
and consist primarily of employee salaries, benefits and consulting expenses. We
expense research and development costs as they are incurred.

21
<PAGE>
RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR
ENDED NOVEMBER 30, MAY 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales.......................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................................. 61.8 58.6 60.1 58.7 60.4
--------- --------- --------- --------- ---------
Gross profit....................................................... 38.2 41.4 39.9 41.3 39.6
Selling, general and administrative expenses....................... 18.6 19.8 17.9 18.7 17.2
Research and development expenses.................................. 7.2 7.5 7.1 6.7 7.4
Purchased in process research and development...................... -- -- 2.4 -- --
--------- --------- --------- --------- ---------
Operating income................................................... 12.4 14.1 12.5 15.9 15.0
Interest expense................................................... 1.3 0.8 .3 0.4 0.7
--------- --------- --------- --------- ---------
Income before income taxes (credit)................................ 11.1 13.3 12.2 15.5 14.3
Provision for income taxes (credit)................................ 0.2 0.1 (.2) 0.2 5.7
--------- --------- --------- --------- ---------
Net income......................................................... 10.9% 13.2% 12.4% 15.3% 8.6%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma provision for income taxes............................... 4.4% 5.3% 5.6% 6.2%
--------- --------- --------- ---------
--------- --------- --------- ---------
Pro forma net income............................................... 6.7% 8.0% 6.6% 9.3%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

SIX MONTHS ENDED MAY 31, 1999 COMPARED TO SIX MONTHS ENDED MAY 31, 1998

NET SALES. Our net sales were $23.5 million for the six months ended May
31, 1999, with $19.3 million attributable to output enhancement products and
$4.2 million attributable to connectivity products. This represented an increase
in net sales of $5.1 million or 28.1% from $18.3 million in the six months ended
May 31, 1998. This increase was due primarily to an increase of $4.2 million in
sales of print server software, firmware and hardware as a result of the Troy
XCD and Troy Telgate acquisitions, an increase of $1.3 million in sales of our
proprietary imaging supplies and services and an increase of $496,000 in sales
of our laser printers. This increase was offset by a $838,000 decrease in sales
of our impact printers. We believe that impact printer sales will decline in
future periods because of continuing increases in print quality and speed and
continuing reductions in prices of non-impact printers. Net sales were not
significantly affected by price changes.

COST OF GOODS SOLD. Cost of goods sold increased by $3.4 million or 31.7%
to $14.2 million in the six months ended May 31, 1999 from $10.8 million in the
six months ended May 31, 1998. This increase was primarily due to increased net
sales. Cost of goods sold as a percentage of net sales increased to 60.4% in the
first six months of 1999 from 58.7% in the first six months of 1998.

GROSS PROFIT. As a result of the above factors, gross profit increased by
$1.7 million or 22.9% to $9.3 million in the six months ended May 31, 1999 from
$7.6 million in the six months ended May 31, 1998. Gross profit as a percentage
of net sales decreased to 39.6% in the first six months of 1999 from 41.3% in
the first six months of 1998.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $612,000 or 17.9% to $4.0 million in the
six months ended May 31, 1999 from $3.4 million in the six months ended May 31,
1998. Of this increase, $724,000 was due to the acquisitions of Troy XCD and
Troy Telgate, partially offset by reduced compensation for sales, marketing and
management

22
<PAGE>
personnel and sales commissions. Selling, general and administrative expenses as
a percentage of net sales decreased to 17.2% in the first six months of 1999
from 18.7% in the first six months of 1998.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by $514,000 or 41.9% to $1.7 million in the six months ended May 31,
1999 from $1.2 million in the six months ended May 31, 1998. Of this increase,
$408,000 was due to the acquisitions of Troy XCD and Troy Telgate. Research and
development expenses as a percentage of net sales increased to 7.4% in the first
six months of 1999 from 6.7% in the first six months of 1998.

OPERATING INCOME. As a result of the above factors, operating income
increased by $607,000 or 20.8% to $3.5 million in the six months ended May 31,
1999 from $2.9 million in the six months ended May 31, 1998. Operating income as
a percentage of net sales decreased to 15.0% in the first six months of 1999
from 15.9% in the first six months of 1998.

INTEREST EXPENSE. Interest expense increased by $93,000 to $162,000 in the
six months ended May 31, 1999 from $69,000 in the six months ended May 31, 1998.
This increase was due to increased borrowings under our line of credit and term
debt.

INCOME TAXES. Income taxes increased to $1.3 million in the six months
ended May 31, 1999 from $43,000 in the six months ended May 31, 1998. This
increase resulted when Troy and Troy Systems terminated their S corporation tax
elections as of October 30, 1998 and were thereafter taxed as C corporations.
After giving effect to the pro forma adjustments, income taxes as a percentage
of pretax income was 40% for both periods.

FISCAL YEAR ENDED NOVEMBER 30, 1998 COMPARED TO FISCAL YEAR ENDED NOVEMBER 30,
1997

NET SALES. Net sales were $35.8 million for the fiscal year ended November
30, 1998. Net sales of output enhancement products were $35.4 million. Net sales
of connectivity products for the period were $352,000 as of the result of the
October 30, 1998 acquisition of Troy XCD. Net sales increased by $2.3 million or
7.0% from $33.4 million in the fiscal year ended November 30, 1997. This
increase was due primarily to a $2.5 million increase in sales of our laser
printers, a $1.9 million increase in sales of our proprietary imaging supplies,
and to a lesser extent to an $800,000 increase in sales of our services and
print server software, firmware and hardware. These increases were partially
offset by a $2.8 million decrease in sales of our impact printers. Net sales
were not significantly effected by price changes.

COST OF GOODS SOLD. Cost of goods sold increased by $1.9 million or 9.7% to
$21.5 million in the fiscal year ended November 30, 1998 from $19.6 million in
the fiscal year ended November 30, 1997. This increase was primarily due to
increased net sales. Cost of goods sold as a percentage of net sales increased
to 60.1% in fiscal 1998 from 58.6% in fiscal 1997.

GROSS PROFIT. As a result of the above factors, gross profit increased by
$425,000 or 3.1% to $14.3 million in the fiscal year ended November 30, 1998
from $13.8 million in the fiscal year ended November 30, 1997. This increase was
primarily due to increased net sales partially offset by the effect of the
decline in sales of our impact printers which yielded a higher gross margin.
Gross profit as a percentage of net sales decreased to 39.9% in fiscal 1998 from
41.4% in fiscal 1998.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased by $228,000 or 3.4% to $6.4 million in the
fiscal year ended November 30, 1998 from $6.6 million in the fiscal year ended
November 30, 1997. Selling, general and administrative expenses as a percentage
of net sales decreased to 17.9% in fiscal 1998 from 19.8% in fiscal 1997. This
decrease was due primarily to renovation costs incurred during 1997.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by $25,000 or 1.0% to $2.5 million in the fiscal year ended November
30, 1998 from $2.5 million in the fiscal year

23
<PAGE>
ended November 30, 1997. Research and development expenses as a percentage of
net sales decreased to 7.1% in fiscal 1998 from 7.5% in fiscal 1997.

PURCHASED IN PROCESS RESEARCH AND DEVELOPMENT. During the fourth quarter of
1998, we incurred a one time charge associated with the acquisition of Troy XCD
of $857,000. This charge was to expense purchased in process research and
development that had not reached technological feasibility and had no
alternative future uses.

Troy XCD's network connectivity products include print server firmware,
hardware and a software-only solution. These products enable computer systems to
distribute and output information across distributed computing environments.
Troy XCD's network connectivity products are recognized worldwide for supporting
a large number of protocols and network operating systems. As a result, they are
well suited for enterprises that have deployed many different kinds of networks,
computers and operating systems over wide geographic areas.

Troy XCD's current Internet connectivity product, PrintraNet, is a software
and firmware solution that enables a user at one location to print to another
location over the Internet. PrintraNet offers a number of advantages, including
lower cost and higher quality than fax transmissions, and eliminates sofware
compatibility issues associated with e-mail. Troy XCD's Internet connectivity
products under development will be designed to enable output devices, including
currently installed printers manufactured by Hewlett-Packard, IBM, Lexmark and
Xerox, to communicate over the Internet regardless of the sending device's
protocol. In addition, Troy XCD will provide multi-protocol solutions to these
and other output device manufacturers and end users to allow new output devices
to communicate over the Internet. We believe that Troy XCD will have significant
competitive advantages in this market because they were one of the first to
develop Internet printing technology and have extensive protocol experience.

On October 30, 1998, Troy XCD had 16 in-process research and development
projects. These projects included the development of hardware, software and
firmware for interface cards, print servers and remote Internet printing. We
valued each of these projects using an income approach methodology. A number of
factors were used to determine value including the assignment of probability to
the projected product revenue streams, estimated gross margin contributions and
estimated stage of completion. Of these 16 projects, four accounted for over 95%
of the value assigned to the in-process research and development. A summary of
these projects is as follows:

<TABLE>
<CAPTION>
IN-PROCESS
ESTIMATED ANTICIPATED RESEARCH AND
COSTS COST TO COMPLETION DEVELOPMENT
PROJECT NO. NATURE INCURRED COMPLETE DATE VALUE
- ----------------- --------------------------------------------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1 Ethernet interface card...................... $ 143,000 $ 13,000 Dec. 1998 $ 453,000
2 Print server hardware and firmware........... 26,000 9,000 March 1999 254,000
3 Data products firmware....................... 53,000 31,000 Sept. 1999 63,000
4 Internet firmware and software............... 90,000 130,000 Dec. 1999 66,000
5 Others, twelve projects...................... Various Various Various 21,000
-------------
$ 857,000
-------------
-------------
</TABLE>

In-process research and development projects are time consuming and
difficult to complete. As of the acquisition date, the estimated remaining costs
to bring the projects under development to technological feasibility were
approximately $400,000. These outlays are expected to occur over a period of
approximately thirteen months following the acquisition. There is substantial
risk associated with the completion of each project, and there is no assurance
that each research and development project will yield either technological
functionality or commercial success. Furthermore, as is common to research and
development efforts, Troy XCD has previously experienced developmental setbacks
where the time

24
<PAGE>
required to fully develop critical technology driven steps and to complete
reliability testing have been underestimated. If the research and development
projects are not completed as planned, they will neither satisfy the
technological requirements of a rapidly changing market nor be cost effective.

The following is a description of the significant research and development
projects that were under development at the acquisition date:

PROJECT NUMBER 1. Troy XCD was in the process of developing an Ethernet
interface card with features including graphical interface, custom e-mail filter
for Internet printing and multi-language management utility support. Troy XCD
was completing the graphical interface and debugging the Ethernet interface
card. Once completed, various regulatory approvals will be required.

PROJECT NUMBER 2. Troy XCD was in the process of developing print server
hardware and firmware for a Hewlett-Packard family of EIO printers which will
support DEC LAT and Banyan VINES protocols. The design, layout and testing of
the printed circuit board needed to be completed.

PROJECT NUMBER 3. Troy XCD was in the process of developing modification
features for project number 1, the Ethernet interface card, including specific
virtual printer functions and status commands, pass-through functions for
control files and programming via the PCI bus. This product was at an untested
prototype stage.

PROJECT NUMBER 4. Troy XCD was in the process of developing firmware and
software that would allow remote Internet printing with increased levels of
print quality and color. Troy XCD was in the process of developing new security
and printing protocols.

As noted above, the projects in development as of the acquisition date are
expected to reach technological feasibility over the thirteen-month period
subsequent to that date. Cash flows from the sale of products incorporating
these technologies are expected to commence in fiscal 1999 and are forecasted
using a product life cycle approach. The low end of the range of estimated
future revenues was used to project future cash flows.

In estimating gross margins, we considered historical gross margin levels,
budgeted gross margin levels and estimated margins of unique projects. The
margins reflect historical experience and are expected to diminish over the
product life cycle. Future selling, general and administrative expense
expectations also reflect historical experience, adjusted to reflect the
specific economics of each project. Research and development costs were included
in the valuation of the in-process research and development projects based upon
the estimated project completion costs and historical experience.

The expected operating margins for the in-process research and development
were reduced for charges for working capital employed and core technology
charges. The core technology charges represent an implied royalty charge that
quantifies the cost to the in-process technology for its utilization of the
developed or "core" technology.

In addition to contributory asset and core technology assessments, the
in-process research and development cash flow assumptions explicitly exclude any
contribution from research and development efforts remaining to be completed as
of the acquisition date. The relative contribution of completed research and
development efforts was assessed based upon several factors. These factors
include the development costs incurred to date, relative time spent on the
projects, the associated risks and an analysis of each of the primary tasks
completed versus the tasks required to complete the efforts. As of the
acquisition date, the individual in-process research and development projects
were approximately 15% to 90% complete.

The free cash flows, net of the various charges discussed above, generated
by the in-process technologies in future periods were discounted to their net
present value by applying appropriate discount rates. The estimated future cash
flows were discounted for the cost of money at rates ranging

25
<PAGE>
from 10% to 16%, depending on the level of risk associated with a particular
technology and the current return on investment requirements of the market.
These discount rates reflect "risk premiums" of 0% to 60% over the 10% weighted
average cost of capital and were calculated using a capital asset pricing model.
An additional discount rate was applied for probability risk and project
completion uncertainty.

There have been no events or changes in circumstances through the date of
this prospectus that suggest that our valuation assumptions were not reasonable.
Troy XCD has continued to develop the in-process technologies and anticipates
deploying these technologies in end-products in a timeframe and manner
consistent with the valuation projections.

OPERATING INCOME. As a result of the above factors, operating income
decreased by $229,000 or 4.9% to $4.5 million in the fiscal year ended November
30, 1998 from $4.7 million in the fiscal year ended November 30, 1997. Operating
income as a percentage of net sales decreased to 12.5% in fiscal 1998 from 14.1%
in fiscal 1997, primarily as a result of the in process research and development
charge.

INTEREST EXPENSE. Interest expenses decreased by $161,000 to $101,000 in
the fiscal year ended November 30, 1998 from $262,000 in the fiscal year ended
November 30, 1997. This decrease was due to reduced borrowings under our line of
credit, retirement of debt, and lower negotiated interest rates.

INCOME TAXES. Income taxes decreased by $105,000 to a credit of $(70,000)
in the fiscal year ended November 30, 1998 from $35,000 in the fiscal year ended
November 30, 1997. When Troy and Troy Systems terminated their S corporation
elections on October 30, 1998, we recorded a net deferred tax asset of $103,000.
This was done by recording a credit to income tax expense for temporary
differences between the reported amounts of assets and liabilities and their tax
bases. We expect that our effective combined federal and state tax rate will be
approximately 40% of pretax income in future periods.

FISCAL YEAR ENDED NOVEMBER 30, 1997 COMPARED TO FISCAL YEAR ENDED NOVEMBER 30,
1996

NET SALES. Net sales increased by $5.3 million or 18.7% to $33.4 million in
the fiscal year ended November 30, 1997 from $28.2 million in the fiscal year
ended November 30, 1996. This increase was due primarily to a $3.9 million
increase in sales of our proprietary imaging supplies, including significant
initial stocking orders for a new customer, and to a lesser extent to a $1.7
million increase in sales of laser printers. This increase was offset slightly
by a $403,000 decrease in sales of our impact printers and services. All of our
net sales for the fiscal year ended November 30, 1997 were attributable to
output enhancement products. Net sales were not significantly affected by price
changes.

COST OF GOODS SOLD. Cost of goods sold increased by $2.2 million or 12.6%
to $19.6 million in the fiscal year ended November 30, 1997 from $17.4 million
in the fiscal year ended November 30, 1996. This increase was primarily due to
increased net sales partially offset by more favorable economies of scale,
primarily in the manufacturing of our proprietary imaging supplies. Cost of
goods sold as a percentage of net sales decreased to 58.6% in fiscal 1997 from
61.8% in fiscal 1996.

GROSS PROFIT. As a result of the above factors, gross profit increased by
$3.1 million or 28.7% to $13.8 million in the fiscal year ended November 30,
1997 from $10.8 million in the fiscal year ended November 30, 1996. This
increase was also attributable to increased sales of higher speed laser
printers, which tend to have more favorable margins. Gross profit as a
percentage of net sales increased to 41.4% in fiscal 1997 from 38.2% in fiscal
1996.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $1.4 million or 26.5% to $6.6 million in
the fiscal year ended November 30, 1997 from $5.2 million in the fiscal year
ended November 30, 1996. Of this increase, approximately $628,000 was

26
<PAGE>
due to additional compensation for sales, marketing and management personnel and
increased sales commissions. This increase was also due to new product
introductions resulting from higher net sales, expenses associated with the
renovation of our California and West Virginia facilities and an increase in
rental expense at our West Virginia facility. Selling, general and
administrative expenses as a percentage of net sales increased to 19.8% in
fiscal 1997 from 18.6% in fiscal 1996.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by $480,000 or 23.5% to $2.5 million in the fiscal year ended November
30, 1997 from $2.0 million in the fiscal year ended November 30, 1996. Of this
increase, approximately $205,000 was due to the addition of research and
development personnel. In addition, we engaged in significant development
activities relating to our higher speed laser printers and provided certain
specialized impact printer services to one of our customers. Research and
development expenses as a percentage of net sales increased to 7.5% in fiscal
1997 from 7.2% in fiscal 1996.

OPERATING INCOME. As a result of the above factors, operating income
increased by $1.2 million or 35.0% to $4.7 million in the fiscal year ended
November 30, 1997 from $3.5 million in the fiscal year ended November 30, 1996.
Operating income as a percentage of net sales increased to 14.1% in fiscal 1997
from 12.4% in fiscal 1996.

INTEREST EXPENSE. Interest expense decreased by $99,000 to $262,000 in the
fiscal year ended November 30, 1997 from $361,000 in the fiscal year ended
November 30, 1996. This decrease was due to reduced borrowings under our line of
credit and a lower negotiated interest rate.

STATE INCOME TAXES. State income taxes decreased by $15,000 to $35,000 in
the fiscal year ended November 30, 1997 from $50,000 in the fiscal year ended
November 30, 1996.

BACKLOG

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

COMPLIANCE WITH YEAR 2000

Many computer systems and applications were historically designed to use
two-digit date fields to designate a year. As a result, date-sensitive computing
systems may recognize the year 2000 as 1900, or not at all, which may cause
systems to incorrectly process financial and operational information.

Our potential areas of exposure to this so-called Year 2000 problem include
our products, our own internal information technology, or "IT" systems and other
"non-IT systems" having embedded technology or software, such as manufacturing
equipment and mechanical and telephone systems. Year 2000 issues may also affect
the business and operations of our vendors, customers and other business
partners.

STATE OF READINESS. In response to the Year 2000 problem, we are currently
reviewing all of our areas of potential exposure. The following summarizes our
progress to date:

- All of our current products and products under development have been
reviewed and are believed to be Year 2000 compliant.

- We are currently reviewing the internal IT systems of Troy XCD with the
assistance of an outside consultant and expect to complete the review in
July 1999. A prior review of Troy's internal IT systems indicated that our
internal accounting systems are Year 2000 compliant, and that certain
network server software programs are not Year 2000 compliant and will need
to be

27
<PAGE>
replaced or upgraded. We expect to replace this software by July 1999.
Certain of our PC's which were non-compliant have already been replaced.

- We have evaluated the Year 2000 compliance of our material vendors,
distributors and other significant business partners and believe that they
have achieved or will achieve Year 2000 compliance on a timely basis.

COSTS. We do not separately track our internal Year 2000 costs such as
personnel time spent on Year 2000 matters, but believe that they have been
immaterial to date. Our external costs to date have been less than $30,000. This
amount includes the fees and expenses of our outside consultant and the cost of
replacing non-compliant PC's. Although we have not completed our assessment of
all of our internal IT and non-IT systems, the information that we have been
provided to date leads us to believe that additional costs to identify and
remediate potential Year 2000 problems, including the required network server
software replacement are not expected to exceed $20,000. We also do not expect
that our Year 2000 identification and remediation efforts will cause a
significant diversion of the efforts of our employees or management away from
other duties or information technology initiatives. We cannot assure you,
however, that our further assessment will not identify Year 2000 problems
requiring significant cost or efforts to remediate or that we will not encounter
unforeseen difficulties or expense in obtaining Year 2000 solutions.

RISKS. Based upon our current information, we believe that our most
reasonably likely, worst case scenario as a result of the Year 2000 problem is
the risk that one or more of our significant vendors, customers or business
partners will not be Year 2000 compliant and that we fail to determine or react
to their Year 2000 problem on a timely basis. If the operations of any of our
significant vendors, customers or other business partners are disrupted due to
the Year 2000 problem, and we are unable to develop and implement an effective
contingency plan, our ability to purchase adequate supplies of raw materials,
manufacture, distribute and receive payment for our products, or to otherwise
carry on essential activities could be materially adversely impacted. Although
we have assessed the Year 2000 readiness of these third parties and believe that
they are or will be Year 2000 compliant, we cannot assure you that we have
indentified all Year 2000 risks related to these partners of that we can
adequately plan around these risks.

CONTINGENCY PLAN. To date, we have not developed any detailed contingency
plans to address the risk that our material customers, vendors and other
business partners do not become Year 2000 compliant, as we have not identified
any current, material exposure to this risk. We have also not developed any
detailed contingency plans to address any failure of our internal IT or non-IT
systems to become Year 2000 compliant. To the extent that we identify third
party or other Year 2000 compliance issues that cannot be addressed on a timely
basis, we will seek to develop appropriate contingency plans in order to
mitigate our risks.

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following tables set forth our unaudited consolidated quarterly results
of operations for each of the quarters in the fiscal years ended November 30,
1997 and 1998 and each of the three months ended February 28 and May 31, 1999.
This quarterly information is unaudited, but has been prepared on the same basis
as the audited consolidated financial statements and, in the opinion of our
management, reflects all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the information for the
quarters presented when read in conjunction with our audited consolidated
financial statements and related notes included elsewhere in this prospectus.
The results of

28
<PAGE>
operations for any quarter do not necessarily indicate the results that may be
expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
1997 1998
-------------------------------------------------- -------------------------------------
FEB. 28 MAY 31 AUG. 31 NOV. 30 FEB. 28 MAY 31 AUG. 31
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Net sales......................... $ 8,826 $ 8,286 $ 7,479 $ 8,843 $ 8,928 $ 9,394 $ 9,456
Cost of goods sold................ 5,290 4,933 4,249 5,125 5,358 5,398 5,681
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit...................... 3,536 3,353 3,230 3,718 3,570 3,996 3,775
Selling, general and
administrative expenses......... 1,527 1,776 1,645 1,674 1,578 1,846 1,543
Research and development
expenses........................ 582 663 588 688 630 598 632
Purchased in process, research and
development..................... -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss)........... 1,427 914 997 1,356 1,362 1,552 1,600
Interest expense.................. 58 70 59 75 39 30 22
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes
(credits)....................... 1,369 844 938 1,281 1,323 1,522 1,578
Income taxes (credits)............ 11 7 7 10 20 23 24
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income........................ $ 1,358 $ 837 $ 931 $ 1,271 $ 1,303 $ 1,499 $ 1,554
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------

1999
--------------------
NOV. 30 FEB. 28 MAY 31
----------- --------- ---------
<S> <C> <C> <C>

Net sales......................... $ 7,980 $ 11,400 $ 12,066
Cost of goods sold................ 5,059 6,799 7,368
----------- --------- ---------
Gross profit...................... 2,921 4,601 4,698
Selling, general and
administrative expenses......... 1,427 2,121 1,915
Research and development
expenses........................ 686 810 932
Purchased in process, research and
development..................... 857 -- --
----------- --------- ---------
Operating income (loss)........... (49) 1,670 1,851
Interest expense.................. 10 78 84
----------- --------- ---------
Income (loss) before income taxes
(credits)....................... (59) 1,592 1,767
Income taxes (credits)............ (137) 637 697
----------- --------- ---------
Net income........................ $ 78 $ 955 $ 1,070
----------- --------- ---------
----------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
-----------------------------------------------------------------------------------------
1997 1998
-------------------------------------------------- -------------------------------------
FEB. 28 MAY 31 AUG. 31 NOV. 30 FEB. 28 MAY 31 AUG. 31
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales........................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold............... 59.9 59.5 56.8 58.0 60.0 57.5 60.1
----- ----- ----- ----- ----- ----- -----
Gross profit..................... 40.1 40.5 43.2 42.0 40.0 42.5 39.9
Selling, general and
administrative expenses........ 17.3 21.5 22.0 18.9 17.7 19.6 16.3
Research and development
expenses....................... 6.6 8.0 7.9 7.8 7.1 6.4 6.7
Purchased in process, research
and development................ -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- -----
Operating income (loss).......... 16.2 11.0 13.3 15.3 15.2 16.5 16.9
Interest expense................. 0.7 0.8 0.8 0.8 0.4 0.3 0.2
----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes
(credits)...................... 15.5 10.2 12.5 14.5 14.8 16.2 16.7
Provision for income taxes
(credits)...................... 0.1 0.1 0.1 0.1 0.2 0.2 0.3
----- ----- ----- ----- ----- ----- -----
Net income....................... 15.4% 10.1% 12.4% 14.4% 14.6% 16.0% 16.4%
----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- -----

1999
------------------------
NOV. 30 FEB. 28 MAY 31
----------- ----------- -----------
<S> <C> <C> <C>
Net sales........................ 100.0% 100.0% 100.0%
Cost of goods sold............... 63.4 59.6 61.1
----- ----- -----
Gross profit..................... 36.6 40.4 38.9
Selling, general and
administrative expenses........ 17.9 18.6 15.9
Research and development
expenses....................... 8.6 7.1 7.7
Purchased in process, research
and development................ 10.7 -- --
----- ----- -----
Operating income (loss).......... (0.6) 14.7 15.3
Interest expense................. 0.1 0.7 0.7
----- ----- -----
Income (loss) before income taxes
(credits)...................... (0.7) 14.0 14.6
Provision for income taxes
(credits)...................... (1.7) 5.6 5.7
----- ----- -----
Net income....................... 1.0% 8.4% 8.9%
----- ----- -----
----- ----- -----
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

Our primary source of liquidity has been through cash generated from
operations and borrowings under our revolving credit facility and term loans.

Cash flows used in operating activities were $38,000 in the six months ended
May 31, 1999 compared to $1.7 million provided by operating activities in the
six months ended May 31, 1998 and $4.6 million in the fiscal year ended November
30, 1998. The cash flows used in operating activities in

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<PAGE>
the six months ended May 31, 1999 were comparatively lower than in fiscal 1998
due primarily to increases in accounts receivable and inventories and a decrease
in accrued expenses and accounts payable. The receivable increase resulted
primarily from higher sales in 1999. The increase in inventories resulted
primarily from increased levels to meet anticipated sales. The decrease in
accrued expenses is primarily the result of payment of an assumed compensation
liability to the employees of Troy XCD.

Cash flows used in investing activities were $908,000 in the six months
ended May 31, 1999 compared to $279,000 in the six months ended May 31, 1998 and
$3.4 million in the fiscal year ended November 30, 1998. Fiscal 1998 included
higher than historical levels of equipment and leasehold improvement purchases
and included approximately $1.6 million for the acquisition of Troy XCD. For the
balance of the fiscal year ending November 30, 1999, we plan to spend
approximately $300,000 on additional purchases of equipment.

Cash flows provided by financing activities were $680,000 in the six months
ended May 31, 1999 compared to cash flows used in financing activities of $1.5
million in the six months ended May 31, 1998 and $1.0 million in the fiscal year
ended November 30, 1998. Fiscal 1998 included approximately $3.4 million of S
corporation distributions and net additional borrowings of approximately $2.4
million. For the balance of the fiscal year ending November 30, 1999, we plan to
pay down approximately $4.3 million of debt from the proceeds of the offering.
See "Use of Proceeds" on page 12.

We currently have two bank term loans and a revolving line of credit. One of
these term loans had an outstanding balance of approximately $397,000 as of May
31, 1999. This term loan currently bears interest at a rate of 7.75% and matures
on November 1, 2000. The other term loan had an outstanding balance of
approximately $2.7 million as of May 31, 1999 and currently bears interest at a
rate of 8.25%. This second term loan matures on November 1, 2003. Our revolving
line of credit had an outstanding balance of approximately $1.2 million as of
May 31, 1999 and currently bears interest at a rate of 7.50%. The revolving line
of credit has no expiration date. Under the line of credit, we are permitted to
borrow 80% of eligible accounts receivable and 50% of eligible inventories (up
to a maximum of $2.5 million for eligible inventories). As of May 31, 1999, the
amount available under the line of credit was approximately $3.5 million. See
"Use of Proceeds" on page 12.

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

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1997, the FASB issued SFAS No. 130 REPORTING COMPREHENSIVE INCOME,
and SFAS No. 131 DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION. SFAS No. 130 requires that an enterprise report, by major
components and as a single total, the change in its net assets during the period
from non-owner sources; and SFAS No. 131 establishes annual and interim
reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and major customers.
Adoption of these statements will not impact our financial position, results of
operations or cash flows and any effect will be limited to the form and content
of our disclosures. Both statements are effective for fiscal years beginning
after December 15, 1997, with earlier application permitted.

In October 1997, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 97-2, SOFTWARE REVENUE RECOGNITION. SOP 97-2
provides guidance on applying generally accepted

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<PAGE>
accounting principles in recognizing revenue on software transactions. The SOP
is effective for transactions entered into in fiscal years beginning after
December 15, 1997. Our management does not believe the adoption of SOP 97-2 will
have a material effect on our consolidated financial statements.

In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. The
new standard is effective for fiscal years starting after June 30, 1999 and is
not expected to have a material impact on our consolidated financial statements.

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 risk sensitive
financial instruments, including long term debt.

We do not engage in trading activities and do not participate in foreign
currency transactions or utilize derivative financial instruments. Accordingly,
our exposure to market risk is through our bank debt which bears interest at
variable rates. The debt consists of two term loans and a revolving line of
credit. The term loans require monthly principal payments of $75,000. All
borrowings bear interest based upon the reference rate per annum as announced by
the bank (7.75% at May 31, 1999). Based upon the balance of the bank debt at May
31, 1999, an immediate and sustained increase in the reference rate of 1% would
cause our annual interest expense to increase by approximately $48,000. See Note
7 beginning on page F-14 in the notes to our consolidated financial statements.

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<PAGE>
BUSINESS

OVERVIEW

We are a leading worldwide provider of enterprise output solutions that
enable organizations to electronically transmit and output information across
distributed computing environments. Our solutions consist of connectivity and
output enhancement products that are compatible with most operating systems and
protocols. Our connectivity products include software, firmware and hardware
that enable output devices such as printers and fax machines to better
communicate over networks and the Internet. Our output enhancement products
include software, firmware, hardware and imaging supplies that enhance the
functionality of these output devices. Our products and solutions reduce costs,
decrease processing time, enhance data integrity, provide security and allow
companies to facilitate e-commerce and better manage business processes.

INDUSTRY

In today's increasingly competitive market, an organization's ability to
make effective business decisions and respond to customers' ever increasing
demands depends to a large extent upon its ability to rapidly collect, organize
and distribute information. Information and documents regularly distributed by
businesses include checks, income statements, budgets, sales forecasts,
invoices, inventory listings, payroll reports, portfolio statements and packing
slips.

Historically, most of this information was created using legacy computer
systems, printed and typically delivered to users through physical means such as
facsimiles, hand deliveries, inter-office mail and the postal service. However,
over the past decade, there has been a dramatic migration of critical corporate
information from mainframe computer systems to distributed computing
environments. This shift has been driven largely by the widespread emergence and
adoption of enterprise software applications, networks and the Internet.
Although many enterprise software applications include basic reporting
functionality, they generally do not adequately address an enterprise's need to
electronically transmit and output information across distributed computing
environments.

The emergence and adoption of networks and the Internet is also changing the
way organizations generate and distribute information. Technologies are now
available to effectively distribute information electronically to multiple end
users both within and outside an organization. In addition, many organizations
are now looking for entirely new output solutions that enable distribution of
information to any number of output devices using the Internet. Due to this
fundamental shift in the way corporations store and manage data, IT departments
are now faced with the challenge of providing users with secure access to
business information residing in a broad range of distributed and fragmented
systems.

Today, organizations have the ability to deliver information through a
variety of mediums, including printers, fax machines and e-mail.

Traditional information distribution uses a print-and-distribute approach
whereby documents are printed, copied and physically distributed. This process
is inefficient, labor intensive, expensive and has

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security risks. Often, the blank forms needed in this process are purchased from
a commercial printer and never used.

Faxing is another common method for remote information distribution. The
general quality and reliability of fax machine output has become inadequate for
today's business requirements. For example, a fax transmission of a photograph
is slow, has low resolution and does not offer color as a finishing option. In
addition, fax transmissions rely on the use of often expensive
telecommunications services.

E-mail is a rapidly growing method for remote information distribution.
However, e-mail often presents software incompatibilities and can be time
consuming. In addition, e-mailed documents can be easily altered which may
present significant security issues.

To address the shortcomings of these methods, we believe that organizations
are seeking a unifying technology strategy that enables disparate devices to
efficiently send information over networks and the Internet for high quality
output by a wide range of output devices. Recently, Hewlett-Packard has
developed a comprehensive solution for distributing input from a broad range of
intelligent devices to compatible output devices. This solution, based upon
their JetSend protocol, allows JetSend enabled devices to transmit information
over the Internet for output on JetSend enabled output devices. In addition, the
Internet Engineering Task Force is in the process of adopting a related protocol
that is also intended to unify many disparate input and output devices so that
the Internet can be the universal transmission medium. There are also efforts
underway by major facsimile manufacturers to develop a common protocol to enable
facsimile machines to transmit and receive information over the Internet. To
date, however, there is no universal Internet output protocol.

Another significant area of change is the improved capabilities of laser
printers. Today, inexpensive laser printers have the ability to print most
common business documents. However, standard laser printers do not have the
capability to produce unique output such as financial documents. Unlike purchase
orders and invoices, financial document printing presents a number of
challenges. Perhaps the most significant is the printing of MICR lines, the
unique characters on the bottom of a check. The MICR line is printed with a
magnetic ink or toner that when magnetized emits a magnetic signal that
identifies each unique character. If the shape and/or the magnetics of the
characters do not meet specified standards, the banking system will reject the
document, which will then require costly manual handling. Due to the
difficulties in printing high quality MICR lines, the printing of financial
documents was historically done by third party commercial printers. Although
today's laser printers are capable of high quality output, they cannot print
MICR lines without customized software and specialty toners.

Another recent trend is the rapid rise in e-commerce. To date, businesses
and consumers have generally used credit cards as the primary method of payment
in e-commerce transactions. Most online merchants have very limited or no
options for those purchasers who desire to pay for goods and services by check.
Even when payment by check is permitted, a purchaser must send the check, which
then must clear through the banking system before the goods or services are
received. This process often takes 7-10 days. As a result, online merchants are
not able to offer their customers the same level of convenience and payment
options available in traditional stores.

Due to the shortcomings of traditional information distribution methods, we
believe that there is a need for enterprise output solutions that allow
organizations to electronically transmit and output information across
distributed computing environments.

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<PAGE>
TROY SOLUTION

Our software, firmware, hardware and imaging supplies are designed to
address the critical information distribution and output requirements of
enterprises and end users. Our products are designed to provide the following
benefits:

BROADEST NETWORK PROTOCOL SUPPORT & SOFT PRINT SERVER. Our network
connectivity products are recognized worldwide for supporting a large number of
protocols and network operating systems. With our technologies, enterprises are
able to electronically transmit and output information across distributed
computing environments. Our connectivity products support Windows NT and UNIX,
in addition to legacy systems such as Digital Equipment Corporation VAX
computers, Banyan VINES networks, HP 3000 computers and IBM AS/400 computers. In
addition, we are continuing to develop the soft print server. Our soft print
server will allow printer manufacturers and other OEM customers to significantly
reduce manufacturing costs by incorporating networking capabilities directly in
the processor on their printer controller, rather than requiring a separate
processor, memory and interface logic. Our soft print server runs on printers
with Wind River Vx Works, a commonly used embedded real-time operating system.

INTERNET OUTPUT CAPABILITIES. Our existing Internet output capability,
PrintraNet, allows a user at one location to print to another location over the
Internet. Our Internet connectivity products under development will allow our
customers' printers and fax machines to seamlessly receive documents over the
Internet, regardless of the protocol used by the sending device. We believe that
we will have significant competitive advantages in this market because we were
one of the first to develop Internet printing technology and have extensive
protocol experience.

ADVANCED OUTPUT ENHANCEMENT SOLUTIONS. Our output enhancement products
provide customers with functions not offered by most major original equipment
manufacturers. Our technology enables standard laser printers to print MICR
lines, graphics, barcodes and forms. It also enables a printer to perform other
functions such as auditing, status checking and security. These features
increase an enterprise's flexibility and customer service, eliminate costs
associated with forms obsolescence and enhance document security. This
technology works over networks and the Internet.

PROPRIETARY IMAGING SUPPLIES. We are recognized by our customers as a high
quality developer and manufacturer of proprietary imaging supplies. Our imaging
supplies are formulated for specific output devices. As new output devices are
developed, our chemical engineers combine their expertise with our advanced
research and development equipment to design proprietary formulations. Our
imaging supplies are then produced in a sophisticated, computerized
manufacturing facility. We are the only authorized MICR toner manufacturer for
Hewlett-Packard LaserJet printers and are the only authorized MICR toner
manufacturer for the IBM 3900 and InfoPrint 4000 family of high-speed laser
printers. The majority of our output enhancement products require our
proprietary imaging supplies.

E-COMMERCE CHECK PAYMENT SOLUTIONS. By combining our MICR enhanced
distributed output solutions with our Internet software, we are currently
developing technology that will offer the capability to print a MICR encoded
check remotely, including over the Internet. This check will have all of the
same attributes of a traditional check and will be presented by a merchant
through normal banking channels. We believe that this capability will offer us a
significant new growth opportunity due to the rapid rise in e-commerce and the
limited payment methods available to today's e-commerce consumer. Our integrated
solution will allow e-commerce consumers to pay for goods and services with a
check in a similar manner and with comparable speed and security as is available
for credit cards.

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BUSINESS STRATEGY

Our objective is to be a leading worldwide provider of enterprise output
solutions. Our strategy for achieving this objective includes:

ACCELERATING THE DEVELOPMENT AND MARKETING OF OUR INTERNET PRODUCTS. We
believe that the Internet will play a significant role in future commerce. We
intend to focus significant technical effort toward the development of Internet
output solutions. We also intend to focus on developing and marketing our
e-commerce check payment solution. By building on our current product lines and
utilizing our expertise in managing various protocols, we believe that we will
have significant competitive advantages in this market.

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

EXPANDING AND SEEKING NEW OEM RELATIONSHIPS. We intend to aggressively
expand existing and seek new OEM relationships. We intend to expand our
relationships with Hewlett-Packard, IBM, Brother and Standard Register by
developing solutions that support their products. We believe that this strategy
provides us with the opportunity to expand our market share and maintain and
enhance our technological position and expertise.

ACQUIRING RELATED BUSINESSES, PRODUCTS AND TECHNOLOGIES. A significant
aspect of our growth strategy has been the acquisition of complementary
businesses in order to achieve market presence, increase our customer base and
expand our product offerings to our customers and business partners. We intend
to acquire businesses or license products and technologies in the Internet and
network output solutions market. We currently have an experienced team, both
internal and external, executing and implementing our acquisition strategy.

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

EXPANDING DISTRIBUTION CHANNELS TO INCREASE OUR FOCUS ON SELLING TO SMALL
AND MID-SIZE BUSINESSES. We believe that an increasing number of small and
mid-sized businesses will begin to use networks, the Internet and advanced
output solutions to facilitate their business needs. We intend to continue to
expand our distribution channels to increase our sales to these businesses.

CURRENT PRODUCTS AND SERVICES

Our current product offerings consist of connectivity and output enhancement
solutions.

CONNECTIVITY SOLUTIONS

We offer a wide range of products that allow output devices to better
communicate over networks and the Internet. Our major product lines include:

PRINT SERVERS. Our print servers enable printers, plotters and other output
devices to be shared by many different kinds of computers on a network. Our
print servers are recognized worldwide for supporting a large number of
protocols and network operating systems. This support makes our print

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<PAGE>
servers especially well-suited to enterprise networks that have deployed many
different kinds of computers and network operating systems over a wide
geographic area.

INTERNET OUTPUT SOLUTIONS. Our current Internet output product, PrintraNet,
is a software and firmware solution that enables a user at one location to print
to another location over the Internet. PrintraNet requires PrintraNet software
and firmware on both the sending and receiving device. Our
Internet products under development are designed to enable output devices to
communicate over the Internet regardless of the sending device's protocol.

OUTPUT ENHANCEMENT SOLUTIONS

MICR SOLUTIONS. We offer three levels of high-quality MICR solutions based
on laser technology. Our laser solutions range in print speeds from 8 to 40
pages per minute and combine laser-quality business documents with high-quality
MICR. We have a value-priced line of font and toner kits that provide a
high-quality MICR solution on a user's existing Hewlett-Packard LaserJet. Our
font and toner kits upgrade a laser printer to accommodate MICR encoding, and
store custom logos, signatures and MICR fonts on the printer.

At the mid-level, we offer a new line of basic MICR printers combining all
the features and quality of a laser printer. We install these check printing
capabilities at our manufacturing facility. These value-priced, mid-level MICR
solutions are for customers who have printing requirements that include business
documents combined with checks. These printers are also ideal for check
producers who maintain secure operating environments and do not need printer
security features.

Our most advanced MICR printers incorporate added security features such as
built-in MICR sensors, password protection, keylocks and other important
security features. This high quality line of MICR printers is ideal for
customers who require a more dedicated and fully secure check printing solution.

We also offer one high-speed MICR solution based on impact technology. Our
impact MICR printers are designed to run in tandem with large, very high speed
laser printers manufactured by IBM and Xerox.

For those customers whose software does not support MICR printing, we also
offer our own MICR software solution. This solution is currently offered as a
part of our strategic relationship with Hewlett-Packard as a PeopleSoft Alliance
Solution Center partner and enables PeopleSoft users to distribute and print
financial documents.

IMAGING SUPPLIES. Both our laser and impact printing solutions require our
ongoing imaging supplies, sales of which represent the largest portion of our
revenue. Our laser systems require toner cartridges while our impact systems
require MICR ribbons for operation. We are the only authorized MICR toner
manufacturer for Hewlett-Packard LaserJet printers and are the only authorized
MICR toner manufacturer for the IBM 3900 and InfoPrint 4000 family of high-speed
laser printers. In addition to our MICR toner and ribbons which support our
printers, we also offer other toners, ribbons and accessories for use by other
printing devices. These additional supplies include fluorescent and indelible
ribbons, post-encoding equipment (used to add the amount information to checks
prior to processing), jumbo rolls (large rolls of MICR ribbon, typically 42"
wide, manufactured to precise specifications), standard toner (for selected
manufacturers of printers and fax machines), paper handling accessories and
check security paper.

OUTPUT DEVICE ACCESSORIES. We have recently introduced our Paper Presenter.
This unique printer accessory delivers a printed page to a convenient location
for the user. Our Paper Presenter makes it possible to use a printer safely
inside an enclosure with other computer equipment and still deliver a printed
page outside the enclosure to the waiting user. This new product is ideal for
kiosk setups,

36
<PAGE>
under the counter at a hotel, or in a locked enclosure at a bank teller station.
Our Paper Presenter is compatible with both Hewlett-Packard LaserJets and our
MICR printers and is easily installed.

PRODUCTS UNDER DEVELOPMENT

Our connectivity and output enhancement products under development include:

SOFT PRINT SERVER. The soft print server is a software-only product that
incorporates the technologies of our other print servers. It is designed to
allow printer manufacturers and other OEM customers to incorporate networking
capabilities directly into the processor on their print controller. The soft
print server runs on printers with Wind River Vx Works, a commonly used embedded
real-time operating system. The soft print server reflects our emphasis on
software products, and we expect to release it during the second half of 1999.

ADVANCED INTERNET OUTPUT SOLUTIONS. Our Internet output products under
development will be designed to enable output devices, including currently
installed printers manufactured by Hewlett-Packard, IBM, Lexmark and Xerox, to
communicate over the Internet regardless of the sending device's protocol. Such
devices could potentially include printers, fax machines, scanners, copiers,
digital cameras and more. For example, a scanner that uses Hewlett-Packard's
JetSend protocol could send a document to a printer that uses another Internet
printing protocol.

OTHER OUTPUT ENHANCEMENT PRODUCTS. We also have audit function, barcoding
and electronic forms enhancements in various stages of release. These
enhancements will reside on the printer DIMM (dual in-line memory module). The
DIMM is either bundled with the printer or sold separately. The audit features
will monitor any check data printed, including the account on which the check is
drawn, the amount of the check, and the check number and date. This feature
allows for easy reconciliation, specific user monitoring, check authorization,
batch run summaries and specific timeframe totals. The barcode feature will
support UPC symbol barcodes as well as newer, intelligent barcode standards.
These codes are considered "intelligent" barcodes because they are
two-dimensional, compacting many times the amount of data of more simple
barcodes in very limited space. Other output enhancement features include
electronic forms. This feature stores forms on the DIMM resident on the printer.
These stored forms decrease processing time and allow continued use of the
forms, regardless of changes in application software.

CASE STUDIES

The following case studies illustrate how two of our customers, State Farm
Insurance and Automatic Data Processing, use our products to further their
business objectives:

STATE FARM specializes in selling and servicing personal line insurance
products through nearly 16,500 agents for over 66.2 million policies in the
United States and Canada. Starting in 1993, State Farm began using our financial
document printing solutions to provide local payment capability. Our solutions
significantly enhanced customer service and cash management while maintaining
centralized financial control at State Farm's corporate headquarters. In
addition, State Farm takes our financial

37
<PAGE>
document solutions on the road during major catastrophes (tornadoes, floods,
hurricanes and other natural disasters) to quickly print out critical claims
checks to their policyholders.

AUTOMATIC DATA PROCESSING INC. (ADP) formed a strategic alliance with us in
February 1997 to offer onsite, client-based payroll check printing for their
425,000 clients worldwide. ADP is recognized as one of the largest independent
computing service organizations in the world. Two ADP software solutions work
with our financial document printing solutions: PC/PAYROLL-TM-, which supports a
"print-back" capability allowing payroll checks to be printed at the client
site, and SOFTPAY-TM-, a PC software package linked to ADP's payroll and direct
deposit services. Both ADP software programs in conjunction with our financial
document printing solutions allow ADP's clients to issue checks on site. In
addition to printing only at issuance time to better control funds, the benefits
of in-house check printing include eliminating delays and deliveries for faster
printing and distribution, and eliminating manual check writing to prevent
errors, incorrect checks and bank charges.

SALES AND MARKETING

We market products to Fortune 1000 companies through our direct sales force
of 25 persons (20 domestically and five internationally) and market products to
small and mid-size businesses primarily through our network of distributors and
value-added resellers. We market our products internationally in 55 countries,
primarily through a distributor network.

We have more than 4,300 active customers, including financial institutions,
insurance companies, payroll processing companies, corporations and government
agencies. AT&T Corporation, BankAmerica Corporation, Brother Industries, Eastman
Kodak, Farmer's Insurance Group, Ford Motor Company, IBM, Manpower, State Farm
Insurance and Wells Fargo & Company are among our customers, each of whom
purchased products during the last 12 months.

We believe that an increasing number of small and mid-size businesses will
begin to use networks and the Internet to facilitate their business needs. As a
result, we have increased the number of sales and support staff dedicated to
recruiting and training additional distributors and value-added resellers that
can help address the needs of these types of businesses.

We also intend to aggressively expand our existing OEM relationships and
seek new relationships. We intend to expand our relationships with Brother,
Hewlett-Packard, IBM and Standard Register by developing product solutions that
support their products. We believe that this strategy provides us with the
opportunity to expand our market share of products and maintain and enhance our
technological position and expertise. We currently have management resources
dedicated to recruiting and developing new OEM relationships.

We promote our products through our web sites, trade shows, advertising and
direct marketing materials as well as referrals from our strategic business
partners, including Hewlett-Packard, IBM, ADP, Standard Register and Wind River.

We offer technical support, maintenance and on-site services, portions of
which are provided by third parties. We provide technical support through an 800
line from 7:00 AM to 5:00 PM (PST) and through our web-sites. We also provide
on-site service through yearly maintenance contracts or on a time and material
basis.

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

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STRATEGIC RELATIONSHIPS

For over six years, we have maintained a strategic relationship with
Hewlett-Packard in which we purchase Hewlett-Packard laser printers and modify
and enhance the printers. We then repackage, relabel and sell the printers as
MICR-enabled financial document printers under the Troy name. In addition, we
are a member of Hewlett-Packard's Engineering Support Partner Group, a select
group of third party solutions partners. As a member of this group, we work with
Hewlett-Packard on architecture issues for new product development and with
Hewlett-Packard's marketing group to implement joint marketing programs. We
believe that our current relationship with Hewlett-Packard gives us a
competitive advantage in marketing our products, primarily because of their
reputation as the leading provider of laser printers throughout the world.

Under a joint marketing relationship with IBM, we sell our impact MICR
printers in conjunction with their high-speed laser printers. IBM also has an
agreement with us to purchase all of its MICR toner requirements for the IBM
3900 and InfoPrint 4000 family of high speed laser printers.

We are a Wind River, WindLink partner. Wind River is promoting our soft
print server on its web site, in its third party catalog and with a datasheet.
We have participated in the most recent Wind River international sales meeting
and will do additional joint marketing activities with Wind River over the
coming year.

Our strategic alliance with ADP was formed to offer a printer and software
solution for onsite, client-based payroll check printing to ADP's 425,000
clients worldwide. ADP is one of the largest independent computing service
organizations in the world. ADP's payroll software is fully compatible with our
MICR printers. We offer ADP-approved MICR laser printers, toll-free technical
support, accessories, imaging supplies, product warranties and maintenance
agreements.

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

Our strategic alliance with Hewlett-Packard includes our appointment as a
PeopleSoft Alliance Solution Center partner. PeopleSoft's Alliance Solution
Center (ASC), located in their new Pleasanton headquarters, opened last year to
develop global, enterprise-wide software solutions and services. One of the
primary functions of the ASC is to execute joint research and development
projects between Hewlett-Packard, PeopleSoft and other strategic partners such
as Troy. Under our current agreement, we will provide MICR and multi-purpose
printers and software which will enable PeopleSoft customers to print financial
documents, barcodes, labels and standard business documents.

RESEARCH AND DEVELOPMENT

We have assembled a highly trained staff of software, electrical, mechanical
and chemical engineers. In addition, we invest significantly in highly
sophisticated research and development equipment. As of May 31, 1999, we
employed 44 persons in our research and development efforts.

Our principal research and development activities consist of:

- developing software and firmware solutions for connecting output devices
to networks and the Internet;

- developing e-commerce check payment solutions;

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

- creating proprietary imaging supplies.

39
<PAGE>
We seek customer feedback in the product design process in order to meet
changing requirements and are committed to developing functional and integrated
printing solutions in a rapid and efficient manner.

COMPETITION

The market for our products is highly competitive and subject to rapid
technological change. We currently compete principally on the basis of the
quality, flexibility, convenience and security of our printing solutions. We
believe that we compete favorably with respect to these factors as a result of:

- the breadth of our products' features;

- our knowledge, technical exposure and professionalism developed over time;

- our strategic relationships; and

- an historical commitment to quality.

Although the prices of our products are generally higher than those of our
competitors, we have been able to maintain these prices as a result of advanced
technological features (including security), higher levels of quality and
value-added services.

CONNECTIVITY SOLUTIONS. The market for our network products is highly
competitive and subject to rapid technological change. We currently compete
principally on the basis of the extensive multiprotocol capabilities,
functionality and high performance of our products. In the print server market,
Intel, Osicom/DPI, Axis Communications, Emulex and Lantronix offer competing
products that are suitable for multiprotocol enterprise network printing
applications. There are many other commodity print servers, including very
low-cost Taiwanese products, but such commodity print servers are not usually
suitable for enterprise networks due to inadequate protocol support and
features, limited customer support and low performance. Although Hewlett-Packard
makes print servers, we do not generally consider them a direct competitor. This
is because we are a Hewlett-Packard partner that provides the DEC and Banyan
VINES connectivity solutions that are not available on Hewlett-Packard products.
As a result, Hewlett-Packard often calls upon us to help them close printer
sales at customer sites that require DEC or Banyan connectivity.

To our knowledge, the only direct competitor for our new soft print server
software-only print server product is Auco, a Redwood City, California-based
software company. Other competition for soft print server are individual
protocol stacks available from a number of companies and in the public domain,
but such protocol stacks require a significant amount of additional software
development by the OEM in order to provide similar functionality to soft print
server.

Both the multi-protocol Internet document distribution market and the
e-commerce check payment market are just emerging. To our knowledge, there are
currently no direct competitors. Because of the projected growth of this market,
we will most likely experience increased competition in the future.

OUTPUT ENHANCEMENT SOLUTIONS. The primary competitors in MICR are ACOM
Computer, Inc., Delphax Systems, IBM, Lexmark International, Inc., Oce, Source
Technologies and Xerox. We also compete with companies who provide a MICR font
and toner solution without a printer. We believe that our current relationship
with Hewlett-Packard gives us a competitive advantage in the MICR printing
market primarily because of Hewlett-Packard's reputation as the leading provider
of laser printers to companies throughout the world.

IMAGING SUPPLIES. We compete in the toner and ribbon market primarily on
the basis of quality and service. Color Image is our most significant competitor
with respect to toner products. Our significant competitors with respect to
ribbons are Nu-Kote International, Commander Imaging Products Inc. and Fuji
Copian Corporation. We position ourselves with a pricing strategy that reflects
our quality, reliability, precision of formulation and available customer
support. Many small companies also offer

40
<PAGE>
remanufactured MICR cartridges that are typically lower priced but less reliable
than new MICR cartridges such as those offered by us.

We also have several indirect competitors that offer certain products as an
alternative to financial document printing solutions, such as pre-printed
checks, check printing services and electronic payment systems, outsourcing for
payroll, on-line banking and payment systems for their clients. These companies
tend to provide an alternative to internal printing of checks and other
financial documents.

PATENTS AND PROPRIETARY RIGHTS

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

As of May 31, 1999, we held seven United States patents and one United
Kingdom patent. Our existing patents primarily cover components of our impact
printing systems. We have also filed applications for four additional United
States patents which are currently pending. There can be no assurance that our
issued patents will provide meaningful protection of our products and
technologies. In addition, patent applications can be denied or significantly
reduced before issuance. Moreover, there can be no assurance that third parties
will not assert intellectual property infringement claims against us or that, if
asserted, that we would prevail or be able to obtain any necessary licenses.

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

ENVIRONMENTAL AND REGULATORY MATTERS

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

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<PAGE>
EMPLOYEES

As of May 31, 1999, we employed approximately 175 persons. None of our
employees are represented by a labor union or covered by a collective bargaining
agreement. We have not experienced any work stoppages and consider relations
with our employees to be good.

FACILITIES

We currently lease approximately 37,000 square feet of space for our
headquarters in Santa Ana, California. Our other facilities are located in
Irvine, California where we lease approximately 14,000 square feet used by Troy
XCD, in Coquitlam, British Columbia where we lease approximately 4,000 square
feet used by Troy Telgate and in Wheeling, West Virginia where we lease
approximately 77,000 square feet for a manufacturing facility. We consider our
present facilities to be sufficient for our current operations.

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<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS, DIRECTOR, DIRECTOR NOMINEES AND OTHER KEY EMPLOYEES

The following table contains certain information about our executive
officers and directors as of May 31, 1999:

<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------------- --- --------------------------------------------------------------
<S> <C> <C>
Patrick J. Dirk............................. 59 Chairman of the Board, sole Director, President and Chief
Executive Officer of Troy, Chairman of the Board and Chief
Executive Officer of Troy Systems International and Chairman
of the Board, Chief Executive Officer and sole director of
Troy XCD
Robert S. Messina........................... 49 Executive Vice President of Troy and President and Chief
Operating Officer of Troy Systems International
Brian P. Dirk(1)............................ 35 Vice President and Director Nominee of Troy and Vice President
International Sales of Troy Systems International
Del L. Conrad............................... 53 Chief Financial Officer, Treasurer and Secretary of Troy and
Vice President, Chief Financial Officer and Secretary of Troy
XCD
Norman B. Keider(1)(2)...................... 67 Director nominee
John B. Zaepfel(1)(3)....................... 62 Director nominee
William P. O'Reilly(1)(2)................... 53 Director nominee
Gene A. Bier(1)(3).......................... 60 Director nominee
Dr. Harold L. Clark(1)...................... 63 Director nominee
</TABLE>

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

(1) Will become a director upon completion of this offering.

(2) Member of the Compensation Committee upon completion of this offering.

(3) Member of the Audit Committee upon completion of this offering.

EXECUTIVE OFFICERS, DIRECTOR AND DIRECTOR NOMINEES

PATRICK J. DIRK has been our Chairman of the Board, sole director, President
and Chief Executive Officer since he co-founded Troy with his wife in May 1982.
Mr. Dirk is also the founder, Chairman of the Board and Chief Executive Officer
of Troy Systems International, and is the Chairman of the Board, Chief Executive
Officer and sole director of Troy XCD. Since March 1984, Mr. Dirk has served as
a director of Eltrax Systems, Inc., a managed network services company that
provides communication products and services for enterprise wide networks. Mr.
Dirk co-founded Eltrax in March 1984 and served as its Chairman of the Board
from February 1995 until August 1995. From 1973 until 1982, Mr. Dirk was
employed in various capacities by Kroy Inc., a manufacturer of automated
lettering machines and related products, serving most recently as President and
a director from 1980 to 1982. Mr. Dirk also serves as a member of the boards of
directors and advisory boards of several private companies, none of which
compete with Troy. Mr. Dirk devotes substantially all of his efforts to Troy and
its subsidiaries.

ROBERT S. MESSINA has been the Executive Vice President of Troy since April
1998 and the President and Chief Operating Officer of Troy Systems International
since December 1996. From December 1995 through December 1996, Mr. Messina
served as the Executive Vice President and General Manager of Troy Systems
International and from July 1994 through December 1995 he served as its Vice
President Sales and Marketing. From January 1992 through March 1994, he was the
General Manager of Omninote, a division of Telautograph Corp., a network
communications company.

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<PAGE>
BRIAN P. DIRK has been our Vice President since May 1996. He was a member of
our Board of Directors from that date until October 30, 1998. He will again
become a Director upon the completion of this offering. Mr. Dirk's primary
responsibility is Vice President of Business Development. His duties include
managing our acquisition strategies and staff. Prior to this, he served as Vice
President of International and Federal Government Sales. Since joining us in
1989, Mr. Dirk has held various training and management positions, including
Director of Business Development, International Sales Manager, Special Projects
Manager, Telesales Representative and Purchasing Agent. Mr. Dirk is the son of
Patrick J. Dirk, our Chairman of the Board and Chief Executive Officer.

DEL L. CONRAD has been our Chief Financial Officer, Treasurer and Secretary
since April 1998 and also serves as Vice President, Chief Financial Officer and
Secretary of Troy XCD. Mr. Conrad served as the Vice President of Finance and
Administration of Troy Systems International from March 1995 to April 1998. From
August 1991 to March 1995, he served as a consultant on mergers and
acquisitions, bank financing and operations. From June 1981 to July 1991, Mr.
Conrad was a partner with McGladrey & Pullen, LLP, a public accounting firm.

DIRECTOR NOMINEES

NORMAN B. KEIDER will become a director upon completion of this offering.
Since August 1993, Mr. Keider has been a self employed management consultant.
Mr. Keider served as a managing director of A.T. Kearney, an executive search
consulting firm from January 1989 to August 1993. From April 1986 to January
1989, he was a partner with Keider-Zupsic Associates, an executive search
consulting company. Mr. Keider also served as a partner for Arthur Young &
Company, an accounting and consulting company from December 1979 to April 1986.
From January 1978 to December 1979, he was a self employed consultant for
acquisition searches. From December 1972 to January 1978, Mr. Keider was the
President and Chief Executive Officer of Atlas Powder Company, a manufacturer of
commercial explosives.

JOHN B. ZAEPFEL will become a director upon completion of this offering.
Since June 1991, Mr. Zaepfel has been a Managing Partner of the Zaepfel Group, a
middle market consulting firm specializing in strategic facilitation and
planning. Mr. Zaepfel has served as Chief Executive Officer of several
companies. He currently serves as a director for ten companies including two
publicly traded companies, RemedyTemp, Inc. and Pro-Dex, Inc. From January 1985
to May 1989, Mr. Zaepfel was the founder and Chief Executive Officer of CPG
International, Inc., a manufacturer and marketer of fine art, graphic art,
engineering, drafting and media supplies. From 1974 to 1984, Mr. Zaepfel was
President and Chief Executive Officer of Chartpak and Pickett Industries,
wholly-owned subsidiaries of Times Mirror. Mr. Zaepfel was General Manager of
Chartpak, a division of Avery International from 1990 to 1993.

WILLIAM P. O'REILLY will become a director upon completion of this offering.
Mr. O'Reilly has been the Chief Executive Officer of Eltrax Systems, Inc. since
January 1997. Mr. O'Reilly has also been the Chairman of the Board of Directors
of Eltrax since August 1995 and a director of Eltrax since July 1995. For the
past 15 years, Mr. O'Reilly has been a private investor and entrepreneur who has
managed several business ventures. In 1989, Mr. O'Reilly formed a group of
investors to acquire Military Communications Center, Inc., where he served as
Chairman of the Board and Chief Executive Officer from 1989 to 1994. In 1986,
Mr. O'Reilly founded Digital Signal, Inc., a provider of fiber optic capacity to
long distance carriers in the telecommunications industry. Mr. O'Reilly served
as Digital Signal's Chief Executive Officer from 1986 to 1989. In 1980, Mr.
O'Reilly founded Lexitel Corporation, a long distance carrier that was
subsequently acquired by ALC Communications, Inc., and served as its Chairman of
the Board and Chief Executive Officer from 1980 to 1984. Mr. O'Reilly is also a
director of two public companies, Charter Communications, Inc., a builder and
operator of international communication networks which provides voice, video and
data services, and World Access, Inc., a value added reseller of
telecommunications equipment.

44
<PAGE>
GENE A. BIER will become a director upon completion of this offering. Since
1987, Mr. Bier has been the President and Chief Executive Officer of XCORP
Business Development, Inc., a consulting and investment company. From July 1986
to February 1996, Mr. Bier was a director of Eltrax Systems, Inc. and served as
its Chairman from September 1989 to March 1990. From June 1983 to January 1987,
Mr. Bier was Chief Executive Officer of U.S. West Communications, formerly
Minnesota Northwestern Bell. From September 1978 to June 1983, he was Vice
President and from August 1963 to September 1978, he held various positions in
the Bell System. Mr. Bier has served on the boards of many local organizations,
including the Minnesota Business Partnership, Inc., the Greater Minneapolis
Metropolitan Housing Corporation, the United Way of Minneapolis and the
Metropolitan Medical Center. Mr. Bier was Chairman of the Greater Minneapolis
Chamber of Commerce, the Governor's Jobs Training Council, the Minnesota State
Lottery Board and the Urban Coalition.

DR. HAROLD L. CLARK will become a director upon completion of this offering.
Since October 1998, Dr. Clark has been the Chief Executive Officer and Chairman
of Micro-Mart.com, an Internet-based computer products reseller. Prior to this
position, Dr. Clark served as XCD's Chairman from July 1995 until it became Troy
XCD in October 1998. From April 1993 to August 1995, Dr. Clark was the Chief
Executive Officer and Co-Chairman of AmeriQuest Technologies, Inc., a
distributor of computer technology solutions to value-added resellers, systems
integrators, distributors and computer dealers. Dr. Clark also acted as a
consultant to AmeriQuest from August 1995 to December 1995. From April 1993 to
December 1993, Dr. Clark was the President and Chief Executive Officer of an
AmeriQuest subsidiary, CDS Distribution, Inc. Dr. Clark was the President of
Everex Systems, Inc., a supplier of server, workstation, notebook and desktop
solutions from February 1991 to December 1992. From October 1984 to April 1990,
Dr. Clark was President and Vice Chairman of Ingram MicroD Inc., a wholesale
distributor of technology products and services, and a provider of assembly and
integration services. Dr. Clark currently serves as a director of Internet
Appliance, Inc., an Internet and intranet technology provider.

OTHER KEY EMPLOYEE

THOMAS O. TULOWITZKI has been a Senior Vice President Engineering of Troy
Systems since March 1996 and directs research and development of our output
enhancement products. From February 1991 to March 1996, Mr. Tulowitzki served as
a Manager of Sustaining Engineering for Danka Business Systems PLC, an
independent supplier of photcopiers, facsimiles and other and related automated
office equipment. From September 1989 to January 1991, he was self employed.
From August 1964 to August 1989, Mr. Tulowitzki held various technical and
management positions with Xerox.

BOARD OF DIRECTORS COMPENSATION

Our directors are elected annually and serve until the next annual meeting
of stockholders or until their successors are duly elected and qualified. We do
not currently pay fees to the members of the Board of Directors.

Effective upon completion of this offering, non-employee directors will
receive $1,500 for each regular meeting of the Board of Directors, $750 for each
special meeting of the Board of Directors and $750 for each meeting of the Audit
Committee and Compensation Committee. In addition, directors are reimbursed for
travel expenses for attending meetings of the Board and any Board or advisory
committees. Upon the completion of this offering, each non-employee director
will be granted a ten-year option to purchase an aggregate of 30,000 shares of
common stock at the initial public offering price. Each option will vest as to
10,000 shares 90 days after this offering and as to 5,000 shares per year over
the next four years.

45
<PAGE>
COMMITTEES

The Board of Directors has established an Audit Committee and a Compensation
Committee which will become active upon completion of this offering. The Audit
Committee provides assistance to the Board in satisfying its fiduciary
responsibilities relating to accounting, auditing, operating and reporting
practices and reviews the annual financial statements, the selection and work of
our independent auditors and the adequacy of internal controls for compliance
with corporate policies and directives. The Compensation Committee reviews
general programs of compensation and benefits for all employees and makes
recommendations to the Board concerning executive officer and director
compensation.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to the commencement of this offering, we had no Compensation Committee
but the Board of Directors performed equivalent functions. Mr. Patrick Dirk
served as our Chairman and Chief Executive Officer and set the compensation of
the executive officers. Upon completion of this offering, Messrs. Keider and
O'Reilly will become members of the Compensation Committee. Messrs. O'Reilly and
Patrick Dirk, our Chairman of the Board, President and Chief Executive Officer,
are both members of the Board of Directors of Eltrax Systems, Inc. Mr. O'Reilly
is the Chief Executive Officer of Eltrax.

EXECUTIVE COMPENSATION

The following table provides information concerning cash and non-cash
compensation paid to or earned by our Chief Executive Officer and each of our
other executive officers whose salary and bonus exceeded $100,000 for the fiscal
year ended November 30, 1998:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) COMPENSATION(3)
- ---------------------------------------------- --------- ---------- ---------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Patrick J. Dirk .............................. 1998 $ 225,000 $ 68,730 $ 9,855 $ 8,511
Chairman of the Board, President and Chief
Executive Officer
Robert S. Messina ............................ 1998 160,000 90,768 5,400 9,502
Executive Vice President
Brian P. Dirk ................................ 1998 115,000 114,106 3,825 5,776
Vice President
Del L. Conrad ................................ 1998 130,000 16,250 4,050 8,715
Chief Financial Officer, Treasurer and
Secretary
</TABLE>

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

(1) Cash bonuses earned have been included as 1998 compensation, even though
such bonuses were paid in 1999. Represents performance bonuses of $68,730,
$45,500, $50,000 and $16,250 for Messrs. Patrick Dirk, Messina, Brian Dirk
and Conrad, respectively. Also includes commissions of $45,268 and $64,106
for Messrs. Messina and Brian Dirk.

(2) Represents $5,250, $5,400, $3,825 and $4,050 for automobile usage for
Messrs. Patrick Dirk, Messina, Brian Dirk and Conrad and $4,605 for
reimbursement of social club membership fees for Mr. Patrick Dirk.

(3) Includes $5,000, $4,041, $3,058 and $3,812 for Messrs. Patrick Dirk,
Messina, Brian Dirk and Conrad, respectively, for matching contributions
under Troy's 401(k) Plan and $3,511, $5,461,

46
<PAGE>
$2,718 and $4,903 as the value of insurance premiums paid by Troy on behalf
of Messrs. Patrick Dirk, Messina, Brian Dirk and Conrad, respectively, under
a medical insurance arrangement.

No stock options were granted to, and no options were exercised by, Messrs.
Patrick Dirk, Messina, Brian Dirk or Conrad during the fiscal year ended
November 30, 1998. Upon completion of this offering, Mr. Conrad will be granted
an option to purchase 35,000 shares of common stock.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

The following table summarizes the value of options held by Messrs. Patrick
Dirk, Messina, Brian Dirk and Conrad at November 30, 1998. For purposes of the
table, value is based on the difference between the fair market value of the
shares of common stock as of the date of this prospectus (assuming an initial
public offering price of $8.00 per share) and the exercise price of the options
ranging from $0.41 to $0.45 per share. Options are in-the-money if the market
value of the shares exceeds the option exercise price.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-
UNEXERCISED OPTIONS AT MONEY OPTIONS AT FISCAL
FISCAL YEAR END YEAR END
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------ ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Patrick J. Dirk..................... -- -- -- --
Robert S. Messina................... -- 244,990 -- $ 1,859,474
Brian P. Dirk....................... -- 81,967 -- 618,851
Del. L. Conrad...................... -- -- -- --
</TABLE>

EMPLOYMENT AGREEMENTS

On November 27, 1996, we entered into a non-competition agreement with
Robert Messina regarding his services as President and Chief Operating Officer
of Troy Systems International. Under the terms of this agreement, we granted Mr.
Messina an option to purchase 244,990 shares of common stock at an exercise
price of $0.41 per share expiring on November 25, 2006. This option becomes
fully vested on November 24, 2006. Vesting will accelerate earlier upon the sale
of more than 51% of our issued and outstanding common stock or upon completion
of this offering. Our agreement with Mr. Messina requires him to maintain the
confidentiality of our proprietary information and prohibits him from engaging
in competitive activity for a three-year period after his termination. If Mr.
Messina's service with us is terminated during fiscal 1999 or 2000 without
cause, whether actual or constructive, we must pay Mr. Messina $300,000. Such
payment is payable in 36 equal monthly installments.

We generally enter into confidentiality and non-disclosure agreements with
our technical personnel. Pursuant to the terms of these agreements, employees
agree to confidentiality restrictions and to assign to us any reports,
blueprints, data, writings and technical information prepared by them during
their employment that relate to our business.

STOCK OPTION AND INCENTIVE PLANS

Our 1998 Stock Incentive Plan was adopted by the Board of Directors and
approved by the stockholders in April 1998. A total of 1,200,000 shares of
common stock have been authorized for issuance under the 1998 Plan, plus any
shares that are not issued under our 1996 Stock Option Plan. As of the date of
this prospectus, 37,341 shares remained available for issuance under our 1996
Plan, making such shares available under our 1998 Plan.

The 1998 Plan provides for the grant to eligible recipients of:

- options to purchase common stock that qualify as "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code;

- non-qualified options to purchase common stock that do not qualify as
incentive options;

47
<PAGE>
- restricted stock awards, which are subject to certain forfeiture and
transferability restrictions that lapse after specified employment
periods;

- performance units, entitling the recipient to receive a payment from us,
in the form of shares of common stock, cash or a combination of both, upon
the achievement of established performance or other goals;

- awards of shares of common stock in the form of stock bonuses; and

- stock appreciation rights, entitling the recipient to receive a payment,
in the form of shares of common stock or cash, or a combination of both,
equal to the difference between the market value of one or more shares of
common stock and the exercise price of such shares under the terms of such
right.

Under the 1998 Plan options may be granted at an exercise price that is not
less than 100% of the fair market value on the date of grant for incentive
options, and 85% of the fair market value on the date of grant for non-qualified
options.

In the event a "change in control" of Troy occurs, then, unless otherwise
approved by the Compensation Committee of our Board of Directors:

- all outstanding options and stock appreciation rights held at least three
months will become immediately exercisable in full and will remain
exercisable for the remainder of their terms, regardless of whether the
participant remains in the employ or service of the Company or any
subsidiary;

- all outstanding restricted stock awards will become immediately fully
vested; and

- all outstanding performance units and stock bonuses will vest and/or
continue to vest in the manner determined by the Compensation Committee
and reflected in the award agreement.

In addition, the Compensation Committee, without the consent of any affected
participant, may determine that some or all participants holding outstanding
options will receive cash in an amount equal to the excess of the fair market
value immediately prior to the effective date of such change in control over the
exercise price per share of the options.

For purposes of the 1998 Plan, a "change in control" of Troy will be deemed
to have occurred, among other things, upon:

- the sale or other disposition of substantially all of our assets;

- the approval by our stockholders of a plan or proposal for the liquidation
or dissolution of Troy;

- a merger or consolidation to which we are a party if our stockholders
immediately prior to the merger or consolidation beneficially own,
immediately after the merger or consolidation, securities of the surviving
corporation representing (A) more than 50%, but not more than 80%, of the
combined voting power of the surviving corporation's then outstanding
securities unless such transaction was approved in advance by the
"continuity directors," which are the directors as of the effective date
of the 1998 Plan or any persons who subsequently become directors and
whose election or nomination was approved by a majority vote of the
continuity directors, or (B) 50% or less of the combined voting power of
the surviving corporation's then outstanding securities, regardless of any
approval by the continuity directors;

- any person becoming, after the effective date of the 1998 Plan, the
beneficial owner of (A) 20% or more, but less than 50%, of the combined
voting power of our outstanding securities, unless the transaction was
approved in advance by the continuity directors, or (B) 50% or more of the
combined voting power of our outstanding securities, regardless of any
approval by the continuity directors; or

48
<PAGE>
- the continuity directors cease for any reason to constitute at least a
majority of the Board.

Under the terms of the 1998 Plan, certain transfers among the members of
Patrick J. Dirk's family or family trusts will not, in themselves, be considered
to constitute a change in control for the purposes of the plan.

The terms of the 1996 Plan are substantially similar to those of the 1998
Plan, including the pricing of options, although the 1996 Plan does not provide
for the grant of performance units, restricted stock awards or stock bonuses or
the acceleration of any vesting of options upon a "change in control."

As of May 31, 1999, we had outstanding options to purchase an aggregate of
326,957 shares of common stock at a weighted average exercise price of $0.42 per
share. These options are exercisable in full at various times through November
25, 2006. Upon consummation of this offering, we intend to grant options to
purchase an aggregate of 555,000 shares of common stock to certain executive
officers, key employees and directors. Such options will have an exercise price
equal to the price per share to the public in this offering.

CERTAIN TRANSACTIONS

Prior to April 1998, Troy and Troy Systems were 100% beneficially owned by
Patrick J. and Mary J. Dirk as trustees under The Dirk Family Trust UTD March 6,
1990, the trustee of The Dirk 1997 Education Trust, the trustees of the Dirk
1998 Alaska Trust, Brian P. Dirk and Patrick J. Dirk's other three children. For
convenience, we refer to each of these individuals and trusts collectively as
the Dirk stockholders. Effective May 31, 1998, the Dirk stockholders contributed
the stock of Troy Systems beneficially owned by them to Troy in exchange for an
aggregate of 1,124,772 shares of our common stock. The percentage ownership of
the Dirk stockholders in Troy did not change as a result of the contribution of
their Troy Systems stock.

In November 1993, we borrowed, pursuant to a non-negotiable promissory note,
an aggregate of approximately $1.6 million from Patrick J. Dirk and Mary J.
Dirk, as trustees of the Dirk Family Trust. The proceeds of this note were used
for working capital purposes. This note bore interest at a rate of 7.0% per
annum. We made payments to the Dirk Family Trust for the years ended November
30, 1996, 1997 and 1998 in the amounts of $163,000, $349,000 and $375,000,
respectively. During 1998, this note was paid off.

We lease a total of 77,000 square feet at our West Virginia facility from
Dirk Investments, Inc. Dirk Investments is wholly-owned by the Dirk
stockholders. This lease expires on September 1, 2000 and provides for rent,
effective as of December 1997, of approximately $21,200 per month. Total rental
payments made by us for the years ended November 30, 1996, 1997 and 1998 were
approximately $158,000, $168,000 and $250,000 respectively. In 1993, Dirk
Investments secured loans to acquire and improve the West Virginia facility. One
loan, which had an original principal balance of $800,000, bears interest at a
rate of 5.0% and is repayable over 20 years. The second loan has a principal
balance of $350,000, bears interest at an initial rate of 7.95% for five years
and thereafter, adjusted on an annual basis, at a rate equal to the minimum
national prime rate published in the Wall Street Journal plus 2%. This second
loan also has a term of twenty years. The third loan, which had an original
principal balance of $700,000, bears interest at an interest rate of 6.612% per
year and is repayable in monthly installments through February 21, 2014. Troy
Systems and Patrick and Mary Dirk guaranteed repayment of $500,000 of the
amounts outstanding under the first of these loans. In June 1998, Troy Systems
was released from this guarantee.

We paid pro rata distributions to the Dirk stockholders. In fiscal years
ended November 30, 1996, 1997 and 1998, these distributions totalled $118,000,
$2.6 million and $3.6 million, respectively.

49
<PAGE>
We and the Dirk stockholders are parties to a Tax Agreement Relating to S
Corportion Distributions regarding our respective income tax liabilities. We
have agreed to indemnify the Dirk stockholders for any adjustments causing an
increase in their federal and state income tax liability, including interest and
penalties, related to tax years prior to October 30, 1998. Subject to certain
limitations, this agreement also provides that the Dirk stockholders will
reimburse us for any amounts refunded to them as a result of the loss of the S
corporation status of Troy or Troy Systems. Any payment made by us to the Dirk
stockholders pursuant to this agreement may be considered by the Internal
Revenue Service or state taxing authorities to be nondeductible by Troy or Troy
Systems for income tax purposes.

All future transactions, including any loans from us to our officers,
directors, principal shareholders or affiliates, will be on terms no less
favorable to us than could be obtained from unaffiliated third parties.

50
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding beneficial ownership of
our common stock (a) by each stockholder who is known by us to own beneficially
more than 5% of the outstanding common stock; (b) by each director and director
nominee; (c) by each executive officer named in the Summary Compensation Table
under the heading "Executive Compensation" beginning on page 46; and (d) by all
our directors and executive officers as a group, both before and after the
offering.

For the purpose of calculating the percentage beneficially owned, the number
of shares of common stock deemed outstanding "Before Offering" includes: (a)
7,730,130 shares of common stock outstanding as of May 31, 1999; and (b) shares
of common stock subject to options held by the person or group that are
currently exercisable or exercisable within 60 days from the date of this
prospectus. The number of shares of common stock outstanding after this offering
includes an additional 2,500,000 shares offered hereby. Except as otherwise
indicated below, the persons named in the table have sole voting and investment
power with respect to all shares of common stock listed as beneficially owned by
them. The address of the beneficial owners is 2331 South Pullman Street, Santa
Ana, California 92705.

<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OWNERSHIP
BENEFICIALLY ----------------------------------
NAME OF BENEFICIAL OWNER OWNED BEFORE OFFERING AFTER OFFERING
- --------------------------------------------------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
Patrick J. Dirk................................................ 5,692,857 73.6% 55.6%
Mary J. Dirk................................................... 5,692,857 73.6 55.6
Brian P. Dirk.................................................. 503,752 6.4 4.9
Suzanne M. Anderson............................................ 421,786 5.5 4.1
Kristine L. Gigerich........................................... 421,786 5.5 4.1
Lorrie A. Brown................................................ 421,786 5.5 4.1
Robert S. Messina.............................................. 244,990 3.1 2.3
Del L. Conrad.................................................. -- -- --
Norman B. Keider............................................... -- -- --
John B. Zaepfel................................................ -- -- --
William P. O'Reilly............................................ -- -- --
Gene A. Bier................................................... -- -- --
Dr. Harold L. Clark............................................ -- -- --
All directors and executive officers as a group (4 persons).... 6,441,599 80.0 61.0
</TABLE>

The shares beneficially owned by Patrick J. and Mary J. Dirk include
5,692,857 shares that they hold as trustees under The Dirk Family Trust UTD
March 6, 1990 and exclude 120,000 shares of common stock held by the trustee of
The Dirk 1997 Education Trust, 187,143 shares of common stock held by the
trustees of the Dirk 1998 Alaska Trust, 375,000 shares of common stock held by
each of Brian P. Dirk and the three other adult children of Patrick J. and Mary
J. Dirk and 81,967 shares of common stock issuable upon exercise of currently
exercisable options held by Brian P. Dirk.

Brian P. Dirk's beneficial ownership includes 81,967 shares issuable under
currently exercisable options and 46,785 shares of common stock that Mr. Brian
Dirk holds as a trustee under the Alaska Trust.

The shares beneficially owned by each of Ms. Anderson, Ms. Gigerich and Ms.
Brown include 46,786 shares of common stock that each holds as a trustee under
the Alaska Trust.

Mr. Messina's beneficial ownership consists entirely of shares issuable
under currently exercisable options.

The amount beneficially owned by all current directors and executive
officers as a group includes an aggregate of 326,957 shares issuable under
currently exercisable options.

51
<PAGE>
DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of consists of 50,000,000 shares of
common stock, $0.01 par value per share, and 5,000,000 shares of preferred stock
that are undesignated as to series. The following description of our capital
stock does not purport to be complete and is qualified by reference to our
Certificate of Incorporation and applicable law.

COMMON STOCK

As of May 31, 1999, there were 7,730,130 shares of common stock issued and
outstanding, held of record by 16 stockholders. The holders of common stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of stockholders and are not entitled to cumulate votes. The holders of
common stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of legally available funds. Upon our liquidation,
dissolution or winding up, the holders of common stock are entitled to share
ratably in all assets that are legally available for distribution after payment
of all debts and other liabilities, subject to the prior rights of any holders
of preferred stock then outstanding. In addition, in the event that we do not
complete a public offering by May 1, 2000, the former shareholders of Troy
Telgate could require us to repurchase the 58,700 shares of common stock that we
issued in that transaction at a price of $10.00 per share. This option will no
longer be exercisable after this offering is completed. Except for this option,
the holders of common stock have no other preemptive, subscription, redemption,
sinking fund or conversion rights. All outstanding shares of common stock are
fully paid and nonassessable. The shares of common stock to be issued upon
completion of this offering will also be fully paid and nonassessable.

PREFERRED STOCK

The Board of Directors has the authority, without action by the
stockholders, to designate and issue any authorized but unissued shares of
preferred stock in one or more series and to designate the rights, preferences
and privileges of each such series, any or all of which may be greater than the
rights of common stock. It is not possible to state the actual effect of the
issuance of any shares of preferred stock upon the rights of holders of the
common stock until the Board of Directors determines the specific rights of the
holders of such shares. However, the effects might include, among other things,
restricting dividends on the common stock, diluting the voting power of the
common stock, impairing the liquidation rights of the common stock and delaying
or preventing a change in control of Troy without further action by the
stockholders. We have no present plans to issue any shares of preferred stock.

OPTIONS

As of May 31, 1999, we had outstanding options to purchase an aggregate of
326,957 shares of common stock at a weighted average exercise price of $0.42 per
share. These options are exercisable in full at various times through November
24, 2006. All outstanding options provide for antidilution adjustments in the
event of certain mergers, consolidations, reorganizations, recapitalizations,
stock dividends, stock splits or other changes in our corporate structure. Upon
consummation of this offering, we intend to grant options to purchase an
aggregate of 555,000 shares of common stock to certain officers, directors and
employees. Such options will have an exercise price equal to the initial public
offering price.

52
<PAGE>
WARRANTS

Under a consulting agreement between Troy and Broadland Capital Partners, we
issued Broadland a warrant, effective as of October 1, 1997 and as amended
through June 8, 1999, to purchase up to 250,000 shares of common stock. The
warrant was issued to Broadland for:

- assisting us in focusing our business plan and strategy in preparation for
a public offering;

- identifying and analyzing comparable companies;

- identifying and conducting due diligence on potential investment bankers;

- assisting us in evaluating and negotiating with potential underwriters;

- assisting us in the public offering process, including participating in
drafting sessions, collecting information and preparing road show
strategies and materials;

- assisting us in preparing to become a public company, including advising
us regarding investment community expectations and introducing us to
potential market makers and research analysts;

- assisting us in identifying and negotiating with potential acquisition
candidates; and

- providing such other services in connection with this offering as may be
requested from time to time.

As amended, the warrant will vest as to 50,000 shares upon completion of
this offering and as to the remaining shares upon certain acquisitions. The
warrants will expire five years after they vest. The 50,000 shares that vest
upon completion of this offering will be issuable at an exercise price equal to
the offering price. The remaining 200,000 shares will be issuable at an exercise
price of $3.50 per share. This warrant vested as to 50,000 shares upon
completion of the acquisition of Troy XCD in October 1998 and an additional
50,000 shares upon completion of our acquisition of Troy Telgate in May 1999.

In connection with legal services provided to us, we issued a warrant in May
1998 to an individual to purchase up to 50,000 shares of common stock at an
exercise price of $3.50 per share. This warrant was amended and vested in June
1999 and expires five years from the date of vesting. The warrant was issued to
the individual for:

- assisting in drafting our offering and other legal documents in connection
with our initial public offering;

- assisting the Chief Executive Officer in the completion of the
underwriters' due diligence investigation;

- providing necessary legal opinions required by an underwriting agreement;
and

- providing such other services in connection with this offering as
requested by the Chief Executive Officer from time to time.

In October 1998, we issued warrants to purchase 50,000 shares of common
stock to a consultant in connection with the acquisiton of Troy XCD. These
warrants have an exercise price of $7.00 per share.

REGISTRATION RIGHTS

Under the terms of our outstanding warrants, each warrant holder or their
transferee are entitled to have the shares of common stock issued upon exercise
registered under the Securities Act if registration is required by any
governmental authority under any federal or state law in connection with their
issuance.

53
<PAGE>
In connection with our acquisition of Troy XCD, we also granted registration
rights to the former XCD shareholders covering the 171,430 shares of our common
stock that they received in the transaction. Upon a majority demand of these
holders at any time after October 30, 1999, these registration rights require us
to register these shares of common stock under the Securities Act. If demand
registration does not occur for any reason, the holders are entitled to include
their shares in any registration statement that we file (other than those filed
with respect to acquisitions or employee benefit plans). We have no obligation
to register any of the shares issued in the Troy XCD acquisition if the holder
would have substantially the same opportunity to sell the shares under Rule 144
under the Securities Act or any other exemption from registration.

ANTI-TAKEOVER PROVISIONS OF THE DELAWARE GENERAL CORPORATION LAW

We are subject to Section 203 of the Delaware General Corporation Law. In
general, Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years following the date the person became an interested
stockholder, unless (with certain exceptions) the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale, or other transaction resulting in a financial benefit to
the interested stockholder. Generally, an "interested stockholder" is a person
who, together with affiliates and associates, owns (or, in the case of
affiliates or associates of the corporation, within three years prior to the
determination of interested stockholder status, did own) 15% or more of a
corporation's voting stock. The existence of this provision would be expected to
have anti-takeover effects with respect to transactions not approved in advance
by the Board of Directors, such as discouraging takeover attempts that might
result in a premium over the market price of the common stock.

Our Certificate of Incorporation eliminates the right of stockholders to act
by written consent without a meeting unless such written consent is unanimous.
In addition, stockholders are not entitled to cumulative voting in the election
of directors. The authorization of preferred stock makes it possible for the
Board of Directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to change control of
Troy. The foregoing provisions of our Certificate of Incorporation and the
Delaware General Corporation Law may have the effect of deferring hostile
takeovers or delaying changes in control of management of Troy.

LIMITATION ON LIABILITY OF DIRECTORS AND INDEMNIFICATION

Our Certificate of Incorporation limits our directors' liability to the
fullest extent permitted under the Delaware General Corporation Law.
Specifically, our directors are not liable to us or our stockholders for
monetary damages for any breach of fiduciary duty by such a director, except for
liability for:

- any breach of the director's duty of loyalty to us or our stockholders,

- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,

- corporate distributions, including dividends, stock distributions and
redemptions, which are in contravention of restrictions in Delaware law,
our Certificate of Incorporation or Bylaws, or any agreement to which we
are a party, and

- any transaction from which a director derives an improper personal
benefit.

This provision will generally not limit liability under state or federal
securities laws.

Delaware law and our Certificate of Incorporation provide that we shall,
under certain circumstances and subject to certain limitations, indemnify any
person made or threatened to be made a party

54
<PAGE>
to a proceeding by reason of that person's former or present official capacity
with Troy against judgments, penalties, fines, settlements and reasonable
expenses. Any such person is also entitled, subject to certain limitations, to
payment or reimbursement of reasonable expenses in advance of the final
disposition of the proceeding.

We have also entered into indemnification agreements with all of our
directors and executive officers. Under these agreements we have agreed to
indemnify and hold each harmless from and against any claims, liability, damages
or expenses incurred by them in or arising out of their status, capacities and
activities with respect to Troy to the maximum extent permitted by Delaware law.
We believe that these agreements are necessary to attract and retain qualified
persons as directors and executive officers.

TRANSFER AGENT AND REGISTRAR

U.S. Stock Transfer Corporation is our transfer agent and registrar.

SHARES ELIGIBLE FOR FUTURE SALE

Following this offering, we will have 10,230,130 shares of common stock
outstanding, assuming no options or warrants are exercised after May 31, 1999.
All the shares we sell in this offering will be freely tradable without
restriction or further registration under the Securities Act, except that any
shares held by our affiliates, as that term is defined in Rule 144 under the
Securities Act may generally only be sold in compliance with the limitations of
Rule 144 described below.

The remaining 7,730,130 shares of common stock held by existing stockholders
are considered restricted under Rule 144. Generally, restricted securities that
have been owned for a period of at least two years may be sold immediately after
the completion of this offering and restricted securities that have been owned
for at least one year may be sold 90 days after the completion of this offering.
Holders of all of the restricted securities have entered into lock-up agreements
under which they have agreed not to sell any common stock for a period of 180
days after the date of this prospectus without the prior written consent of the
underwriters' representatives. The representatives may, in their sole discretion
at any time without notice, release any portion of the shares subject to the
lock-up agreements during this period. Following expiration of the 180-day
period, 1,265,358 of the restricted securities will be eligible for sale in the
public market without restriction. Volume limitations and other conditions of
Rule 144 will apply to public sale of the balance of the restricted shares
although certain holders have been granted registration rights which, if
exercised, would cause their shares to be registered and eligible for immediate
sale. Following this offering, we also intend to file one or more Registration
Statements on Form S-8 covering shares issuable under our 1998 Plan, 1996 Plan
and 1998 Employee Stock Purchase Plan, thus permitting the resale of such shares
by non-affiliates in the public market without restriction under the Securities
Act.

Because there has been no public market for shares of our common stock, we
are unable to predict the effect that sales made under Rule 144, pursuant to
future registration statements, or otherwise, may have on any then prevailing
market price for shares of the common stock. Nevertheless, sales of a
substantial amount of common stock in the public market, or the perception that
such sales could occur, could adversely affect market prices.

55
<PAGE>
UNDERWRITING

The underwriters named below, acting through their representatives,
Cruttenden Roth Incorporated, Pennsylvania Merchant Group and H.C. Wainwright &
Co., Inc., have severally agreed with us, subject to the terms and conditions of
the underwriting agreement, to purchase the number of shares of common stock
opposite their names below. The underwriters are obligated to purchase and pay
for all such shares, subject to certain legal matters and various other
conditions.

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Cruttenden Roth Incorporated...............................................
Pennsylvania Merchant Group................................................
H.C. Wainwright & Co., Inc.................................................
-----------------
Total...................................................................... 2,500,000
-----------------
-----------------
</TABLE>

The representatives have advised us that they propose to offer the shares of
common stock to the public at the offering price set forth on the cover page of
this prospectus. The underwriters may allow selected dealers (who may include
the underwriters) a concession not in excess of $ per share, and the
underwriters and such dealers may reallow a discount of not in excess of $ per
share to other dealers. After completion of the offering, the public offering
price, concession and discount to dealers and other selling terms may be changed
by the representatives. The common stock is offered subject to receipt and
acceptance by the underwriters, and to certain other conditions, including the
right to reject orders in whole or in part.

In addition to their discounts and commissions, we have agreed to pay the
underwriters a non-accountable expense allowance of 1- 1/2% of the gross
proceeds of this offering.

We have granted the underwriters an option to purchase up to 375,000
additional shares of common stock at the initial public offering price, less the
underwriting discount, set forth on the cover page of this prospectus. This
option is exercisable for 30 days from the date of this prospectus. To the
extent that the underwriters exercise this option, each of the underwriters will
be committed, subject to certain conditions, to purchase such additional shares
in approximately the same proportion as set forth in the above table. The
underwriters may exercise such option solely to cover over-allotments, if any,
in the sale of the shares.

We have agreed to sell to the representatives, for nominal consideration, a
warrant representing the right to purchase 250,000 shares of common stock at an
exercise price per share equal to 120% of the price per share to the public. The
warrant is exercisable during the period beginning one year after the date of
this prospectus and ending on the fifth anniversary of the date of this
prospectus. The warrant includes a net exercise provision under which the holder
may exercise the warrant by paying the exercise price using shares of common
stock issuable upon exercise of such warrants valued at the fair market value at
the time of the exercise. For one year from the date of this prospectus, the
warrant is not transferable, except to officers and stockholders of the
representatives. The holders of the warrant have certain limited rights or
registration of the common stock issuable upon exercise of the warrant. Any
profits realized by the representatives upon the sale of the warrant or the
securities issuable upon its exercise may be deemed additional underwriting
compensation.

56
<PAGE>
The underwriting agreement provides that we will indemnify the underwriters
and their controlling persons against certain liabilities under the Securities
Act or will contribute to payments the underwriters and their controlling
persons may be required to make in respect thereof. We are generally obligated
to indemnify the underwriters and their respective controlling persons in
connection with losses or claims arising out of any untrue statement of a
material fact contained in this prospectus or in related documents filed with
the Securities and Exchange Commission or with any state securities
administrator or arising out of any omission to state in any of such documents
any material fact required to be stated in such documents or necessary to make
the statements made in such documents, in light of the circumstances under which
they were made, not misleading. In addition, we are generally obligated to
indemnify the underwriters and their respective controlling persons in
connection with losses or claims arising out of any breach of any of our
representations, warranties, agreements or covenants contained in the
underwriting agreement.

The foregoing is a summary of the principal terms of the underwriting
agreement; it does not purport to be complete and is qualified in its entirety
by reference to the form of underwriting agreement that has been filed as an
exhibit to our Registration Statement of which this prospectus is a part.

We and each of our existing stockholders have agreed not to, without the
prior written consent of Cruttenden Roth Incorporated, directly or indirectly,
sell, offer, contract or grant any option to sell (including without limitation
any short sale), pledge, transfer, establish an open "put equivalent position"
within the meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934,
as amended, or otherwise dispose of any shares of common stock, options or
warrants to acquire shares of common stock or securities exchangeable or
exercisable for or convertible into shares of common stock, currently owned or
later acquired either of record or beneficially (as defined in Rule 13d-3 under
the Exchange Act) by us, or publicly announce our intention to do any of the
foregoing, for a period of 180 days after the date of this prospectus.

The representatives have advised us that the underwriters do not intend to
confirm sales of common stock offered by this prospectus to any account on which
they exercise discretionary authority in excess of 5% of the number of shares of
common stock offered by this prospectus.

In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with this offering, creating a short position in the common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the common stock, the underwriters may bid for, and purchase, shares of
the common stock in the open market. The underwriters may also reclaim selling
concessions allowed to an underwriter or a dealer for distributing the common
stock in this offering, if the underwriters repurchase previously distributed
common stock in transactions to cover their short positions, in stabilization
transactions or otherwise. Finally, the underwriters may bid for, and purchase,
shares of the common stock in market making transactions and impose penalty
bids. These activities may stabilize or maintain the market price of the common
stock above market levels that may otherwise prevail. These transactions may be
effected on the Nasdaq National Market, in the over-the-counter market or
otherwise, and if commenced, may be discontinued at any time. The underwriters
are not required to engage in these activities, and may end any of these
activities at any time.

Before this offering, no public market for our securities has existed. The
initial public offering price for the common stock will be determined by
negotiations among us and the representatives. The factors to be considered in
determining the initial public offering price will include our history and the
prospects for our business and the industry in which we operate, our past and
present operating results and the trends of such results, our future prospects,
an assessment of management, the general condition of the securities markets at
the time of the offering and the prices for similar securities of comparable
companies.

57
<PAGE>
LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for us
by Oppenheimer Wolff & Donnelly LLP, San Jose, California. Certain legal matters
relating to this offering will be passed upon for the underwriters by Morris,
Manning & Martin, L.L.P., Atlanta, Georgia.

EXPERTS

Our financial statements as of November 30, 1997 and 1998, and for each of
the three years in the period ended November 30, 1998 and the financial
statements of XCD Incorporated as of September 30, 1998 and for the nine months
then ended included in this prospectus and Registration Statement have been
audited by McGladrey & Pullen, LLP, independent auditors, as set forth in their
reports appearing elsewhere herein and in the Registration Statement, and are
included in reliance upon such reports given on the authority of such firm as
experts in accounting and auditing.

ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission, a Registration
Statement under the Securities Act with respect to the shares of common stock
that we are offering. This prospectus does not contain all the information that
is set forth in the Registration Statement and the related exhibits and
schedules. For further information regarding Troy and our common stock,
reference is made to the Registration Statement and to its exhibits and
schedules. Statements contained in this prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
by such reference. A copy of the Registration Statement may be inspected without
charge at the SEC's offices at 450 Fifth Street, N.W., Washington D.C. 20549,
and at the SEC's regional offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of all or any part of the Registration Statement may be
obtained from the SEC's Public Reference Section in Washington D.C., upon the
payment of prescribed fees. The SEC maintains a Web site (http:// www.sec.gov)
that contains reports, proxy statements and other information that has been or
will be filed by us.

We intend to furnish holders of the common stock with future annual reports
containing audited financial statements certified by independent auditors, and
future quarterly reports for each of the first three quarters of each year
containing unaudited financial information.

58
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
TROY GROUP, INC.
- -----------------------------------------------------------------------------------------------------------

Independent auditor's report............................................................................. F-2

Consolidated balance sheets.............................................................................. F-3

Consolidated statements of operations.................................................................... F-4

Consolidated statements of stockholders' equity.......................................................... F-5

Consolidated statements of cash flows.................................................................... F-6

Notes to consolidated financial statements............................................................... F-7

Independent auditor's report on the schedule............................................................. F-21

Schedule II--valuation and qualifying account............................................................ F-22

XCD INCORPORATED
- -----------------------------------------------------------------------------------------------------------

Independent auditor's report............................................................................. F-23

Consolidated balance sheet............................................................................... F-24

Consolidated statement of income......................................................................... F-25

Consolidated statement of stockholders' equity........................................................... F-26

Consolidated statement of cash flows..................................................................... F-27

Notes to consolidated financial statements............................................................... F-28
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT ON THE
CONSOLIDATED FINANCIAL STATEMENTS

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

We have audited the accompanying consolidated balance sheets of Troy Group,
Inc. and subsidiaries as of November 30, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended November 30, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Troy Group,
Inc. and subsidiaries as of November 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
November 30, 1998, in conformity with generally accepted accounting principles.

McGLADREY & PULLEN, LLP

Anaheim, California
January 6, 1999

F-2
<PAGE>
TROY GROUP, INC

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------------- MAY 31,
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
(Unaudited)
ASSETS

Current assets:
Cash.............................................................. $ 100,000 $ 308,000 $ 42,000
Accounts receivable, less allowance for doubtful accounts 1997
$164,000; 1998 140,000; 1999 $153,000........................... 5,509,000 6,379,000 7,842,000
Income tax refund receivable...................................... -- 319,000 --
Inventories....................................................... 3,831,000 5,783,000 7,012,000
Prepaid expenses and other........................................ 254,000 50,000 134,000
Deferred tax assets............................................... -- 766,000 766,000
------------- ------------- -------------
Total current assets.......................................... 9,694,000 13,605,000 15,796,000

Equipment and leasehold improvements, net........................... 1,500,000 1,905,000 1,974,000

Other assets........................................................ 555,000 3,408,000 4,650,000
------------- ------------- -------------
Total assets.................................................. $ 11,749,000 $ 18,918,000 $ 22,420,000
------------- ------------- -------------
------------- ------------- -------------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Checks issued not yet presented for payment....................... $ 173,000 $ 42,000 $ 675,000
Note payable...................................................... -- 1,190,000 1,247,000
Current portion of long-term debt................................. 754,000 959,000 959,000
Accounts payable.................................................. 1,670,000 2,868,000 2,777,000
Accrued expenses.................................................. 1,724,000 2,544,000 1,683,000
Income taxes payable.............................................. -- -- 655,000
Deferred service revenue.......................................... 200,000 196,000 205,000
------------- ------------- -------------
Total current liabilities..................................... 4,521,000 7,799,000 8,201,000
------------- ------------- -------------
Long-term debt, net of current portion (including $375,000 in 1997
payable to the majority stockholder).............................. 1,280,000 2,374,000 2,564,000
------------- ------------- -------------
Deferred tax liabilities............................................ -- 480,000 740,000
------------- ------------- -------------
Commitments and contingencies

Stockholders' equity:
Common stock, par value $.01 per share; authorized 50,000,000
shares, issued 1997 7,500,000 shares; 1998 7,671,430 shares; and
1999 7,730,130 shares........................................... 75,000 77,000 77,000
Preferred stock, no par value, authorized 5,000,000 shares, issued
none............................................................ -- -- --
Additional paid-in capital........................................ 247,000 1,724,000 2,349,000
Retained earnings................................................. 5,626,000 6,464,000 8,489,000
------------- ------------- -------------
Total stockholders' equity.................................... 5,948,000 8,265,000 10,915,000
------------- ------------- -------------
Total liabilities and stockholders' equity.................... $ 11,749,000 $ 18,918,000 $ 22,420,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

See Notes to Consolidated Financial Statements.

F-3
<PAGE>
TROY GROUP, INC

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED NOVEMBER 30, MAY 31,
---------------------------------------- --------------------------
1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Net sales............................... $ 28,161,000 $ 33,434,000 $ 35,758,000 $ 18,322,000 $ 23,466,000

Cost of goods sold, (including:
$158,000; $168,000; $250,000 $127,000;
and $134,000 in rent paid to majority
stockholders)......................... 17,408,000 19,597,000 21,496,000 10,756,000 14,167,000
------------ ------------ ------------ ------------ ------------
Gross profit...................... 10,753,000 13,837,000 14,262,000 7,566,000 9,299,000
------------ ------------ ------------ ------------ ------------
Operating expenses:
Selling, general and administrative... 5,234,000 6,622,000 6,394,000 3,424,000 4,036,000
Research and development.............. 2,041,000 2,521,000 2,546,000 1,228,000 1,742,000
Purchased in process research and
development......................... -- -- 857,000 -- --
------------ ------------ ------------ ------------ ------------
7,275,000 9,143,000 9,797,000 4,652,000 5,778,000
------------ ------------ ------------ ------------ ------------
Operating income.................. 3,478,000 4,694,000 4,465,000 2,914,000 3,521,000

Interest expense, (including $61,000;
$33,000; $11,000; $11,000; and none
paid to majority stockholders) 361,000 262,000 101,000 69,000 162,000
------------ ------------ ------------ ------------ ------------
Income before income taxes
(credit)........................ 3,117,000 4,432,000 4,364,000 2,845,000 3,359,000

Provision for income taxes (credit)..... 50,000 35,000 (70,000) 43,000 1,334,000
------------ ------------ ------------ ------------ ------------
Net income........................ $ 3,067,000 $ 4,397,000 $ 4,434,000 $ 2,802,000 $ 2,025,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Pro forma net income (unaudited):
Historical income before income
taxes............................... $ 3,117,000 $ 4,432,000 $ 4,364,000 $ 2,845,000
Pro forma provision for income
taxes............................... 1,247,000 1,773,000 1,993,000 1,138,000
------------ ------------ ------------ ------------
Pro forma net income.............. $ 1,870,000 $ 2,659,000 $ 2,371,000 $ 1,707,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income per share:
Basic (1996, 1997 and 1998 pro
forma).............................. $ 0.25 $ 0.35 $ 0.32 $ 0.23 $ 0.26
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Diluted (1996, 1997 and 1998 pro
forma).............................. $ 0.25 $ 0.34 $ 0.31 $ 0.22 $ 0.25
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Weighted-average shares outstanding:
Basic................................. 7,500,000 7,500,000 7,514,000 7,500,000 7,679,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Diluted............................... 7,500,000 7,759,000 7,745,000 7,807,000 8,020,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>

See Notes to Consolidated Financial Statements.

F-4
<PAGE>
TROY GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK
-------------------------- ADDITIONAL
NUMBER PAID-IN RETAINED
OF SHARES AMOUNT CAPITAL EARNINGS TOTAL
----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, November 30, 1995.............. 7,500,000 $ 75,000 $ 247,000 $ 831,000 $ 1,153,000
Dividends............................. -- -- -- (118,000) (118,000)
Net income............................ -- -- -- 3,067,000 3,067,000
----------- ------------- ------------- ------------- -------------
Balance, November 30, 1996.............. 7,500,000 75,000 247,000 3,780,000 4,102,000
Dividends............................. -- -- -- (2,551,000) (2,551,000)
Net income............................ -- -- -- 4,397,000 4,397,000
----------- ------------- ------------- ------------- -------------
Balance, November 30, 1997.............. 7,500,000 75,000 247,000 5,626,000 5,948,000
Issuance of common stock.............. 171,430 2,000 1,198,000 -- 1,200,000
Issuance of common stock warrants..... -- -- 279,000 -- 279,000
Dividends............................. -- -- -- (3,596,000) (3,596,000)
Net income............................ -- -- -- 4,434,000 4,434,000
----------- ------------- ------------- ------------- -------------
Balance, November 30, 1998.............. 7,671,430 77,000 1,724,000 6,464,000 8,265,000
Issuance of common stock (unaudited).... 58,700 -- 411,000 -- 411,000
Issuance of common stock warrants
(unaudited)........................... -- -- 214,000 -- 214,000
Net income (unaudited)................ -- -- -- 2,025,000 2,025,000
----------- ------------- ------------- ------------- -------------
Balance, May 31, 1999 (unaudited)....... 7,730,130 $ 77,000 $ 2,349,000 $ 8,489,000 $ 10,915,000
----------- ------------- ------------- ------------- -------------
----------- ------------- ------------- ------------- -------------
</TABLE>

See Notes to Consolidated Financial Statements.

F-5
<PAGE>
TROY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FISCAL YEAR ENDED NOVEMBER 30, SIX MONTHS ENDED
---------------------------------------- MAY 31,
1996 1997 1998 --------------------------
------------ ------------ ------------ 1998 1999
------------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................... $ 3,067,000 $ 4,397,000 $ 4,434,000 $ 2,802,000 $ 2,025,000
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization.......... 680,000 617,000 682,000 262,000 467,000
Purchased in process research and
development.......................... -- -- 857,000 -- --
Provision for doubtful accounts........ 209,000 65,000 134,000 151,000 29,000
Deferred taxes......................... -- -- (77,000) -- --
Changes in working capital components,
net of effects from acquisition of
companies.
(Increase) decrease in:
Accounts receivable................ (1,738,000) (369,000) (16,000) (1,131,000) (1,297,000)
Income tax refund receivable....... -- -- (211,000) -- 319,000
Inventories........................ (517,000) 404,000 (1,209,000) (794,000) (1,194,000)
Prepaid expenses and other......... (17,000) (125,000) 244,000 -- (81,000)
Increase (decrease) in:
Accounts payable................... 616,000 227,000 894,000 902,000 (91,000)
Accrued expenses................... (142,000) 346,000 (1,125,000) (477,000) (879,000)
Income taxes payable............... -- -- -- -- 655,000
Deferred service revenue........... (104,000) 10,000 (4,000) (7,000) 9,000
------------ ------------ ------------ ------------- -----------
Net cash provided by (used in)
operating activities............... 2,054,000 5,572,000 4,603,000 1,708,000 (38,000)
------------ ------------ ------------ ------------- -----------
Cash flows from investing activities:
Acquisition of companies................. -- -- (1,638,000) -- (299,000)
Purchase of equipment and leasehold
improvements........................... (301,000) (197,000) (917,000) (19,000) (338,000)
Increase in other assets................. (1,000) (561,000) (802,000) (260,000) (271,000)
------------ ------------ ------------ ------------- -----------
Net cash (used in) investing
activities......................... (302,000) (758,000) (3,357,000) (279,000) (908,000)
------------ ------------ ------------ ------------- -----------
Cash flows from financing activities:
Borrowings on notes payable.............. 12,875,000 17,498,000 10,291,000 4,691,000 12,097,000
Payments on notes payable................ (13,143,000) (19,110,000) (9,101,000) (4,076,000) (12,040,000)
Proceeds from issuance of debt........... -- 1,000,000 2,876,000 -- 670,000
Principal payments on debt............... (848,000) (1,175,000) (1,577,000) (861,000) (480,000)
Payments on life insurance loans......... -- (201,000) -- -- --
Increase (decrease) in checks issued not
presented for payment.................. (476,000) (217,000) (131,000) 255,000 633,000
Dividends paid........................... (118,000) (2,551,000) (3,396,000) (1,498,000) (200,000)
------------ ------------ ------------ ------------- -----------
Net cash provided by (used in)
financing activities............... (1,710,000) (4,756,000) (1,038,000) (1,489,000) 680,000
------------ ------------ ------------ ------------- -----------
Net increase (decrease) in cash...... 42,000 58,000 208,000 (60,000) (266,000)
Cash, beginning of period.................. -- $ 42,000 100,000 100,000 308,000
------------ ------------ ------------ ------------- -----------
Cash, end of period........................ $ 42,000 $ 100,000 $ 308,000 $ 40,000 $ 42,000
------------ ------------ ------------ ------------- -----------
------------ ------------ ------------ ------------- -----------
</TABLE>

See Notes to Consolidated Financial Statements.

F-6
<PAGE>
TROY GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED MAY 31, 1998 AND 1999 IS
UNAUDITED

NOTE 1. NATURE OF BUSINESS, REORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

The Company is a leading worldwide provider of enterprise output solutions
that enable organizations to electronically transmit and output information
across distributed computing environments. The Company provides connectivity and
output enhancement solutions to over 9,000 customers, including many of the
Fortune 1,000 Companies. The Company's connectivity products include software,
firmware and hardware that enable output devices such as printers and fax
machines to better communicate over networks and the Internet. The Company's
output enhancement products include software, firmware, hardware and imaging
supplies that enhance the functionality of these output devices.

REORGANIZATION

In May of 1998, the Company and Troy Systems International, Inc. entered
into a restructuring and reorganization arrangement. Prior to that date, these
two companies had common ownership. As a result of the restructuring and
reorganization; (i) the Company reincorporated in Delaware; (ii) Troy Systems
International, Inc. became a wholly-owned subsidiary of Troy Group, Inc. and the
former stockholders of Troy Systems International, Inc. received shares of Troy
Group, Inc.; and (iii) the Company effected a 910.7468-for-one stock split. This
reorganization has been accounted for as if it occurred as of the beginning of
the earliest period presented in these consolidated financial statements. The
reporting entity includes the consolidated financial statements of Troy Group,
Inc., Troy Systems International, Inc. (the "Subsidiary") and Dirk Worldwide,
Inc., a foreign sales corporation (FSC) previously owned by the individual
retirement accounts of the stockholders. The FSC is included in these
consolidated financial statements because it provided an integral function in
the Troy Group's tax strategies and on July 14, 1998, the stockholders of the
FSC contributed their stock to Troy Group, Inc. In addition, the reporting
entity includes the results of Troy XCD, Inc. and Telgate Equipment Corporation
since the date of their acquisitions (see Note 2).

A SUMMARY OF THE COMPANY'S SIGNIFICANT ACCOUNTING POLICIES FOLLOWS:

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

PRINCIPLES OF CONSOLIDATION

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

CHECKS ISSUED NOT YET PRESENTED FOR PAYMENT

Through the use of concentration accounts, the Company's cash is accumulated
daily and applied to the outstanding balance of the revolving line of credit
(Note 6). Under this program, idle funds are

F-7
<PAGE>
TROY GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED MAY 31, 1998 AND 1999 IS
UNAUDITED

NOTE 1. NATURE OF BUSINESS, REORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
minimized. The Company's liquidity is thereby maintained in the form of its
ability to draw funds against the revolving line of credit. All checks issued
not yet presented for payment are classified as a liability.

INVENTORIES

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

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

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

INTANGIBLE ASSETS

Intangible assets consists of customer lists, core technology, assembled
workforce and goodwill which are being amortized on a straight line basis over 5
to 7 years.

REVENUE RECOGNITION

The Company recognizes revenue when goods are shipped to the customer.
Service revenue is recognized over the period of the contract on a straight-line
basis.

PRODUCT RETURNS AND WARRANTIES

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

ADVERTISING POLICY

The Company expenses the production costs of advertising the first time the
advertising takes place. Advertising expense was approximately $164,000, $94,000
and $84,000 in fiscal years 1996, 1997 and 1998, respectively, net of marketing
development funds received from a supplier of $30,000 in fiscal year 1996. There
were no marketing development funds received in fiscal years 1997 and 1998.

RESEARCH AND DEVELOPMENT POLICY

The Company expenses research and development costs as they are incurred.
The Company incurs research and development costs in developing new products.

INCOME TAXES

For the eleven months ended October 31, 1998 and for the years ended
November 30, 1997 and 1996, and prior years, the Company, with the consent of
its stockholders, elected to be taxed under sections of federal and state income
tax law, which provide that, in lieu of corporation income taxes, the
stockholders separately account for their pro rata shares of the Company's
income, deductions,

F-8
<PAGE>
TROY GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED MAY 31, 1998 AND 1999 IS
UNAUDITED

NOTE 1. NATURE OF BUSINESS, REORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
losses and credits. The Company's stockholders terminated this election
effective as of October 30, 1998.

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

STOCK-BASED COMPENSATION

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist of cash, accounts receivable,
accounts payable and notes payable. The book value of these instruments are
considered to be representative of their fair value.

PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS

The Company terminated the S corporation election for itself and its
subsidiary effective as of October 30, 1998. The pro forma statement of
operations information prior to October 30, 1998 included in these financial
statements is to show what the significant effects might have been on the
historical statements of operations had the Company and its subsidiary not been
treated as S corporations for income tax purposes. The pro forma information
reflects a provision for income taxes at an effective rate of 40% in the fiscal
years ended November 30, 1996, 1997 and 1998, after giving effect in 1998 to the
nondeductibility of purchased in process research and development and the
nontaxability of the increase in the cash surrender value of officer life
insurance. The pro forma net income per share is based on the weighted average
number of shares of common stock outstanding during the period.

EARNINGS PER SHARE

Basic EPS is computed as net income divided by the weighted-average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur from common shares issuable through stock options
(none, 259,000 and 231,000 shares in the fiscal year ended November 30, 1996,
1997 and 1998, respectively; and 307,000 shares and 341,000 shares in the six
months ended May 31, 1998 and 1999, respectively). Diluted EPS does not include
contingently issuable

F-9
<PAGE>
TROY GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED MAY 31, 1998 AND 1999 IS
UNAUDITED

NOTE 1. NATURE OF BUSINESS, REORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
options because the conditions for issuance have not been met. The dilutive
effect of options which were not included in the total of diluted shares for
1998 because the effect was antidilutive was 63,000 shares.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the FASB issued SFAS No. 130 Reporting Comprehensive Income
and SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 130 requires that an enterprise report, by major
components and as a single total, the change in its net assets during the period
from nonowner sources; and SFAS No. 131 establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures about
its products, services, geographic areas and major customers. Adoption of these
statements will not impact the Company's financial position, results of
operations or cash flows and any effect will be limited to the form and content
of its disclosures. Both statements are effective for fiscal years beginning
after December 15, 1997, with earlier application permitted.

In October 1997, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 97-2, SOFTWARE REVENUE RECOGNITION. SOP 97-2
provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions. The SOP is effective for
transactions entered into in fiscal years beginning after December 15, 1997.
Management of the Company does not believe the adoption of SOP 97-2 will have a
material effect on the Company's consolidated financial statements.

In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. This Statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. The
new standard is effective for fiscal years starting after June 30, 1999 and is
not expected to have a material impact on the Company's consolidated financial
statements.

RECLASSIFICATION

Certain reclassifications have been made to the 1997 consolidated balance
sheet to conform to the 1998 presentation with no effect on stockholder's equity
or net income.

UNAUDITED INTERIM FINANCIAL INFORMATION

The interim financial information presented herein as of and for the six
months ended May 31, 1998 and 1999 reflect all adjustments which are, in the
opinion of management, necessary for a fair presentation for the periods
presented. Such adjustments are of a normal recurring nature. The interim
financial information is not intended to be a complete presentation in
accordance with generally accepted accounting principles. The May 31, 1999
interim financial statements are not necessarily indicative of the results in
the entire fiscal year ending November 30, 1999, or any subsequent period.

F-10
<PAGE>
TROY GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED MAY 31, 1998 AND 1999 IS
UNAUDITED

NOTE 2. BUSINESS COMBINATIONS

TROY XCD, INC.

On October 30, 1998, the Company acquired all of the outstanding shares of
Troy XCD, Inc. (formerly XCD Incorporated), a manufacturer of print server
hardware and firmware in exchange for 171,430 shares of $.01 par value common
stock and $1,550,000 in cash. The total acquisition cost was $3,117,000 and was
allocated as follows:

<TABLE>
<S> <C>
Current assets, including $663,000 of deferred tax assets....... $2,568,000
Equipment and leasehold improvements............................ 155,000
Customer list................................................... 100,000
Core technology................................................. 953,000
Assembled workforce............................................. 150,000
Purchased in process research and development................... 857,000
Current liabilities assumed..................................... (2,049,000)
Long-term deferred tax liability................................ (480,000)
Goodwill........................................................ 863,000
----------
$3,117,000
----------
----------
</TABLE>

The acquisition has been accounted for as a purchase and results of
operations of Troy XCD, Inc. since the date of acquisition are included in the
consolidated financial statements.

Unaudited pro forma consolidated results of operations for the years ended
November 30, 1997 and 1998 as though Troy XCD, Inc. had been acquired as of
December 1, 1996 after giving effect of the termination of the Company's
subchapter S election are as follows:

<TABLE>
<CAPTION>
1997 1998
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Sales.......................................................... $ 39,159,000 $ 40,828,000
Pro forma net income........................................... 2,526,000 1,945,000
Pro forma net income per share:
Basic........................................................ 0.33 0.25
Diluted...................................................... 0.32 0.25
</TABLE>

The above amounts reflect pro forma adjustments for amortization of
intangibles, the elimination of the charge for purchased in process research and
development, interest expense and number of shares outstanding. This pro forma
financial information does not purport to be indicative of the results of
operations had the Troy XCD, Inc. acquisition actually taken place at the
earlier date.

On October 30, 1998, Troy XCD, Inc. had 16 research and development projects
in process. These projects included the development of hardware, software and
firmware for interface cards, print servers and printing over the internet to
remote locations. Troy assigned value to each of these projects using an income
approach methodology. A number of factors were used to determine value including
the assignment of probability to the projected product revenue streams,
estimated gross margin contributions, and estimated stage of completion. Of
these 16 projects, four accounted for over ninety-five

F-11
<PAGE>
TROY GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED MAY 31, 1998 AND 1999 IS
UNAUDITED

NOTE 2. BUSINESS COMBINATIONS (CONTINUED)
percent of the value assigned to the in process research and development. A
summary of these projects is as follows:

<TABLE>
<CAPTION>
IN-PROCESS
ESTIMATED ANTICIPATED RESEARCH AND
NO. COSTS COST TO COMPLETION DEVELOPMENT
-- NATURE INCURRED COMPLETE DATE VALUE
------------------------------------------------------ ---------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1 Ethernet interface card............................... $ 143,000 $ 13,000 Dec. 1998 $ 453,000

2 Print server hardware and firmware.................... 26,000 9,000 March 1999 254,000

3 Data Products firmware................................ 53,000 31,000 Sept. 1999 63,000

4 Internet firmware and software........................ 90,000 130,000 Dec. 1999 66,000

5 Others, twelve projects............................... Various Various Various 21,000
------------

$ 857,000
------------
------------
</TABLE>

PROJECT NUMBER 1--XCD was in the process of developing an ethernet interface
card with features that include a graphical interface, custom e-mail filter for
internet printing, and multilanguage support for management utilities. XCD was
completing the graphical interface and debugging the ethernet interface card.
Once completed, various regulatory approvals will be required.

PROJECT NUMBER 2--XCD was in the process of developing print server hardware
and firmware for a Hewlett-Packard family of EIO printers which will have DEC
LAT and Banyan VINES protocol support. The design and layout of the printed
circuit board and testing needed to be completed.

PROJECT NUMBER 3--XCD was in the process of developing modification features
for project number 1, the ethernet interface card, including specific virtual
printer functions and status commands, pass-through functions for control files,
and programming via the PCI bus. This product was at an untested prototype
stage.

PROJECT NUMBER 4--XCD was in the process of developing firmware and software
that would allow the printing of jobs via the internet from one location to
another with increased levels of print quality and color. The company was in the
process of developing new security and printing protocols.

If the above projects are not completed timely, the Company would miss
future opportunities and could lose existing customers and market share.

TELGATE EQUIPMENT CORPORATION (UNAUDITED)

On May 8, 1999, the Company acquired the remaining 75% of the outstanding
shares of Telgate Equipment Corporation (Telgate), a software development
company, in exchange for 58,700 shares of $0.01 par value common stock and
$242,000 in cash. The total acquisition cost was $924,000, including

F-12
<PAGE>
TROY GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED MAY 31, 1998 AND 1999 IS
UNAUDITED

NOTE 2. BUSINESS COMBINATIONS (CONTINUED)

the $214,000 recorded in connection with the warrants issued to a consultant
(Note 9), and was allocated as follows:

<TABLE>
<S> <C>
Current assets................................................... $ 233,000
Equipment and leasehold improvements............................. 93,000
Customer list.................................................... 25,000
Core technology.................................................. 500,000
Assembled workforce.............................................. 125,000
Current liabilities assumed...................................... (218,000)
Long-term deferred tax liability................................. (260,000)
Goodwill......................................................... 426,000
---------
$ 924,000
---------
---------
</TABLE>

The acquisition has been accounted for as a purchase and results of
operations of Telgate Equipment Corporation since the date of acquisition are
included in the Company's consolidated financial statements.

For the nine months ended April 30, 1999, Telgate had sales and net income
of $1,015,000 and $72,000, respectively.

NOTE 3. INVENTORIES

Inventories consisted of the following as of November 30, 1997 and 1998 and
May 31, 1999:

<TABLE>
<CAPTION>
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Raw materials....................................... $ 2,188,000 $ 3,954,000 $ 4,555,000
Work-in-process..................................... 470,000 495,000 392,000
Finished goods...................................... 1,173,000 1,334,000 2,065,000
------------ ------------ ------------
$ 3,831,000 $ 5,783,000 $ 7,012,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

NOTE 4. EQUIPMENT AND LEASEHOLD IMPROVEMENTS

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

<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Machinery and equipment........................................... $ 5,063,000 $ 5,957,000
Furniture and fixtures............................................ 304,000 646,000
Leasehold improvements............................................ 1,202,000 1,135,000
------------ ------------
6,569,000 7,738,000
Less accumulated depreciation and amortization.................... 5,069,000 5,833,000
------------ ------------
$ 1,500,000 $ 1,905,000
------------ ------------
------------ ------------
</TABLE>

F-13
<PAGE>
TROY GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED MAY 31, 1998 AND 1999 IS
UNAUDITED

NOTE 5. OTHER ASSETS

Other assets consisted of the following as of November 30, 1997 and 1998 and
May 31, 1999:

<TABLE>
<CAPTION>
1997 1998 1999
---------- ------------ ------------
<S> <C> <C> <C>
Intangible assets, net of accumulated amortization of
$15,000 in 1998 and $105,000 in 1999................ $ -- $ 2,051,000 $ 3,077,000
Deferred stock offering costs......................... -- 502,000 568,000
Cash surrender value of officers life insurance....... 446,000 814,000 992,000
Other................................................. 109,000 41,000 13,000
---------- ------------ ------------
$ 555,000 $ 3,408,000 $ 4,650,000
---------- ------------ ------------
---------- ------------ ------------
</TABLE>

NOTE 6. NOTE PAYABLE

The Company has a $5,000,000 line-of-credit agreement with a bank. As of
November 30, 1998, there was $1,190,000 in borrowings outstanding against the
line of credit. Borrowings bear interest at the lesser of the bank's reference
rate (7.75% at November 30, 1998) less 0.25% or the bank's LIBOR rate (5.62% at
November 30, 1998) plus 2% and are limited to 80% of eligible accounts
receivable and 50% of eligible inventories. The agreement may be terminated by
either party. In connection with the line-of-credit agreement, the Company has a
$500,000 standby letter-of-credit sublimit agreement of which approximately
$300,000 was outstanding at November 30, 1998. This line of credit is secured by
substantially all of the Company's assets. In connection with its borrowing
arrangements, the Company is subject to certain financial covenants (see Note
9). As of November 30, 1998, the Company had approximately $3,500,000 in
availability under this line of credit.

NOTE 7. LONG-TERM DEBT

Long-term debt consisted of the following as of November 30, 1998:

<TABLE>
<S> <C>
Notes payable, bank............................................. $2,876,000
4% economic development note payable............................ 359,000
5% industrial and business development note payable............. 98,000
---------
3,333,000
Less current maturities......................................... 959,000
---------
$2,374,000
---------
---------
</TABLE>

Notes payable, bank, bear interest based on the bank's reference rate (7.75%
as of November 30, 1998) and the bank's reference rate plus 0.50%, mature
through 2003; and are secured by substantially all assets. One note contains a
provision for personal guarantees by the majority stockholders if total
liabilities to tangible effective net worth is greater than two to one. Another
note is subject to certain financial covenants (see Note 9). During the six
months ended May 31 1999, the Company borrowed an additional $670,000 under
these same terms.

The economic, industrial and business development notes payable mature
through 2005. The notes are secured by certain equipment and the personal
guarantees of the majority stockholders of the

F-14
<PAGE>
TROY GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED MAY 31, 1998 AND 1999 IS
UNAUDITED

NOTE 7. LONG-TERM DEBT (CONTINUED)
Company. One of the notes is secured by a fourth trust deed on real property
owned by a company related through common ownership to the majority
stockholders.

As of November 30, 1998, future maturities of long-term debt are as follows:
1999 $959,000; 2000 $911,000; 2001 $667,000; 2002 $599,000; 2003 $72,000;
thereafter $125,000

NOTE 8. ACCRUED EXPENSES

Accrued expenses consisted of the following as of November 30, 1997 and
1998:

<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Compensation...................................................... $ 1,539,000 $ 1,868,000
Other............................................................. 185,000 676,000
------------ ------------
$ 1,724,000 $ 2,544,000
------------ ------------
------------ ------------
</TABLE>

NOTE 9. STOCKHOLDERS' EQUITY

COMMON STOCK (UNAUDITED)

The 58,700 shares of common stock issued in connection with the acquisition
of Telgate Equipment Corporation contain a put option. The put option entitles
the holders of these shares to require the Company to buy all or part of these
shares at $10 per share. The put option may be exercised on or before May 5,
2000 if the Company does not conduct a public offering of its shares by May 1,
2000. No value was assigned to the put feature because of the Company's
anticipated public offering.

PREFERRED STOCK

STOCK OPTION PLAN

The Company has reserved 1,564,298 shares for issuance under the Company's
1998 Stock Incentive Plan and 1996 Stock Option Plan, of which 326,957 shares
are subject to outstanding options as of November 30, 1998. Option prices for
the incentive stock options will be 100% of the fair market value of the stock
on the date the option is granted. For incentive options granted to 10% or more
stockholders, the option price is 110% of the fair market value of the stock on
the date the option is granted. Option prices for the nonqualified stock options
shall not be less than 85% of the fair market value of the stock on the date the
options are granted. In fiscal year 1996, Troy granted options to acquire
326,957 shares at a weighted-average option price of $0.42 per share. The
options vest over five to ten years from the grant date. Vesting will accelerate
upon the sale of more than 51% of the issued and outstanding shares of the
Company's voting common stock or upon the conversion of Troy to a public
company. There were no options granted in fiscal year 1997 and 1998 and no
options have been exercised or expired in fiscal years 1997 or 1998. There are
no options exercisable as of November 30, 1997 or 1998. In connection with the
acquisition of Troy XCD, Inc., the Company has committed to

F-15
<PAGE>
TROY GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED MAY 31, 1998 AND 1999 IS
UNAUDITED

NOTE 9. STOCKHOLDERS' EQUITY (CONTINUED)
grant options to acquire a total of 150,000 shares to five individuals upon the
conversion of the Company to a public company at the same price per share as the
initial price of the stock to the public. These options will be granted for
future services to be provided by these individuals.

As permitted under generally accepted accounting principles, grants under
these plans to employees are accounted for following APB Opinion No. 25 and
related interpretations. Accordingly, no compensation cost has been recognized
for grants under the stock option plan. Had compensation cost been determined
based on the minimum fair value method prescribed in FASB Statement No. 123,
fiscal year 1997 and 1998 net income after the pro forma provision for income
taxes and the related basic and diluted pro forma net income per share would
have been reduced to $2,653,000, $0.35 and $0.34 and $1,722,000, $0.23 and
$0.22, respectively. In determining the pro forma amounts above, the value of
each grant is estimated at the grant date using the minimum fair value method
prescribed in Statement No. 123, with the following weighted-average assumptions
for grants in fiscal year 1996: no dividends for all years, risk-free interest
rate of 5.86% and 5.98%, expected lives of 5 and 10 years, and expected amounts
to be exercised of 100%. The weighted average fair value of the options granted
in fiscal year 1996 was $0.16 per share.

STOCK WARRANTS

On October 1, 1997 and as amended in December, 1998 and June, 1999, the
Company issued warrants to a consultant to purchase up to 250,000 shares of
common stock of the Company. The warrants vest upon the occurrence of two
separate performance conditions. Warrants to purchase 50,000 shares will vest
upon the Company becoming publicly owned at the fair value on that date and
200,000 will vest upon certain acquisition transactions at $3.50 per share. The
effect of the warrants will be recorded as the performance conditions are met at
the then current fair value of the warrants vested. The warrants expire five
years after vesting. In connection with the acquisitions of Troy XCD, Inc. and
Telgate Equipment Corporation, the Company issued warrants to purchase 50,000
shares of common stock for each of the acquisitions under the acquisition
criteria and recorded $210,000 in connection with the purchase of Troy XCD, Inc.
and $214,000 in connection with the acquisition of Telgate Equipment Corporation
(Note 2). On October 30, 1998, the Company issued warrants to a consultant of
the Company to purchase 50,000 shares of common stock at $7.00 per share and
recorded $69,000 in connection with the purchase of Troy XCD, Inc. (Note 2). The
warrants expire five years from the date granted. In determining the amount of
compensation to be recorded in connection with the issuance of the 100,000
warrants to purchase Troy XCD and the 50,000 warrants to purchase Telgate
Equipment Corporation, the Company's value of the grants were estimated at the
measurement date using the Black-Scholes Option-pricing model prescribed in
Statement No. 123, with the following assumptions: no dividends for all years,
expected lives of 3 years, expected amounts to be exercised of 100%, risk-free
interest rate of 4.32%, and 5.21%, respectively and expected volatility of 43%.
Effective in May 1998 and as amended in June 1999, in connection with legal
services being provided in connection with an offering of the Company's common
stock, the Company issued a warrant to purchase up to 50,000 shares of common
stock of the Company at $3.50 per share. The Company recorded a $215,000 charge
in June 1999 when the terms of the warrant were amended and the warrant was
vested. The Company's value of the grant was estimated at the measurement date
using the Black-Scholes Option-pricing model with the following assumptions: no
dividends for all years, expected lives

F-16
<PAGE>
TROY GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED MAY 31, 1998 AND 1999 IS
UNAUDITED

NOTE 9. STOCKHOLDERS' EQUITY (CONTINUED)

of 3 years, expected amounts to be exercised of 100%, risk-free interest rate of
5.58% and expected volatility of 43%. The warrant expires five years after it
vested.

EMPLOYEE STOCK PURCHASE PLAN

The Company has adopted a stock purchase plan covering substantially all
employees and has reserved 200,000 shares for issuance under this plan. No
shares can be purchased until a registration of the Company's common stock is
declared effective.

RETAINED EARNINGS

The Company and its subsidiary are limited by the terms of certain debt
agreements to pay dividends up to the amount necessary for the stockholders to
pay their pro rata share of income taxes on the Company's income.

NOTE 10. LEASE COMMITMENTS AND RENT EXPENSE

The Company leases its operating facilities under noncancelable operating
lease agreements, one of which is with a company related through common
ownership (see Note 11). Rent expense in fiscal years 1996, 1997 and 1998 was
approximately $288,000, $352,000 and $414,000 respectively. Future minimum
rental commitments under these leases in the fiscal years ending November 30 are
as follows: 1999 $528,000; 2000 $464,000; 2001 $195,000; 2002 $117,000; 2003
$39,000 (total $1,343,000 of which $445,000 is to the related party).

NOTE 11. RELATED PARTY TRANSACTIONS AND GUARANTEE OF INDEBTEDNESS

In fiscal year 1993, the Company entered into an agreement to lease
operating facilities from a company related through common ownership. The
agreement expires in September 2000 and requires monthly payments of
approximately $21,200.

The Company's obligations under its term loan with a bank, contains a
provision for guarantees by the majority stockholders if total liabilities to
tangible effective net worth is greater then two to one.

In fiscal years 1996, 1997 and 1998, the Company made principal payments on
the notes payable to stockholders of $175,000, $373,000 and $375,000,
respectively.

NOTE 12. INCOME TAX MATTERS

As a result of the October 30, 1998 S corporation election termination, on
that date the Company recorded a net deferred tax asset of $103,000 by a credit
to income tax expense for temporary differences between the reported amounts of
assets and liabilities and their tax bases.

Deferred taxes charged to income during 1998 consisted of the following:

<TABLE>
<S> <C>
Effect of change in tax status.................................................. $(103,000)
Change in net deferred tax asset................................................ 26,000
---------
$ (77,000)
---------
---------
</TABLE>

F-17
<PAGE>
TROY GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED MAY 31, 1998 AND 1999 IS
UNAUDITED

NOTE 12. INCOME TAX MATTERS (CONTINUED)
Net deferred tax assets consist of the following components as of November
30, 1998:

<TABLE>
<S> <C>
Deferred tax liabilities:
Receivable allowance and valuation............................................ $(275,000)
Customer list, core technology and assembled workforce........................ (480,000)
---------
(755,000)
---------
Deferred tax assets:
Inventories valuation......................................................... 305,000
Accrued compensation.......................................................... 465,000
Accrued warranty and other.................................................... 49,000
Equipment and leasehold improvements.......................................... 29,000
Net operating loss carryforward............................................... 222,000
---------
1,070,000
---------
Net deferred tax assets..................................................... $ 315,000
---------
---------
</TABLE>

The net deferred tax assets have been classified on the accompanying
consolidated balance sheet as of November 30, 1998 as follows:

<TABLE>
<S> <C>
Current assets.................................................................. $ 766,000
Noncurrent assets............................................................... 29,000
Long-term liabilities........................................................... (480,000)
---------
$ 315,000
---------
---------
</TABLE>

The Company has net operating loss carryforwards of $500,000 for federal
income tax purposes and $100,000 for state income tax purposes expiring in 2018
and 2003, respectively.

The provision for income tax (credits) charged to operations for 1998
consists of the following:

<TABLE>
<S> <C>
Current tax..................................................................... $ 7,000
Deferred tax benefit............................................................ (77,000)
---------
$ (70,000)
---------
---------
</TABLE>

The historical income tax provisions differs from the amount of income tax
determined by applying the U.S. federal income tax rate to pretax income for
1998 due to the following:

<TABLE>
<S> <C>
Computed "expected" tax rate.......................................................... 35%
Increase (decrease)
State income taxes, net of federal benefit.......................................... 6
Non deductible purchased in process research and development........................ 8
Non taxable increase in cash surrender value of officers life insurance............. (2)
Deferred tax assets recorded as a result of the S corporation election
termination....................................................................... (2)
S corporation income and income taxes through October 30, 1998 included on
individual shareholders' returns.................................................. (47)
---
(2)%
---
---
</TABLE>

F-18
<PAGE>
TROY GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED MAY 31, 1998 AND 1999 IS
UNAUDITED

NOTE 12. INCOME TAX MATTERS (CONTINUED)
State income taxes in fiscal years 1996 and 1997 differ from the computed
"expected" taxes due to enterprise zone and other tax credits generated.

NOTE 13. MAJOR VENDORS

The Company purchases key components from one vendor. Net purchases from
this vendor in fiscal years 1996, 1997 and 1998 were approximately $3,600,000,
$4,100,000 and $8,500,000, respectively. Accounts payable to this vendor as of
November 30, 1997 and 1998 were approximately $540,000 and $1,201,000,
respectively.

In addition, the Company is also dependent on single source suppliers for a
component used in its impact printing products and for a component used in its
ribbons. If the Company were to lose its component supplier for its impact
printing products, it would be required to identify a new supplier and
substantially reengineer its products for use with an alternative component. If
the Company were to lose its component supplier for ribbons, the Company would
be required to identify a new supplier.

NOTE 14. MAJOR CUSTOMERS AND FOREIGN SALES

In fiscal year 1997 and 1998, the Company had sales to a customer that
individually accounted for 16.6% and 17.1% of the Company total net sales and as
of November 30, 1997 and 1998, respectively, and the trade receivables from this
customer were $326,000 and $710,000, respectively. Sales to this customer in
fiscal year 1996 were less than 10% of the Company's net sales.

In fiscal years 1996, 1997 and 1998, the Company had shipments to foreign
customers that accounted for 14.3%, 13.7%, and 16.2% of the Company's net sales.
The sales to foreign customers are all denominated in U.S. dollars therefore the
Company has not experienced any foreign currency gains or losses.

F-19
<PAGE>
TROY GROUP, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED MAY 31, 1998 AND 1999 IS
UNAUDITED

NOTE 15. CASH FLOW INFORMATION

Supplemental Disclosure of cash flow information

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED NOVEMBER 30, MAY 31,
------------------------------------ ---------------------
1996 1997 1998 1998 1999
---------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Cash paid during the period for:

Interest...................... $ 345,000 $ 272,000 $ 118,000 $ 68,000 $ 165,000
---------- ---------- ------------ --------- ----------
---------- ---------- ------------ --------- ----------
Income taxes.................. $ 65,000 $ 185,000 $ 10,000 $ 10,000 $ 467,000
---------- ---------- ------------ --------- ----------
---------- ---------- ------------ --------- ----------
Supplemental schedule of noncash
investing and financing
activities
Purchase of Troy XCD, Inc. in
1998 and Telgate Equipment
Corporation in 1999
Total purchase price........ $ -- $ -- $ 3,117,000 $ -- $ 924,000
Less fair value of common
stock and stock warrants
issued in connection with
the acquisitions.......... -- -- 1,479,000 -- 625,000
---------- ---------- ------------ --------- ----------
Cash purchase price......... $ -- $ -- $ 1,638,000 $ -- $ 299,000
---------- ---------- ------------ --------- ----------
---------- ---------- ------------ --------- ----------
Dividends payable............. $ -- $ -- $ 200,000 $ -- $ --
---------- ---------- ------------ --------- ----------
---------- ---------- ------------ --------- ----------
</TABLE>

F-20
<PAGE>
INDEPENDENT AUDITOR'S REPORT ON THE SCHEDULE

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

Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplemental Schedule II
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic consolidated financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
consolidated financial statements taken as a whole.

McGLADREY & PULLEN, LLP

Anaheim, California
January 6, 1999

F-21
<PAGE>
TROY GROUP, INC
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNT
FISCAL YEARS ENDED NOVEMBER 30, 1996, 1997 AND 1998

<TABLE>
<CAPTION>
BALANCE AT PROVISIONS
BEGINNING CHARGED TO BALANCE AT
OF YEAR EXPENSE CHARGE-OFFS END OF YEAR
---------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:

1996....................................................... $ 107,000 $ 209,000 $(143,000) $ 173,000
---------- ----------- ----------- -------------
---------- ----------- ----------- -------------

1997....................................................... $ 173,000 $ 65,000 $ (74,000) $ 164,000
---------- ----------- ----------- -------------
---------- ----------- ----------- -------------

1998....................................................... $ 164,000 $ 134,000 $(158,000) $ 140,000
---------- ----------- ----------- -------------
---------- ----------- ----------- -------------
</TABLE>

F-22
<PAGE>
INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
XCD Incorporated
Irvine, California

We have audited the accompanying consolidated balance sheet of XCD
Incorporated and subsidiary as of September 30, 1998, and the related
consolidated statements of income, stockholders' equity and cash flows for the
nine months then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of XCD
Incorporated and subsidiary as of September 30, 1998, and the results of their
operations and their cash flows for the nine months then ended in conformity
with generally accepted accounting principles.

McGLADREY & PULLEN, LLP

Anaheim, California
October 20, 1998

F-23
<PAGE>
XCD INCORPORATED

CONSOLIDATED BALANCE SHEET

SEPTEMBER 30, 1998

<TABLE>
<S> <C>
ASSETS

Current Assets:
Cash.......................................................................... $ 11,000
Accounts receivable, less allowance for doubtful accounts of $128,000......... 792,000
Income taxes receivable....................................................... 122,000
Inventories................................................................... 878,000
Prepaid expenses.............................................................. 31,000
Deferred income taxes......................................................... 150,000
---------
Total current assets........................................................ 1,984,000

Equipment, net.................................................................. 159,000

Other Assets.................................................................... 12,000
---------
Total assets................................................................ $2,155,000
---------
---------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable, including $27,000 payable to stockholders................... $ 329,000
Accrued liabilities........................................................... 211,000
Notes payable, stockholders................................................... 233,000
---------
Total current liabilities................................................... 773,000
---------
Commitments and Contingencies

Stockholders' Equity
Common stock, no par value; authorized 1,000,000,000 shares; issued 37,900,000
shares...................................................................... 106,000
Retained earnings............................................................. 1,320,000
Note receivable for common stock purchases.................................... (44,000)
---------
Total stockholders' equity.................................................. 1,382,000
---------
Total liabilities and stockholders' equity.................................. $2,155,000
---------
---------
</TABLE>

See Notes to Consolidated Financial Statements.

F-24
<PAGE>
XCD INCORPORATED

CONSOLIDATED STATEMENT OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998

<TABLE>
<S> <C>
Net sales...................................................................... $4,488,000
Cost of goods sold............................................................. 2,679,00
-----------
Gross profit............................................................. 1,809,000
-----------
Operating expenses:
Selling, general and administrative.......................................... 1,212,000
Research and development, including $240,000 to stockholders................. 532,000
-----------
1,744,000
-----------
Operating income......................................................... 65,000

Financial income (expense):
Interest expense, including $22,000 to stockholders.......................... (22,000)
Interest income.............................................................. 5,000
-----------
Income before income tax credit.......................................... 48,000
Income tax credit.............................................................. 49,000
-----------
Net income............................................................... $ 97,000
-----------
-----------
Earnings per share, basic and diluted.......................................... $ --
-----------
-----------
Weighted average number of shares outstanding:
Basic........................................................................ 37,900,000
-----------
-----------
Diluted...................................................................... 37,931,166
-----------
-----------
</TABLE>

See Notes to Consolidated Financial Statements.

F-25
<PAGE>
XCD INCORPORATED

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998

<TABLE>
<CAPTION>
COMMON STOCK
------------------------- RETAINED NOTE
SHARES AMOUNT EARNINGS RECEIVABLE TOTAL
------------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998..................... 37,900,000 $ 106,000 $ 1,223,000 $ (53,000) $ 1,276,000
Forgiveness of note receivable............. -- -- -- 9,000 9,000
Net income................................. -- -- 97,000 -- 97,000
------------- ---------- ------------ ----------- -------------
Balance, September 30, 1998.................. 37,900,000 $ 106,000 $ 1,320,000 $ (44,000) $ 1,382,000
------------- ---------- ------------ ----------- -------------
------------- ---------- ------------ ----------- -------------
</TABLE>

See Notes to Consolidated Financial Statements.

F-26
<PAGE>
XCD INCORPORATED

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998

<TABLE>
<S> <C>
Cash flows from Operating Activities
Net income................................................................... $ 97,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation............................................................... 42,000
Provision for doubtful accounts............................................ 70,000
Deferred income taxes...................................................... (56,000)
Compensation expense for forgiveness of note receivable.................... 9,000
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable...................................................... (96,000)
Income taxes receivable.................................................. 7,000
Inventories.............................................................. 17,000
Prepaid expenses......................................................... (13,000)
Increase (decrease) in:
Accounts payable......................................................... 26,000
Accrued liabilities...................................................... (11,000)
-----------
Net cash provided by operating activities................................ 92,000
-----------
Cash Flows from Investing Activities
Purchases of equipment....................................................... (60,000)
Increase in other assets..................................................... (5,000)
-----------
Net cash (used in) investing activities.................................. (65,000)
-----------
Cash Flows from Financing Activities, decrease in excess checks outstanding
over bank balance............................................................ (21,000)
-----------
Net increase in cash..................................................... 6,000
Cash, beginning of period...................................................... 5,000
-----------
Cash, end of period............................................................ $ 11,000
-----------
-----------
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest..................................... $ 31,000
-----------
-----------
</TABLE>

See Notes to Consolidated Financial Statements.

F-27
<PAGE>
XCD INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND NATURE OF OPERATIONS

The consolidated financial statements include the accounts of XCD
Incorporated (incorporated as XCd, Inc.) and its wholly owned subsidiary, XCD
International Incorporated, a foreign sales corporation (collectively, the
Company). The Company's customers are located throughout the United States, Asia
and Europe. The Company is engaged primarily in the design, development,
manufacture and sale of products that allow printers to be shared on local area
networks (LANs).

USE OF ESTIMATES

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

PRINCIPLES OF CONSOLIDATION

All significant intercompany transactions and accounts have been eliminated
in the accompanying consolidated financial statements.

INVENTORIES

Inventories are stated at the lower of average cost or market.

EQUIPMENT

Equipment is recorded at cost. Depreciation is provided over the estimated
useful lives of the assets using the straight-line method, which generally
ranges from three to seven years.

REVENUE RECOGNITION

Revenue is recognized when the related products are shipped to customers. No
right of return (other than for defective merchandise) is allowed on sales. All
sales are transacted in U.S. dollars.

CREDIT RISK

The Company sells its products on credit terms that it establishes for
individual customers. The Company also performs ongoing credit evaluations of
its customers, generally does not require collateral and maintains reserves for
potential credit losses.

ESTIMATED WARRANTY CLAIMS

The Company sells its product with a warranty that provides for replacements
of any defective products for a one-year period after the sale. The Company
accrues an estimate of the cost of providing the warranty at the time revenue is
recognized.

RESEARCH AND DEVELOPMENT

The Company expenses research and development costs of new products as
incurred.

F-28
<PAGE>
XCD INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Costs associated with advertising and promoting products are expensed as
incurred. Advertising and promotion expense was approximately $119,000 during
1998.

INCOME TAXES

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist of cash and notes payable. The
carrying value of these instruments are considered to be representative of their
fair value due to the short nature of maturities of these instruments.

EARNINGS PER SHARE

Basic earnings per share is computed by dividing the net income attributable
to the common stockholders by the weighted average number of common shares
outstanding during the period. There is no adjustment in the net income
attributable to common stockholders. Diluted earnings per share reflects the
potential dilution that could occur from common shares issuable through stock
options (31,166 shares in the period ended September 30, 1998)

STOCK-BASED COMPENSATION

The Company accounts for stock-based awards to employees using the
intrinsic-value method in accordance with Accounting Principles Board (APB)
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES.

NOTE 2. INVENTORIES

Inventories consist of the following at September 30, 1998:

<TABLE>
<S> <C>
Raw materials..................................................... $ 133,000
Work in process................................................... 320,000
Finished goods.................................................... 425,000
---------
$ 878,000
---------
---------
</TABLE>

F-29
<PAGE>
XCD INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3. EQUIPMENT

Equipment consist of the following at September 30, 1998:

<TABLE>
<S> <C>
Computer equipment............................................... $ 363,000
Furniture and fixtures........................................... 41,000
---------
404,000
Less accumulated depreciation.................................... (245,000)
---------
$ 159,000
---------
---------
</TABLE>

NOTE 4. NOTE RECEIVABLE

During 1996 an employee exercised 400,000 options at an exercise price of
$0.178 in exchange for a nonrecourse note receivable. The principal and interest
on the note will be forgiven in equal installments over a four-year period in
lieu of payment for services performed. As of September 30, 1998, the balance on
this note receivable is $44,000.

NOTE 5. INCOME TAXES

Income tax credits are summarized below for the nine months ended September
30, 1998:

<TABLE>
<S> <C>
Current tax benefit.............................................. $(105,000)
Deferred tax expense............................................. 56,000
---------
$ (49,000)
---------
---------
</TABLE>

The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate to pretax income for the nine months
ended September 30, 1998 due to the following:

<TABLE>
<S> <C>
Computed "expected" tax expense................................................... $ 17,000
State income taxes, net of federal benefit........................................ 2,000
Increase (decrease) in income taxes resulting from:
Research and development credits................................................ (77,000)
Tax interest and penalties...................................................... 7,000
Other........................................................................... 2,000
---------
$ (49,000)
---------
---------
</TABLE>

F-30
<PAGE>
XCD INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5. INCOME TAXES (CONTINUED)
The major components of the Company's net deferred tax assets at September 30,
1998 are comprised of:

<TABLE>
<S> <C>
Deferred tax assets...............................................
Receivable allowance............................................ $ 51,000
Inventory allowance............................................. 50,000
Inventory capitalization........................................ 52,000
Accrued vacation expense........................................ 2,000
Accrued warranty claims......................................... 16,000
---------
171,000
Deferred tax liabilities, equipment............................... 21,000
---------
Net deferred tax assets....................................... $ 150,000
---------
---------
</TABLE>

These amounts have been classified on the accompanying balance sheet as a
current asset as of September 30, 1998.

NOTE 6. ACCRUED LIABILITIES

Accrued liabilities consist of the following at September 30, 1998:

<TABLE>
<S> <C>
Payroll and related taxes......................................... $ 53,000
Accrued warranties................................................ 40,000
Accrued marketing................................................. 40,000
Accrued interest, stockholders.................................... 19,000
Accrued vacation.................................................. 5,000
Other............................................................. 54,000
---------
$ 211,000
---------
---------
</TABLE>

NOTE 7. SHORT-TERM BORROWINGS

The Company has $233,000 in unsecured subordinated notes payable to
stockholders that are due on demand, with interest-only payments, recalculated
annually at a rate 2% above a bank's prime rate (8.5% at September 30, 1998) due
monthly.

In addition, the Company has a revolving line of credit agreement with a
bank that allows maximum borrowings of $600,000. The credit agreement matures
September 30, 1998, and is collateralized by substantially all of the Company's
assets. The line of credit bears interest at the bank's prime rate (8.5% at
September 30, 1998) plus 0.5%. At September 30, 1998, the Company had no amounts
borrowed under this agreement. Under the agreement, the Company is required,
among other things, to maintain certain minimum net worth and working capital
ratios. At September 30, 1998, the Company had $600,000 in availability under
this agreement.

F-31
<PAGE>
XCD INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8. STOCK OPTION PLANS

The Company has a 1994 Incentive Stock Option Plan and a Non-Qualified Stock
Option Plan under which it may grant options to purchase common stock. The
Company may grant options for up to 4,000,000 shares under the Incentive Stock
Option Plan to full time employees at prices that the Compensation Committee
determines to be appropriate. Options are granted at market value on the date of
the grant and are generally exercisable ratably over four years with certain
non-qualified options which vest upon a change in control. Options expire five
years after grant date. In addition, the Company may grant options for up to
4,000,000 shares to employees and nonemployee directors under the Non-Qualified
Stock Option Plan at prices that the Board of Directors determines to be fair
market value.

A summary of the status of the Plans and changes during the period ended
September 30, 1998 is as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
---------- -----------
<S> <C> <C>
Outstanding at beginning of period......................................................... 3,684,500 $ 0.168
Granted.................................................................................... 48,000 0.037
Exercised.................................................................................. -- --
Forfeited.................................................................................. (379,000) 0.163
---------- -----------
Outstanding at end of period............................................................... 3,353,500 $ 0.166
---------- -----------
---------- -----------
Exercisable at end of period............................................................... 2,410,375 $ 0.172
---------- -----------
---------- -----------
Weighted-average minimum value of options granted during the period........................ $ 0.009
-----------
-----------
Remaining options available under the Plans, at end of period.............................. 1,762,500
----------
----------
</TABLE>

A further summary of options outstanding at September 30, 1998 is as
follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED -----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
RANGE OF EXERCISE PRICES NUMBER LIFE PRICE NUMBER PRICE
- ----------------------------------------------------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$0.130-$0.178........................................ 3,305,500 2.4 years $ 0.168 2,405,375 $ 0.172
$0.037............................................... 48,000 4.8 years 0.037 5,000 0.037
---------- ----------- ----------- ---------- -----------
3,353,500 2.5 years $ 0.166 2,410,375 $ 0.172
---------- ----------- ----------- ---------- -----------
---------- ----------- ----------- ---------- -----------
</TABLE>

As permitted under generally accepted accounting principles, grants under
the above Plans are accounted for following APB Opinion No. 25 and related
interpretations. Accordingly, no compensation cost has been recognized for
grants under the Incentive Stock Option Plan and the Non-Qualified Stock Option
Plan. Had compensation costs for all of the stock-based compensation plans been
determined using the minimum value method prescribed Statement No. 123, reported
net income would have been reduced to $95,000 from $97,000 with no effect on
basic and diluted earnings per share. The fair value of each option granted
during the nine months ended September 30, 1998 was estimated on

F-32
<PAGE>
XCD INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8. STOCK OPTION PLANS (CONTINUED)
date of grant utilizing the then current fair value of the underlying shares
less the exercise price discounted over the average expected life of the options
(five years) with risk free interest rate of 5.48% and 6.06% and no dividends.
The pro forma effects of applying Statement No. 123 are not indicative of future
amounts since, among other reasons, the requirements of the Statement have been
applied only to options granted after December 15, 1995 (see Note 14).

NOTE 9. FOREIGN SALES AND ACCOUNTS RECEIVABLE

During the period ended September 30, 1998, the Company had sales to foreign
customers. Foreign sales for the period ended September 30, 1998 and the related
accounts receivable as of September 30, 1998 are as follows:

<TABLE>
<CAPTION>
ASIA EUROPE CANADA TOTAL
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Sales........................................................ $ 1,308,000 $ 800,000 $ 106,000 $ 2,214,000
Accounts receivable.......................................... $ 106,000 $ 250,000 $ 26,000 $ 382,000
</TABLE>

NOTE 10. MAJOR CUSTOMERS

Net sales for the period ended September 30, 1998 includes sales to the
following major customers (each of which accounted for 10% or more of the total
sales of the Company) together with the receivables due from those customers as
of September 30, 1998:

<TABLE>
<CAPTION>
TRADE
ACCOUNTS
NET SALES RECEIVABLE
------------ ----------
<S> <C> <C>
Customer A.............................................................................. $ 1,178,000 $ 74,000
Customer B.............................................................................. 551,000 244,000
------------ ----------
$ 1,729,000 $ 318,000
------------ ----------
------------ ----------
</TABLE>

NOTE 11. LEASE COMMITMENTS AND RENT EXPENSES

The Company rents its facility under an operating lease that expires in
2003. Future minimum lease payments at September 30, 1998 under all
noncancelable operating leases are as follows: 1999 $119,000; 2000 $124,000;
2001 $129,000; 2002 $134,000; and 2003 $68,000 (total $574,000).

Rent expense was approximately $84,000 for the period ended September 30,
1998.

NOTE 12. PENSION PLAN

The Company sponsors a simplified employee pension contribution plan for
employees who are at least 21 years of age and have performed services for the
Company in at least three of the immediately preceding five years. Total
expenses related to the Plan were approximately $51,000 for the period ended
September 30, 1998.

NOTE 13. RELATED PARTY TRANSACTIONS

For the period ended September 30, 1998, the Company paid $240,000 to two
corporations whose presidents are stockholders of the Company for costs related
to product development and engineering

F-33
<PAGE>
XCD INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13. RELATED PARTY TRANSACTIONS (CONTINUED)
services. As of September 30, 1998, the Company had accrued $27,000 relating to
such expenses, which is included in accounts payable.

NOTE 14. BUSINESS COMBINATION

On September 30, 1998, the Company signed a letter of intent to sell all its
outstanding common stock, including any shares issuable relating to stock
options, to Troy Group, Inc. for 171,430 shares of Troy Group, Inc.'s common
stock and $1,550,000 in cash. All outstanding stock options will be extinguished
upon the consummation of this merger.

NOTE 15. SUBSEQUENT EVENT

In October 1998, the Company entered into an agreement to pay certain
officer/stockholders and employees $1,250,000 of compensation for prior
services. No provision for deferred compensation arising from the agreement has
been reflected in the accompanying financial statements as of September 30,
1998.

F-34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

, 1999

[TROY GROUP, INC. LOGO]

2,500,000 SHARES OF COMMON STOCK

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

PROSPECTUS
-------------

[LOGO]

[PENNSYLVANIA MERCHANT GROUP LOGO]

[H.C. WAINWRIGHT & CO. LOGO]

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

YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE SALE OF COMMON
STOCK MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE
DATE OF THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION
OF AN OFFER TO BUY THE SHARES OF COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH
THE OFFER OR SOLICITATION IS UNLAWFUL.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Company in connection with the sale of
common stock being registered. All of the amounts shown are estimates, except
the SEC registration fee, the NASD filing fees and the Nasdaq listing fee.

<TABLE>
<CAPTION>
AMOUNT TO BE PAID
-----------------
<S> <C>
SEC registration fee....................................................... $ 7,194
NASD fee................................................................... 3,663
Nasdaq listing fee......................................................... 78,875
Blue Sky fees and expenses................................................. 2,000
Legal fees and expenses.................................................... 250,000
Accounting fees and expenses............................................... 300,000
Printing expenses.......................................................... 200,000
Transfer agent fees........................................................ 3,500
Warrants................................................................... 215,000
Miscellaneous.............................................................. 39,768
-----------------
Total...................................................................... $ 1,100,000
-----------------
-----------------
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Delaware Law and the Company's Certificate of Incorporation provide that the
Company shall, under certain circumstances and subject to certain limitations,
indemnify any director, officer, employee or agent of the corporation made or
threatened to be made a party to a proceeding, by reason of the former or
present official capacity (as defined) of the person, against judgments,
penalties, fines, settlements and reasonable expenses incurred by the person in
connection with the proceeding if certain statutory standards are met. Any such
person is also entitled, subject to certain limitations, to payment or
reimbursement of reasonable expenses in advance of the final disposition of the
proceeding. "Proceeding" means a threatened, pending or completed civil,
criminal, administrative, arbitration or investigative proceeding, including one
by or in the right of the corporation.

The Company has also entered into indemnification agreements with all of the
directors and executive officers of the Company whereby the Company has agreed
to indemnify and hold harmless the directors and executive officers from and
against any claims, liability, damages or expenses incurred by them in or
arising out of their status, capacities and activities with respect to the
Company to the maximum extent permitted by Delaware law. The Company believes
that these agreements are necessary to attract and retain qualified persons as
directors and executive officers.

The Company also maintains a directors and officers insurance policy
pursuant to which directors and officers of the Company are insured against
liability for certain actions in their capacity as directors and officers.

Reference is also made to Section 6 of the Underwriting Agreement contained
in Exhibit 1.1 hereto, indemnifying officers and directors of the Registrant
against certain liabilities.

II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

During the three year period ending May 31, 1999, the Company issued the
following shares of its common stock without registration under the Securities
Act:

1. On November 27, 1996, the Company granted options to purchase an
aggregate of 326,957 shares of the Company's common stock to two executive
officers of the Company.

2. Effective as of October 1, 1997, the Company issued a warrant to
purchase up to a maximum of 300,000 shares of common stock of the Company to
a consultant in exchange for providing certain consulting services to the
Company.

3. In May 1998, the Company issued a warrant to purchase up to a
maximum of 50,000 shares of common stock of the Company to an attorney in
exchange for providing legal services to the Company in connection with the
offering.

4. Effective as of May 31, 1998, the Company issued an aggregate of
1,124,772 shares of common stock to six existing stockholders in exchange
for the contribution of all of the outstanding capital stock of Troy Systems
to the Company.

5. On October 30, 1998 the Company issued an aggregate of 171,430
shares of common stock in connection with the acquisition of XCD
Incorporated. The Company also granted a warrant to purchase 50,000 shares
of common stock to a consultant for services in connection with the
acquisition.

6. On May 8, 1999, the Company issued an aggregate of 58,700 shares of
common stock in connection with the acquisition of Telgate Equipment
Corporation.

7. Concurrently with the consummation of the offering, the Company
intends to grant options to purchase an aggregate of 555,000 shares of
common stock of the Company to certain officers, directors and employees of
the Company.

All of the above sales were made in reliance on Rule 701, Regulation D or
Section 4(2) under the Securities Act. With regard to the reliance by the
Company upon the exemptions set forth in the previous sentence, certain
inquiries were made by the Company to establish that such sales qualified for
such exemptions from the registration requirements. In particular, the Company
confirmed that: (i) all offers of sales and sales were made by personal contact
from officers or directors of the Company or other persons closely associated
with the Company; (ii) each investor made representations that he or she was
sophisticated in relation to this investment (and the Company has no reason to
believe such representations were incorrect); (iii) each purchaser gave
assurance of investment intent and the certificates for the shares bear a legend
accordingly; and (iv) offers and sales within any offering were made to a
limited number of persons.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(A) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
1.1 Underwriting Agreement*

1.2 Form of Representatives' Warrant*

2.1 Merger Purchase Agreement dated October 28, 1998 between the Company, Troy
Merger Subsidiary, Inc. and XCD Incorporated and its shareholders*

3.1 Certificate of Incorporation of the Company*

3.2 Bylaws of the Company*
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
3.3 Certificate of Ownership and Merger dated May 18, 1998, between Troy Group
Newco, Inc. and Troy Systems, Inc.*

3.4 Agreement and Plan of Merger dated May 18, 1998 between Troy Group Newco,
Inc. and Troy Systems, Inc.*

4.1 Warrant dated December 30, 1998 issued to Broadland Capital Partners, as
amended through June 8, 1999*

4.2 Warrant dated October 30, 1998 issued to Steve Holmes*

4.3 Warrant dated June 1, 1998 issued to Raymond F. Schuler, as amended
through June 8, 1999*

5.1 Opinion of Oppenheimer Wolff & Donnelly LLP*

10.1 Lease dated March 16, 1995 between the Company and RAGCO, as amended on
May 18, 1998

10.2 Lease dated July 28, 1993 between Dirk Investments, Inc. and the Company*

10.3 Lease Amendment to Lease dated July 28, 1993 between Dirk Investments,
Inc. and the Company*

10.4 Addendum to Lease dated March 16, 1995 between Dirk Investments, Inc. and
the Company*

10.5 Lease Amendment to Lease dated September 1, 1996 between Dirk Investments,
Inc. and the Company*

10.6 Lease dated March 1, 1998 between Sanwa Bank California and XCD, Inc. and
a Consent to Assignment of Lease, Assignment and Acceptance dated
October 23, 1998 between Sanwa Bank California, XCD, Inc. and Troy XCD,
Inc.*

10.7 1996 Stock Option Plan*

10.8 1998 Stock Incentive Plan*

10.9 1998 Employee Stock Purchase Plan*

10.10 Incentive Stock Option Agreement dated November 27, 1996 in favor of
Robert Messina, as amended on February 6, 1998*

10.11 Incentive Stock Option Agreement dated November 27, 1996 in favor of Brian
Dirk, as amended on February 6, 1998*

10.12 Non-Competition Agreement dated November 27, 1996 between Robert Messina
and the Company*

10.13 Consulting Agreement dated October 1, 1997 between the Company and
Broadland Capital Partners, as amended through June 8, 1999*

10.14 Form of Indemnification Agreement for directors and executive officers of
the Company*

10.15 MICR Supplies Agreement dated February 6, 1998 between the Company and IBM
Printing Systems Company(1)*

10.16 Form of Tax Agreement Relating to S Corporation Distributions by and
between the Company and the Dirk Shareholders*

10.17 Loan Agreement and Security Agreement dated October 20, 1998 between the
Company and Comerica Bank-California*

10.18 Variable Rate Installment Note dated October 20, 1998 in favor of Comerica
Bank-California*
</TABLE>

II-3

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.19 Variable Rate Installment Note dated October 20, 1998 in favor of Comerica
Bank-California*

10.20 Guaranty dated October 20, 1998 by the majority shareholders*

10.21 Letter dated October 3, 1997 to RAGCO from the Company*

10.22 Bill of Sale and Assignment and Assumption Agreement dated May 31, 1998
between Troy Group, Inc. and Troy Systems International, Inc.*

10.23 Form of Subscription Agreement*

10.24 Reseller Agreement dated April 1, 1996 between the Company and
Hewlett-Packard Company (1)

21.1 Subsidiaries of the Registrant*

23.1 Consent of McGladrey & Pullen, LLP, Independent Auditors

23.2 Consent of McGladrey & Pullen, LLP, Independent Auditors

23.3 Consent of Oppenheimer Wolff & Donnelly LLP (included in Exhibit 5.1)

24.1 Power of Attorney (included on pages II-4 and II-5 hereto)*

27.1 Financial Data Schedule

99.1 Consent of Brian P. Dirk*

99.2 Consent of Norman B. Keider*

99.3 Consent of John B. Zaepfel*

99.4 Consent of William P. O'Reilly*

99.5 Consent of Gene A. Bier*

99.6 Consent of Harold L. Clark*
</TABLE>

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

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

* Previously filed.

II-4
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES.

The following financial statement schedule is included herein and should be
read in conjunction with the financial statements referred to above:

Independent Auditors' Report on Financial Statement Schedule

Schedule II. Valuation and Qualifying Accounts

All other schedules are omitted as the required information is unapplicable
or the information is presented in the financial statements or related notes.

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or Bylaws of the Registrant, the Underwriting Agreement, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) It will provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.

(2) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(3) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-5
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 6 to the Registration Statement on Form S-1
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Santa Ana, California on this 19th day of July, 1999.

<TABLE>
<S> <C> <C>
TROY GROUP, INC.

By: /s/ PATRICK J. DIRK
-----------------------------------------
Patrick J. Dirk
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 6 to the Registration Statement has been signed by the following persons in
the capacities indicated, on July 19, 1999.

NAME AND SIGNATURE TITLE
- ------------------------------ --------------------------

Chairman of the Board,
/s/ PATRICK J. DIRK President and Chief
- ------------------------------ Executive Officer
Patrick J. Dirk (Principal Executive
Officer)

Chief Financial Officer,
* Treasurer and Secretary
- ------------------------------ (Principal Financial and
Del L. Conrad Accounting Officer)

/s/ PATRICK J. DIRK
- ------------------------------ * Attorney-in-fact
Patrick J. Dirk

II-6
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ---------------------------------------------------------------------------------------------
<C> <S> <C>
1.1 Underwriting Agreement*

1.2 Form of Representatives' Warrant*

2.1 Merger Purchase Agreement dated October 28, 1998 between the Company, Troy Merger Subsidiary,
Inc. and XCD Incorporated and its shareholders*

3.1 Certificate of Incorporation of the Company*

3.2 Bylaws of the Company*

3.3 Certificate of Ownership and Merger dated May 18, 1998, between Troy Group Newco, Inc. and
Troy Systems, Inc.*

3.4 Agreement and Plan of Merger dated May 18, 1998 between Troy Group Newco, Inc. and Troy
Systems, Inc.*

4.1 Warrant dated December 30, 1998 issued to Broadland Capital Partners, as amended through June
8, 1999*

4.2 Warrant dated October 30, 1998 issued to Steve Holmes*

4.3 Warrant dated June 1, 1998 issued to Raymond F. Schuler, as amended through June 8, 1999*

5.1 Opinion of Oppenheimer Wolff & Donnelly LLP*

10.1 Lease dated March 16, 1995 between the Company and RAGCO, as amended on May 18, 1998

10.2 Lease dated July 28, 1993 between Dirk Investments, Inc. and the Company*

10.3 Lease Amendment to Lease dated July 28, 1993 between Dirk Investments, Inc. and the Company*

10.4 Addendum to Lease dated March 16, 1995 between Dirk Investments, Inc. and the Company*

10.5 Lease Amendment to Lease dated September 1, 1996 between Dirk Investments, Inc. and the
Company*

10.6 Lease dated March 1, 1998 between Sanwa Bank California and XCD, Inc. and a Consent to
Assignment of Lease, Assignment and Acceptance dated October 23, 1998 between Sanwa Bank
California, XCD, Inc. and Troy XCD, Inc.*

10.7 1996 Stock Option Plan*

10.8 1998 Stock Incentive Plan*

10.9 1998 Employee Stock Purchase Plan*

10.10 Incentive Stock Option Agreement dated November 27, 1996 in favor of Robert Messina, as
amended on February 6, 1998*

10.11 Incentive Stock Option Agreement dated November 27, 1996 in favor of Brian Dirk, as amended
on February 6, 1998*

10.12 Non-Competition Agreement dated November 27, 1996 between Robert Messina and the Company*

10.13 Consulting Agreement dated October 1, 1997 between the Company and Broadland Capital
Partners, as amended through June 8, 1999*

10.14 Form of Indemnification Agreement for directors and executive officers of the Company*
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ---------------------------------------------------------------------------------------------
<C> <S> <C>
10.15 MICR Supplies Agreement dated February 6, 1998 between the Company and IBM Printing Systems
Company(1)*

10.16 Form of Tax Agreement Relating to S Corporation Distributions by and between the Company and
the Dirk Shareholders*

10.17 Loan Agreement and Security Agreement dated October 20, 1998 between the Company and Comerica
Bank-California*

10.18 Variable Rate Installment Note dated October 20, 1998 in favor of Comerica Bank-California*

10.19 Variable Rate Installment Note dated October 20, 1998 in favor of Comerica Bank-California*

10.20 Guaranty dated October 20, 1998 by the majority shareholders*

10.21 Letter dated October 3, 1997 to RAGCO from the Company*

10.22 Bill of Sale and Assignment and Assumption Agreement dated May 31, 1998 between Troy Group,
Inc. and Troy Systems International, Inc.*

10.23 Form of Subscription Agreement*

10.24 Reseller Agreement dated April 1, 1996 between the Company and Hewlett-Packard Company (1)

21.1 Subsidiaries of the Registrant*

23.1 Consent of McGladrey & Pullen, LLP, Independent Auditors

23.2 Consent of McGladrey & Pullen, LLP, Independent Auditors

23.3 Consent of Oppenheimer Wolff & Donnelly LLP (included in Exhibit 5.1)

24.1 Power of Attorney (included on pages II-4 and II-5 hereto)*

27.1 Financial Data Schedule

99.1 Consent of Brian P. Dirk*

99.2 Consent of Norman B. Keider*

99.3 Consent of John B. Zaepfel*

99.4 Consent of William P. O'Reilly*

99.5 Consent of Gene A. Bier*

99.6 Consent of Harold L. Clark*
</TABLE>

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

* Previously filed.

<PAGE>

Exhibit 10.1

CALIFORNIA CHAPTERS OF THE
SOCIETY OF INDUSTRIAL AND OFFICE REALTORS,-Registered Trademark- INC.

INDUSTRIAL REAL ESTATE LEASE
(SINGLE-TENANT FACILITY)

ARTICLE ONE: BASIC TERMS

This Article One contains the Basic Terms of this Lease between the
Landlord and Tenant named below. Other Articles, Sections and Paragraphs of
the Lease referred to in this Article One explain and define the Basic Terms
and are to be read in conjunction with the Basic Terms.

Section 1.01. DATE OF LEASE: March 16, 1995

Section 1.02. LANDLORD (INCLUDE LEGAL ENTITY): Ragco, a general
partnership

Address of Landlord: 881 Dover Dr., Suite 14, Newport Beach, CA 92663

Section 1.03. TENANT (INCLUDE LEGAL Entity): Troy Division - Pierce
Companies, Inc.

Attn: Brian Dirk

Address of Tenant: 2331 S. Pullman Ave., Santa Ana, CA 92705

Section 1.04. PROPERTY: (include street address, approximate square
footage and description) 2331 S. Pullman Ave., Santa Ana, CA 92705;
consisting of approximately 37,181 Sq. Ft. - sprinklered

Section 1.05. LEASE TERM: THREE years NO months BEGINNING ON MAY 1,
1995 or such other date as is specified in this Lease, and ENDING ON April 30,
1998

Section 1.06. PERMITTED USES: (See Article Five) Electrical and Machine
Assembly, Engineering, and Systems Marketing and other lawful uses or other
similar uses.

Section 1.07. TENANT'S GUARANTOR: (If none, so state) None

Section 1.08. BROKERS: (See Article Fourteen) (If none, so state)
Landlord's Broker: None
Tenant's Broker: None

Section 1.09. COMMISSION PAYABLE TO LANDLORD'S BROKER: (See Article
Fourteen) $ N/A

<PAGE>

Section 1.10. INITIAL SECURITY DEPOSIT: (See Section 3.03) $ n/a

Section 1.11. VEHICLE PARKING SPACES ALLOCATED TO TENANT: All surrounding
parking.

Section 1.12. RENT AND OTHER CHARGES PAYABLE BY TENANT:

(a) BASE Rent: Thirteen Thousand Thirteen Dollars and Thirty-Five Cents
($13,013.35) per month for the first thirty-six months, as provided in Section
3.01.

(b) OTHER PERIODIC PAYMENTS: (i) Real Property Taxes (See Section 4.02);
(ii) Utilities (See Section 4.03); (iii) Insurance Premiums (See Section 4.04);
(iv) Impounds for Insurance Premiums and Property Taxes (See Section 4.07); (\v)
Maintenance, Repairs and Alterations (See Article Six).

Section 1.13. LANDLORD'S SHARE OF PROFIT ON ASSIGNMENT OR SUBLEASE: (See
Section 9.05) 0 percent ( 0 %) of the Profit (the "Landlord's Share").

Section 1.14. Riders: The following Riders are attached to and made a part
of this Lease: (If none, so state)
I. Option to Extend Term

ARTICLE TWO: LEASE TERM

Section 2.01. LEASE OF PROPERTY FOR LEASE TERM. Landlord leases the
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.05 above and shall
begin and end on the dates specified in Section 1.05 above, unless the beginning
or end of the Lease Term is changed under any provision of this Lease. The
"Commencement Date" shall be the date specified in Section 1.05 above for the
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.

Sections 2.02 and 2.03 - Deleted.

Section 2.04. HOLDING OVER. Tenant shall vacate the Property upon the
expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages which Landlord incurs
from Tenant's delay in vacating the Property. If Tenant does not vacate the
Property upon the expiration or earlier termination of the Lease and Landlord
thereafter accepts rent from Tenant, Tenant's occupancy of the Property shall be
a "month-to-month" tenancy, subject to all of the terms of this Lease applicable
to a month-to-month tenancy, except that the Base Rent then in effect shall be
increased by ten percent (10%).

ARTICLE THREE: BASE RENT

Section 3.01. TIME AND MANNER OF PAYMENT. Upon execution of this Lease,
Tenant shall pay Landlord the Base Rent in the amount stated in Paragraph
1.12(a) above for the first

2
<PAGE>

month of the Lease Term. On the first day of the second month of the Lease
Term and each month thereafter, Tenant shall pay Landlord the Base Rent, in
advance, without offset, deduction or prior demand. The Base Rent shall be
payable at Landlord's address or at such other place as Landlord may
designate in writing.

Section 3.02, Section 3.03 and Section 3.04 - Deleted.

ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT

Section 4.01. ADDITIONAL RENT. All charges payable by Tenant other than
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.

Section 4.02. PROPERTY TAXES.

(a) REAL PROPERTY TAXES. Tenant shall pay all real property taxes on the
Property (including any fees, taxes or assessments against, or as a result of,
any tenant improvements installed on the Property by or for the benefit of
Tenant) during the Lease Term. Subject to Paragraph 4.02(c) and Section 4.07
below, such payment shall be made at least ten (10) days prior to the
delinquency date of the taxes. Within such ten (10) -day period, Tenant shall
furnish Landlord with satisfactory evidence that the real property taxes have
been paid. Landlord shall reimburse Tenant for any real property taxes paid by
Tenant covering any period of time prior to or after the Lease Term. If Tenant
fails to pay the real property taxes when due, Landlord may pay the taxes and
Tenant shall reimburse Landlord for the amount of such tax payment as Additional
Rent.

(b) DEFINITION OF "REAL PROPERTY TAX." "Real property tax" means: (i) any
fee, license fee, license tax, business license fee, commercial rental tax,
levy, charge, assessment, penalty or tax imposed by any taxing authority against
the Property; (ii) any tax on the Landlord's right to receive, or the receipt
of, rent or income from the Property or against Landlord's business of leasing
the Property; (iii) any tax or charge for fire protection, streets, sidewalks,
road maintenance, refuse or other services provided to the Property by any
governmental agency; and (v) any charge or fee replacing any tax previously
included within the definition of real property tax. "Real property tax" does
not, however, include Landlord's federal or state income, franchise, inheritance
or estate taxes.

Section 4.02(b)(iv) deleted.

Section (c) deleted.

(d) PERSONAL PROPERTY TAXES.

3
<PAGE>

(i) Tenant shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other personal property belonging to Tenant.
Tenant shall try to have personal property taxed separately from the Property.

(ii) If any of Tenant's personal property is taxed with the Property,
Tenant shall pay Landlord the taxes for the personal property within fifteen
(15) days after Tenant receives a written statement from Landlord for such
personal property taxes.

(e) TENANT'S RIGHT TO CONTEST TAXES. Tenant may attempt to have the
assessed valuation of the Property reduced or may initiate proceedings to
contest the real property taxes. If required by law, Landlord shall join in the
proceedings brought by Tenant. However, Tenant shall pay all costs of the
proceedings, including any costs or fees incurred by Landlord. Upon the final
determination of any proceeding or contest, Tenant shall immediately pay the
real property taxes due, together with all costs, charges, interest and
penalties incidental to the proceedings. If Tenant does not pay the real
property taxes when due and contests such taxes, Tenant shall not be in default
under this Lease for nonpayment of such taxes if Tenant deposits funds with
Landlord or opens an interest-bearing account reasonably acceptable to Landlord
in the joint names of Landlord and Tenant. The amount of such deposit shall be
sufficient to pay the real property taxes plus a reasonable estimate of the
interest, costs, charges and penalties which may accrue if Tenant's action is
unsuccessful, less any applicable tax impounds previously paid by Tenant to
Landlord. The deposit shall be applied to the real property taxes due, as
determined at such proceedings. The real property taxes shall be paid under
protest from such deposit if such payment under protest is necessary to
prevent the Property from being sold under a "tax sale" or similar
enforcement proceeding.

Section 4.03. UTILITIES. Tenant shall pay, directly to the appropriate
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such share to Landlord within fifteen (15) days after receipt of Landlord's
written statement.

Section 4.04. INSURANCE POLICIES.

(a) Liability Insurance. During the Lease Term, Tenant shall maintain a
policy of commercial general liability insurance (sometimes known as broad form
comprehensive general liability insurance) insuring Tenant against liability for
bodily injury, property damage (including loss of use of property) and personal
injury arising out of the operation, use or occupancy of the Property. Tenant
shall name Landlord as an additional insured under such policy. The initial
amount of such insurance shall be One Million Dollars ($1,000,000) per
occurrence and shall be subject to periodic increase based upon inflation,
increased liability awards, recommendation of Landlord's professional insurance
advisers and other relevant factors. The liability insurance obtained by Tenant
under this Paragraph 4.04(a) shall (i) be primary and non-contributing; (ii)
contain cross-liability endorsements; and (iii) insure Landlord against Tenant's
performance under Section 5.05, if the matters giving rise to the indemnity
under Section 5.05 result from the

4
<PAGE>

negligence of Tenant. The amount and coverage of such insurance shall not
limit Tenant's liability nor relieve Tenant of any other obligation under
this Lease. Landlord may also obtain comprehensive public liability insurance
in an amount and with coverage determined by Landlord insuring Landlord
against liability arising out of ownership, operation, use or occupancy of
the Property. The policy obtained by Landlord shall not be contributory and
shall not provide primary insurance.

Sections (b) and (c) deleted.

(d) GENERAL INSURANCE PROVISIONS.

(i) Any insurance which Tenant is required to maintain under this
Lease shall include a provision which requires the insurance carrier to give
Landlord not less than thirty (30) days' written notice prior to any
cancellation or modification of such coverage.

(ii) If Tenant fails to deliver any policy, certificate or renewal
to Landlord required under this Lease within the prescribed time period or if
any such policy is cancelled or modified during the Lease Term without
Landlord's consent, Landlord may obtain such insurance, in which case Tenant
shall reimburse Landlord for the cost of such insurance within fifteen (15)
days after receipt of a statement that indicates the cost of such insurance.

(iii) Tenant shall maintain all insurance required under this Lease
with companies holding a "General Policy Rating" of A-8 or better, as set
forth in the most current issue of "Best Key Rating Guide". Landlord and
Tenant acknowledge the insurance markets are rapidly changing and that
insurance in the form and amounts described in this Section 4.04 may not be
available in the future. Tenant acknowledges that the insurance described in
this Section 4.04 is for the primary benefit of Landlord. If at any time
during the Lease Term, Tenant is unable to maintain the insurance required
under the Lease, Tenant shall nevertheless maintain insurance coverage which
is customary and commercially reasonable in the insurance industry for
Tenant's type of business, as that coverage may change from time to time.
Landlord makes no representation as to the adequacy of such insurance to
protect Landlord's or Tenant's interests. Therefore, Tenant shall obtain any
such additional property or liability insurance which Tenant deems necessary
to protect Landlord and Tenant.

(iv) Unless prohibited under any applicable insurance policies
maintained, Landlord and Tenant each hereby waive any and all rights of
recovery against the other, or against the officers, employees, agents or
representatives of the other, for loss of or damage to its property or the
property of others under its control for such loss or damage is covered by
any insurance policy in force (whether or not described in this Lease) at the
time of such loss or damage. Upon obtaining the required policies of
insurance, Landlord and Tenant shall give notice to the insurance carriers of
this mutual waiver of subrogation.

Section 4.05. LATE CHARGES. Tenant's failure to pay rent promptly may
cause Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but
are not limited to, processing and accounting

5
<PAGE>

charges and late charges which may be imposed on Landlord by any ground
lease, mortgage or trust deed encumbering the Property. Therefore, if
Landlord does not receive any rent payment within ten (10) days after written
notice to Troy Div. Pierce Companies, Inc., Tenant shall pay Landlord a late
charge equal to five percent (5%) of the overdue amount. The parties agree
that such late charge represents a fair and reasonable estimate of costs
Landlord will incur by reason of such late payment.

Section 4.06. INTEREST ON PAST DUE OBLIGATIONS. Any amount owed by Tenant
to Landlord which is not paid when due shall bear interest at the rate of five
percent (5%) per annum from the due date of such amount upon days written notice
to Troy Div. Pierce Companies, Inc. However, interest shall not be payable on
late charges to be paid by Tenant under this Lease. The payment of interest on
such amounts shall not excuse or cure any default by Tenant under this Lease.
If the interest rate specified in this Lease is higher than the rate permitted
by law, the interest rate is hereby decreased to the maximum legal interest rate
permitted by law.

Section 4.07 - Deleted

ARTICLE FIVE: USE OF PROPERTY

Section 5.01. PERMITTED USES. Tenant may use the Property only for the
Permitted Uses set forth in Section 1.06 above.

Section 5.02. MANNER OF USE. Tenant shall not cause or permit the Property
to be used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which annoys or interferes with the rights of
other tenants of Landlord, or which constitutes a nuisance or waste. Tenant
shall obtain and pay for all permits, including a Certificate of Occupancy,
required for Tenant's occupancy of the Property and shall promptly take all
actions necessary to comply with all applicable statutes, ordinances, rules,
regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act.

Section 5.03. HAZARDOUS MATERIALS. As used in this Lease, the term
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition
of "hazardous substances", "hazardous wastes", "hazardous materials" or
"toxic substances" now or subsequently regulated under any applicable
federal, state or local laws or regulations, including without limitation
petroleum-based products, paints, solvents, lead, cyanide, DDT, printing
inks, acids, pesticides, ammonia compounds and other chemical products,
asbestos, PCBs and similar compounds, and including any different products
and materials which are subsequently found to have adverse effects on the
environment or the health and safety of persons. Tenant shall not cause or
permit any Hazardous Material to be generated, produced, brought upon, used,
stored, treated or disposed of in or about the Property by Tenant, its
agents, employees, contractors, sublessees or invitees without the prior
written consent of Landlord, provided tenant may use any hazardous material
if done so with compliance of the law and no consent of landlord is
necessary. Landlord shall be entitled to take into account such

6
<PAGE>

other factors or acts as Landlord may reasonably determine to be relevant in
determining whether to grant or withhold consent to Tenant's proposed
activity with respect to Hazardous Material. In no event, however, shall
Landlord be required to consent to the installation or use of any storage
tanks on the Property.

Section 5.04. SIGNS AND AUCTIONS. Tenant shall not place any signs on
the Property without Landlord's prior written consent. Tenant shall not
conduct or permit any auctions or sheriff's sales at the Property.

Section 5.05. INDEMNITY. Tenant shall indemnify Landlord against and
hold Landlord harmless from any and all costs, claims or liability arising
from: (a) Tenant's use of the Property; (b) the conduct of Tenant's business
or anything else done or permitted by Tenant to be done in or about the
Property, including any contamination of the Property or any other property
resulting from the presence or use of Hazardous Material caused or permitted
by Tenant; (c) any breach or default in the performance of Tenant's
obligations under this Lease; (d) any misrepresentation or breach of warranty
by Tenant under this Lease; or (e) other acts or omissions of Tenant. Tenant
shall defend Landlord against any such cost, claim or liability at Tenant's
expense with counsel reasonably acceptable to Landlord or, at Landlord's
election Tenant shall reimburse Landlord for any legal fees or costs incurred
by Landlord in connection with any such claim subject to Section 7.01(a). As
a material part of the consideration to Landlord, Tenant assumes all risk of
damage to property or injury to persons in or about the Property arising from
any cause, and Tenant hereby waives all claims in respect thereof against
Landlord, except for any claim arising out of Landlord's gross negligence or
willful misconduct. As used in this Section, the term "Tenant" shall include
Tenant's employees, agents, contractors and invitees, if applicable.

Section 5.06. LANDLORD'S ACCESS. Provided Landlord gives Tenant
Reasonable notice, Landlord or its agents may enter the Property at all
reasonable times to show the Property to potential buyers, investors or
tenants or other parties; to do any other act or to inspect and conduct tests
in order to monitor Tenant's compliance with all applicable environmental
laws and all laws governing the presence and use of Hazardous Material or for
any other purpose Landlord deems necessary, provided that no such test shall
interrupt Tenant's business, and if Tenant's business is interrupted,
Landlord shall hold Tenant harmless and reimburse Tenant for costs and
damages arising from such interruption. Landlord shall give Tenant prior
notice of such entry, except in the case of an emergency. Landlord may place
customary "For Sale" or "For Lease" signs on the Property; provided that
Tenant must give prior written approval to number, size and location of any
such signs.

Section 5.07. QUIET POSSESSION. If Tenant pays the rent and complies
with all other terms of this Lease, Tenant may occupy and enjoy the Property
for the full Lease Term, subject to the provisions of this Lease.

ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS

7
<PAGE>

Section 6.01. EXISTING CONDITIONS. Tenant accepts the Property in its
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein, Tenant acknowledges that neither Landlord nor any agent of Landlord
has made any representation as to the condition of the Property or the
suitability of the Property for Tenant's intended use. Tenant represents and
warrants that Tenant has made its own inspection of and inquiry regarding the
condition of the Property and is not relying on any representations of
Landlord or any Broker with respect thereto. If Landlord or Landlord's Broker
has provided a Property Information Sheet or other Disclosure Statement
regarding the Property, a copy is attached as an exhibit to the Lease.

Section 6.02. EXEMPTION OF LANDLORD FROM LIABILITY. Subject to Section
7.01(a) hereof, Landlord shall not be liable for any damage or injury to the
person, business (or any loss of income therefrom), goods, wares, merchandise
or other property of Tenant, Tenant's employees, invitees, customers or any
other person in or about the Property, whether such damage or injury is
caused by or results from: (a) fire, steam, electricity, water, gas or rain;
(b) the breakage, leakage, obstruction or other defects of pipes, sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures or any
other cause; (c) conditions arising in or about the Property or from other
sources or places; or (d) any act or omission of any other tenant of
Landlord. The provisions of this Section 6.02 shall not, however, exempt
Landlord from liability for Landlord's gross negligence or willful
misconduct. See attached 6.02.1.

SECTION 6.02.1 Provided, however, that Landlord shall indemnify,
defend, and hold Tenant harmless from all costs, expenses and liability from
toxic waste problems generated by tenants prior to September 4, 1987 or
Landlord or prior owners or toxic wastes migrating from other premises.

Section 6.03 - deleted.

Section 6.04. TENANT'S OBLIGATIONS. (a) Except as provided in
Article Seven (Damage or Destruction) and Article Eight (Condemnation),
Tenant shall keep all portions of the Property (including structural,
nonstructural, interior, exterior, and landscaped areas, portions, systems
and equipment) in good order, condition and repair (including interior
repainting and refinishing, as needed). If any portion of the Property or any
system or equipment in the Property which Tenant is obligated to repair
cannot be fully repaired or restored, Tenant shall promptly replace such
portion of the Property or system or equipment in the Property, regardless of
whether the benefit of such replacement extends beyond the Lease Term; but if
the benefit or useful life of such replacement extends beyond the Lease Term
(as such term may be extended by exercise of any options), the useful life of
such replacement shall be prorated over the remaining portion of the Lease
Term (as extended), and Tenant shall be liable only for that portion of the
cost which is applicable to the Lease Term (as extended). If any part of the
Property is damaged by any act or omission of Tenant, Tenant shall pay
Landlord the cost of repairing replacing such damaged property, whether or
not Landlord would otherwise be obligated to pay the cost of maintaining or
repairing

8
<PAGE>

such property. It is the intention of Landlord and Tenant that at all times
Tenant shall maintain the portions of the Property which Tenant is obligated
to maintain in an attractive, first-class and fully operative condition.

(b) Tenant shall fulfill all of Tenant's obligations under this Section
6.04 at Tenant's sole expense. If Tenant fails to maintain. repair or replace
the Property as required by this Section 6.04, Landlord may, upon ten (10)
days prior notice to Tenant (except that no notice shall be required in the
case of an emergency), enter the Property and perform such maintenance or
repair (including replacement, as needed) on behalf of Tenant. In such case,
Tenant shall reimburse Landlord for all costs incurred in performing such
maintenance or repair immediately upon demand.

Section 6.05. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS.

(a) Tenant shall not make any alterations, additions, or improvements to
the Property without Landlord's prior written consent, except for
non-structural alterations which do not exceed Ten Thousand Dollars ($10,000)
in cost cumulatively over the Lease Term and which are not visible from the
outside of any building of which the Property is part. Landlord may require
Tenant to provide demolition and/or lien and completion bonds in form and
amount satisfactory to Landlord. Tenant shall promptly remove any
alterations, additions, or improvements constructed in violation of this
Paragraph 6.05(a) upon Landlord's written request. All alterations,
additions, and improvements shall be done in a good and workmanlike manner,
In conformity with all applicable laws and regulations, and by a contractor
approved by Landlord. Upon completion of any such work, Tenant shall provide
Landlord with "as built" plans, copies of all construction contracts, and
proof of payment for all labor and materials.

(b) Tenant shall pay when due all claims for labor and material
furnished to the Property. Tenant shall give Landlord at least twenty (20)
days' prior written notice of the commencement of any work on the Property,
regardless of whether Landlord's consent to such work is required. Landlord
may elect to record and post notices of non-responsibility on the Property.

Section 6.06. CONDITION UPON TERMINATION. Upon the termination of the
Lease, Tenant shall surrender the Property to Landlord, broom clean and in
the same configuration as approved by Landlord from time to time as received,
except for ordinary wear and tear which Tenant was not otherwise obligated to
remedy under any provision of this Lease. However, Tenant shall not
obligated to repair any damage which Landlord is required to repair under
Article Seven (Damage or Destruction). In addition, All alterations,
additions and improvements which Landlord has not required Tenant to remove
shall become Landlord's property and shall be surrendered to Landlord upon
the expiration or earlier termination of the Lease, except that Tenant may
remove any of Tenant's machinery or equipment which can be removed without
material damage to the Property. Tenant shall repair, at Tenant's expense,
any damage to the Property caused by the removal of any such machinery or
equipment. In no event, however, shall Tenant remove any of the following
materials or equipment (which shall be deemed Landlord's property) without
Landlord's prior written consent: any power wiring or power panels; lighting
or lighting fixtures; wall coverings; drapes, blinds or other window
coverings; carpets or other

9
<PAGE>

floor coverings; heaters, air conditioners or any other heating or air
conditioning equipment; fencing or security gates; or other similar building
operating equipment and decorations.

ARTICLE SEVEN: DAMAGE OR DESTRUCTION

Section 7.01. PARTIAL DAMAGE TO PROPERTY.

(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. See attached 7.01(a).

SECTION 7.01(a) If the Property is damaged so as to materially adversely
affect the Troy Business of the Tenant, in the sole judgment of the Tenant,
Tenant, at its sole election, may (a) terminate this Lease immediately or (b)
require Landlord to repair the Property to the satisfaction of Tenant, Tenant
may take over such repairs at the expense of Landlord and Landlord shall
promptly pay such cost on the basis of bids and not bills for completed work.
If Landlord does not make such payment promptly, Landlord shall remain liable
for such costs of repair and, in addition to such right to payment, Tenant may
offset such costs against rent.

Section (b) deleted.

(c) If the damage to the Property occurs during the last twelve (12)
months of the Lease Term and such damage will, require more than thirty (30)
days to repair, either Landlord or Tenant may elect to terminate this Lease as
of the date the damage occurred, regardless of the sufficiency of any insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage.

Section 7.02. SUBSTANTIAL OR TOTAL DESTRUCTION. If the Property is
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.01), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred.

Section 7.03. TEMPORARY REDUCTION OF RENT. If the Property is destroyed
or damaged and Landlord or Tenant repairs or restores the Property pursuant to
the provisions of this Article Seven, any rent payable during the period of such
damage, repair and/or restoration shall be reduced according to the degree, if
any, to which Tenant's use of the Property is impaired. However, the reduction
shall not exceed the sum of one year's payment of Base Rent, insurance premiums
and real property taxes. Except for such possible reduction in Base Rent,
insurance premiums and real property taxes, Tenant shall not be entitled to any
compensation, reduction, or reimbursement from Landlord as a result of any
damage, destruction, repair, or restoration of or to the Property.

Section 7.04. WAIVER. Tenant agrees that the provisions of Section 7.02
above shall govern the rights and obligations of Landlord and Tenant in the
event of any substantial or total destruction to the Property.

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ARTICLE EIGHT: CONDEMNATION

If all or any portion of the Property is taken under the power of
eminent domain or sold under the threat of that power (all of which are
called "Condemnation"), this Lease shall terminate as to the part taken or
sold on the date the condemning authority takes title or possession,
whichever occurs first. If more than twenty percent (20%) of the floor area
of the building in which the Property is located, or which is located on the
Property, is taken, either Landlord or Tenant may terminate this Lease as of
the date the condemning authority takes title or possession, by delivering
written notice to the other within ten (10) days after receipt of written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority takes title or possession). If neither
Landlord nor Tenant terminates this Lease, this Lease shall remain in effect
as to the portion of the Property not taken, except that the Base Rent and
Additional Rent shall be reduced in proportion to the reduction in the floor
area of the Property. Any Condemnation award or payment shall be distributed
in the following order: (a) first, to any ground lessor, mortgagee or
beneficiary under a deed of trust encumbering the Property, the amount of its
interest in the Property; (b) second, to Tenant, only the amount of any award
specifically designated for loss of or damage to Tenant's trade fixtures or
removable personal property; and (c) third, to Landlord, the remainder of
such award, whether as compensation for reduction in the value of the
leasehold, the taking of the fee, or otherwise. If this Lease is not
terminated, Landlord shall repair any damage to the Property caused by the
Condemnation, except that Landlord shall not be obligated to repair any
damage for which Tenant has been reimbursed by the condemning authority. If
the severance damages received by Landlord are not sufficient to pay for such
repair, Landlord shall have the right to either terminate this lease or make
such repair at Landlord's expense.

ARTICLE NINE: ASSIGNMENT AND SUBLETTING.

Section 9.01. LANDLORD'S CONSENT. As long as Tenant remains completely
responsible for compliance of Tenant's obligations and duties under this
Lease, including, but not limited to, the payment of rent, Tenant may assign
or sublet under this Lease without Landlord's consent.

Section 9.02. TENANT AFFILIATE. In addition to Section 9.01 Tenant
expressly may assign this Lease including the attached "Option to Extend
Term" or sublease the Property, without Landlord's consent, to any
corporation which controls, is controlled by or is under common control with
Tenant, or to an corporation resulting from the merger of or consolidation
with Tenant ("Tenant's Affiliate"). In such case, any Tenant's Affiliate
shall assume In writing all of Tenant's obligations under this Lease.

Section 9.03. NO RELEASE OF TENANT. No transfer permitted by this
Article Nine, whether with or without Landlord's consent, shall release
Tenant or change Tenant's primary liability to pay the rent and to perform
all other obligations of Tenant under this Lease.

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Landlord's acceptance of rent from any other person is not a waiver of any
provision of this Article Nine. If Tenant's transferee defaults under this
Lease, Landlord may proceed directly against Tenant without pursuing remedies
against the transferee. Landlord may consent to subsequent assignments or
modifications of this Lease by Tenant's transferee, without notifying Tenant
or obtaining its consent. Such action shall not relieve Tenant's liability
under this Lease.

Section 9.04. OFFER TO TERMINATE. If Tenant desires to assign the
Lease or sublease the Property, Tenant shall have the right to offer, in
writing, to terminate the Lease as of a date specified in the offer. If
Landlord elects in writing to accept the offer to terminate within twenty
(20) days after notice of the offer, the Lease shall terminate as of the date
specified and all the terms and provisions of the Lease governing termination
shall apply. If Landlord does not so elect, the Lease shall continue in
effect until otherwise terminated and the provisions of Section 9.05 with
respect to any proposed transfer shall continue to apply.

Section 9.05 - deleted.

Section 9.06. NO MERGER. No merger shall result from Tenant's sublease
of the Property under this Article Nine, Tenant's surrender of this Lease or
the termination of this Lease in any other manner. In any such event,
Landlord may terminate any or all subtenancies or succeed to the interest of
Tenant as sublandlord under any or all subtenancies.

ARTICLE TEN: DEFAULTS; REMEDIES

Section 10.01. COVENANTS AND CONDITIONS. Tenant's performance of each
of Tenant's obligations under this Lease is a condition as well as a
covenant. Tenant's right to continue in possession of the Property is
conditioned upon such performance.

Section 10.02. DEFAULTS. Tenant shall be in material default under this
Lease: upon ten days prior written notice.

(a) If Tenant abandons the Property or if Tenant's vacation of the
Property results in the cancellation of any insurance described in Section
4.04;

(b) If Tenant fails to pay rent or any other charge when due;

(c) If Tenant fails to perform any of Tenant's non-monetary obligations
under this Lease for a period of thirty (30) days after written notice from
Landlord; provided that if more than thirty (30) days are required to
complete such performance, Tenant shall not be in default if Tenant commences
such performance within the thirty (30)-day period and thereafter diligently
pursues its completion. The notice required by this Paragraph is intended to
satisfy any and all notice requirements imposed by law on Landlord and is not
in addition to any such requirement.

(d) (i) If Tenant makes a general assignment or general arrangement for
the benefit of creditors; (ii) if a petition for adjudication of bankruptcy
or for reorganization or rearrangement is filed by or against Tenant and is
not dismissed within thirty (30) days; (iii) if a trustee or

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receiver is appointed to take possession of substantially all of Tenant's
assets located at the Property or of Tenant's interest in this Lease and
possession is not restored to Tenant within thirty (30) days; or (iv) if
substantially all of Tenant's assets located at the Property or of Tenant's
interest in this Lease is subjected to attachment, execution or other
judicial seizure which is not discharged within thirty (30) days. If a court
of competent jurisdiction determines that any of the acts described in this
subparagraph (d) is not a default under this Lease, and a trustee is
appointed to take possession (or if Tenant remains a debtor in possession)
and such trustee or Tenant transfers Tenant's interest hereunder, then
Landlord shall receive, as Additional Rent, the excess, if any, of the rent
(or any other consideration) paid in connection with such assignment or
sublease over the rent payable by Tenant under this Lease.

(e) If any guarantor of the Lease revokes or otherwise terminates, or
purports to revoke or otherwise terminate, any guaranty of all or any portion
of Tenant's obligations under the Lease. Unless otherwise expressly provided,
no guaranty of the Lease is revocable.

Section 10.03. REMEDIES. On the occurrence of any material default by
Tenant, Landlord may, at any time thereafter, with or without notice or
demand and without limiting Landlord in the exercise of any right or remedy
which Landlord may have:

(a) Terminate Tenant's right to possession of the Property by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Property to Landlord. In such event, Landlord
shall be entitled to recover from Tenant all damages incurred by Landlord by
reason of Tenant's default, including (i) the worth at the time of the award
of the unpaid Base Rent, Additional Rent and other charges which Landlord had
earned at the time of the termination; (ii) the worth at the time of the
award of the amount by which the unpaid Base Rent, Additional Rent and other
charges which Landlord would have earned after termination until the time of
the award exceeds the amount of such rental loss that Tenant proves Landlord
could have reasonably avoided; (iii) the worth at the time of the award of
the amount by which the unpaid Base Rent, Additional Rent and other charges
which Tenant would have paid for the balance of the Lease term after the time
of award exceeds the amount of such rental loss that Tenant proves Landlord
could have reasonably avoided; and (iv) any other amount necessary to
compensate Landlord for all the detriment proximately caused by Tenant's
failure to perform its obligations under the Lease or which in the ordinary
course of things would be likely to result therefrom, including, but not
limited to, any costs or expenses Landlord incurs in maintaining or
preserving the Property after such default, the cost of recovering possession
of the Property, expenses of reletting, including necessary renovation or
alteration of the Property, Landlord's reasonable attorneys' fees incurred in
connection therewith, and any real estate commission paid or payable. As
used in subparts (i) and (ii) above, the "worth at the time of the award" is
computed by allowing interest on unpaid amounts at the rate of lowest rate of
cost of money to Landlord or such lesser amount as may then be the maximum
lawful rate. As used in subpart (iii) above, the "worth at the time of the
award" is computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of the award, plus one
percent (1%). If Tenant has abandoned the Property, Landlord shall have the
option of (i) retaking possession of the Property and recovering from Tenant
the amount specified in this Paragraph 10.03(a), or (ii) proceeding under
Paragraph 10.03(b);

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(b) Maintain Tenant's right to possession, in which case this Lease
shall continue in effect whether or not Tenant has abandoned the Property.
In such event, Landlord shall be entitled to enforce all of Landlord's rights
and remedies under this Lease, including the right to recover the rent as it
becomes due;

(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the state in which the Property is
located.

Section 10.04 - deleted.

Section 10.05. AUTOMATIC TERMINATION. Notwithstanding any other term or
provision hereof to the contrary, the Lease shall terminate on the occurrence
of any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.03 hereof, including the filing of an unlawful
detainer action against Tenant. On such termination, Landlord's damages for
default shall include all costs and fees, including reasonable attorneys'
fees that Landlord incurs in connection with the filing, commencement,
pursuing and/or defending of any action in any bankruptcy court or other
court with respect to the Lease; the obtaining of relief from any stay in
bankruptcy restraining any action to evict Tenant; or the pursuing of any
action with respect to Landlord's right to possession of the Property. All
such damages suffered (apart from Base Rent and other rent payable hereunder)
shall constitute pecuniary damages which must be reimbursed to Landlord prior
to assumption of the Lease by Tenant or any successor to Tenant in any
bankruptcy or other proceeding.

Section 10.06. CUMULATIVE REMEDIES. Landlord's exercise of any right or
remedy shall not prevent it from exercising any other right or remedy.

ARTICLE ELEVEN: PROTECTION OF LENDERS

Section 11.01. SUBORDINATION. Landlord shall have the right to
subordinate this Lease to any ground lease, deed of trust or mortgage
encumbering the Property, any advances made on the security thereof and any
renewals, modifications, consolidations, replacements or extensions thereof,
whenever made or recorded. Tenant shall cooperate with Landlord and any
lender which is acquiring a security interest in the Property or the Lease.
Tenant shall execute such further documents and assurances as such lender may
require, provided that Tenant's obligations under this Lease shall not be
increased in any material way (the performance of ministerial acts shall not
be deemed material), and Tenant shall not be deprived of its rights under
this Lease. Tenant's right to quiet possession of the Property during the
Lease Term shall not be disturbed if Tenant pays the rent and performs all of
Tenant's obligations under this Lease and is not otherwise in default. If any
ground lessor, beneficiary or mortgagee elects to have this Lease prior to
the lien of its ground lease, deed of trust or mortgage and gives written
notice thereof to Tenant, this Lease shall be deemed prior to such ground
lease, deed of trust or mortgage whether this Lease is dated prior or
subsequent to the date of said ground lease, deed of trust or mortgage or the
date of recording thereof.

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Section 11.02. ATTORNMENT. If Landlord's interest in the Property is
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee,
or purchaser at a foreclosure sale, Tenant shall attorn to the transferee of
or successor to Landlord's interest in the Property and recognize such
transferee or successor as Landlord under this Lease. Tenant waives the
protection of any statute or rule of law which gives or purports to give
Tenant any right to terminate this Lease or surrender possession of the
Property upon the transfer of Landlord's interest.

Section 11.03. SIGNING OF DOCUMENTS. Tenant shall sign and deliver any
instrument or documents necessary or appropriate to evidence any such
attornment or subordination or agreement to do so. If Tenant fails to do so
within ten (10) days after written request, Tenant hereby makes, constitutes
and irrevocably appoints Landlord, or any transferee or successor of
Landlord, the attorney-in-fact of Tenant to execute and deliver any such
instrument or document.

Section 11.04. ESTOPPEL CERTIFICATES.

(a) Upon Landlord's written request, Tenant shall execute, acknowledge
and deliver to Landlord a written statement certifying: (i) that none of the
terms or provisions of this Lease have been changed (or if they have been
changed, stating how they have been changed); (ii) that this Lease has not
been cancelled or terminated; (iii) the last date of payment of the Base Rent
and other charges and the time period covered by such payment; (iv) that
Landlord is not in default under this Lease (or, if Landlord is claimed to be
in default, stating why); and (v) such other representations or information
with respect to Tenant or the Lease as Landlord may reasonably request or
which any prospective purchaser or encumbrancer of the Property may require.
Tenant shall deliver such statement to Landlord within ten (10) days after
Landlord's request. Landlord may give any such statement by Tenant to any
prospective purchaser or encumbrancer of the Property. Such purchaser or
encumbrancer may rely conclusively upon such statement as true and correct.

(b) If Tenant does not deliver such statement to Landlord within such
ten (10) -day period, Landlord, and any prospective purchaser or
encumbrancer, may conclusively presume and rely upon the following facts: (i)
that the terms and provisions of this Lease have not been changed except as
otherwise represented by Landlord; (ii) that this Lease has not been
cancelled or terminated except as otherwise represented by Landlord; (iii)
that not more than one month's Base Rent or other charges have been paid in
advance; and (iv) that Landlord is not in default under the Lease. In such
event, Tenant shall be estopped from denying the truth of such facts.

Section 11.05 - deleted.

ARTICLE TWELVE: LEGAL COSTS

Section 12.01 LEGAL PROCEEDINGS. If Tenant or Landlord shall be in breach
or default under this Lease, such party (the "Defaulting Party") shall reimburse
the other party (the "Nondefaulting Party") upon demand for any costs or
expenses that the Nondefaulting Party incurs in connection with any breach or
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs

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incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the
provisions of this Lease is commenced, the court in such action shall award
to the party in whose favor a judgment is entered, a reasonable sum as
attorneys' fees and costs. The losing party in such action shall pay such
attorneys' fees and costs. Tenant shall also indemnify Landlord against and
hold Landlord harmless from all costs, expenses, demands and liability
Landlord may incur if Landlord becomes or is made a party to any claim or
action (a) instituted by Tenant against any third party, or by any third
party against Tenant, or by or against any person holding any interest under
or using the Property by license of or agreement with Tenant; (b) for
foreclosure of any lien for labor or material furnished to or for Tenant or
such other person; (c) otherwise arising out of or resulting from any act or
transaction of Tenant or such other person; or (d) necessary to protect
Landlord's interest under this Lease in a bankruptcy proceeding, or other
proceeding under Title 11 of the United States Code, as amended. Tenant
shall defend Landlord against any such claim or action at Tenant's expense
with counsel reasonably acceptable to Landlord or, at Landlord's election,
Tenant shall reimburse Landlord for any legal fees or costs Landlord incurs
in any such claim or action.

Section 12.02. LANDLORD'S CONSENT. Tenant shall pay Landlord's
reasonable attorneys' fees incurred in connection with Tenant's request for
Landlord's consent under Article Nine (Assignment and Subletting), or in
connection with any other act which Tenant proposes to do and which requires
Landlord's consent.

ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS

Section 13.01. NON-DISCRIMINATION. Tenant promises, and it is a
condition to the continuance of this Lease, that there will be no
discrimination against, or segregation of, any person or group of persons on
the basis of race, color, sex, creed, national origin or ancestry in the
leasing, subleasing, transferring, occupancy, tenure or use of the Property
or any portion thereof.

Section 13.02. LANDLORD'S LIABILITY; CERTAIN DUTIES.

(a) As used in this Lease, the term "Landlord" means only the current
owner or owners of the fee title to the Property or the leasehold estate
under a ground lease of the Property at the time in question. Each Landlord
is obligated to perform the obligations of Landlord under this Lease only
during the time such Landlord owns such interest or title. Any Landlord who
transfers its title or interest is relieved of all liability with respect to
the obligations of Landlord under this Lease to be performed on or after the
date of transfer. However, each Landlord shall deliver to its transferee all
funds that Tenant previously paid if such funds have not yet been applied
under the terms of this Lease.

(b) Tenant shall give written notice of any failure by Landlord to
perform any of its obligations under this Lease to Landlord and to any ground
lessor, mortgagee or beneficiary under any deed of trust encumbering the
Property whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor, mortgagee or beneficiary) fails to cure such non-performance
within thirty (30)

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<PAGE>

days after receipt of Tenant's notice. However, if such non-performance
reasonably requires more than thirty (30) days to cure, Landlord shall not be
in default if such cure is commenced within such thirty (30) -day period and
thereafter diligently pursued to completion.

(c) Notwithstanding any term or provision herein to the contrary, the
liability of Landlord for the performance of its duties and obligations under
this Lease is limited to Landlord's interest in the Property, and neither the
Landlord nor its partners, shareholders, officers or other principals shall
have any personal liability under this Lease.

Section 13.03. SEVERABILITY. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal
or unenforceable shall not cancel or invalidate the remainder of such
provision or this Lease, which shall remain in full force and effect.

Section 13.04. INTERPRETATION. The captions of the Articles or Sections
of this Lease are to assist the parties in reading this Lease and are not a
part of the terms or provisions of this Lease. Whenever required by the
context of this Lease, the singular shall include the plural and the plural
shall include the singular. The masculine, feminine and neuter genders shall
each include the other. In any provision relating to the conduct, acts or
omissions of Tenant, the term "Tenant" shall include Tenant's agents,
employees, contractors, invitees, successors or others using the Property
with Tenant's expressed or implied permission.

Section 13.05. INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. This
Lease is the only agreement between the parties pertaining to the lease of
the Property and no other agreements are effective. All amendments to this
Lease shall be in writing and signed by all parties. Any other attempted
amendment shall be void.

Section 13.06. NOTICES. All notices required or permitted under this
Lease shall be in writing and shall be personally delivered or sent by
certified mail, return receipt requested, postage prepaid. Notices to Tenant
shall be delivered to the address specified in Section 1.03 above, except
that upon Tenant's taking possession of the Property, the Property shall be
Tenant's address for notice purposes. Notices to Landlord shall be delivered
to the address specified in Section 1.02 above. All notices shall be
effective upon delivery. Either party may change its notice address upon
written notice to the other party.

Section 13.07. WAIVERS. All waivers must be in writing and signed by
the waiving party. Landlord's failure to enforce any provision of this Lease
or its acceptance of rent shall not be a waiver and shall not prevent
Landlord from enforcing that provision or any other provision of this Lease
in the future. No statement on a payment check from Tenant or in a letter
accompanying a payment check shall be binding on Landlord. Landlord may, with
or without notice to Tenant, negotiate such check without being bound to the
conditions of such statement.

Section 13.08. NO RECORDATION. Tenant shall not record this Lease without
prior written consent from Landlord. However, either Landlord or Tenant may
require that a "Short Form"

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memorandum of this Lease executed by both parties be recorded. The party
requiring such recording shall pay all transfer taxes and recording fees.

Section 13.09. BINDING EFFECT; CHOICE OF LAW. This Lease binds any party
who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.

Section 13.10. CORPORATE AUTHORITY; PARTNERSHIP AUTHORITY. If Tenant is a
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation.

Section 13.11. JOINT AND SEVERAL LIABILITY. All parties signing this Lease
as Tenant shall be jointly and severally liable for all obligations of Tenant.

Section 13.12. FORCE MAJEURE. If Landlord or Tenant cannot perform any of
its obligations due to events beyond Landlord's or Tenant's control, the time
provided for performing such obligations shall be extended by a period of time
equal to the duration of such events. Events beyond Landlord's control include,
but are not limited to, acts of God, war, civil commotion, labor disputes,
strikes, fire, flood or other casualty, shortages of labor or material,
government regulation or restriction and weather conditions.

Section 13.13. EXECUTION OF LEASE. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.

Section 13.14. SURVIVAL. All representations and warranties of Landlord
and Tenant shall survive the termination of this Lease.

ARTICLE FOURTEEN - Deleted.

ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO OR
IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE DRAW
A LINE THROUGH THE SPACE BELOW.

(The remainder of this page intentionally left blank)

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Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialled all Riders
which are attached to or incorporated by reference in this Lease.

"LANDLORD"
Signed on March 16, 1995 Ragco
--------------------------- --------------------------------
at Costa Mesa, CA
---------------------------------- --------------------------------

By: /s/ John Garrison
---------------------------------- -----------------------------
John Garrison

Its: General Partner
----------------------------
By:
-----------------------------
Its:
----------------------------

"TENANT"
Signed on March 16, 1995 Pierce Companies, Inc.
--------------------------- --------------------------------
at Costa Mesa, CA Troy Division
---------------------------------- --------------------------------
By: /s/ Brian P. Dirk
---------------------------------- -----------------------------
Brian P. Dirk

Its: Vice President
----------------------------
By:
-----------------------------
Its:
----------------------------

IN ANY REAL ESTATE TRANSACTION, IT IS RECOMMENDED THAT YOU CONSULT WITH A
PROFESSIONAL, SUCH AS A CIVIL ENGINEER, INDUSTRIAL HYGIENIST OR OTHER PERSON
WITH EXPERIENCE IN EVALUATING THE CONDITION OF THE PROPERTY, INCLUDING THE
POSSIBLE PRESENCE OF ASBESTOS, HAZARDOUS MATERIALS AND UNDERGROUND STORAGE
TANKS.

THIS PRINTED FORM LEASE HAS BEEN DRAFTED BY LEGAL COUNSEL AT THE DIRECTION
OF THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE
REALTORS,-Registered Trademark- INC., NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE
REALTORS, INC., ITS LEGAL COUNSEL, THE REAL ESTATE BROKERS NAMED HEREIN, OR
THEIR EMPLOYEES OR AGENTS, AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX
CONSEQUENCES OF THIS LEASE OR OF THIS TRANSACTION. LANDLORD AND TENANT SHOULD
RETAIN LEGAL COUNSEL TO ADVISE THEM ON SUCH MATTERS AND SHOULD RELY UPON THE
ADVICE OF SUCH LEGAL COUNSEL.

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OPTION TO EXTEND TERM

LEASE RIDER

This Rider is attached to and made part of that certain Lease (the
"Lease") dated MARCH 16, 1995 between RAGCO, A GENERAL PARTNERSHIP, as
Landlord, and TROY DIVISION - PIERCE COMPANIES, INC., as Tenant, covering the
Property commonly known as 2331 S. PULLMAN AVE., SANTA ANA, CA 92705 (the
"Property"). The terms used herein shall have the same definitions as set
forth in the Lease. The provisions of this Rider shall supersede any
inconsistent or conflicting provisions of the Lease.

A. OPTION(s) TO EXTEND TERM.

1. Landlord hereby grants to Tenant ONE option(s) (the "Option(s)")
to extend the Lease Term for additional term(s) of THREE years each (the
"Extension(s)"), on the same terms and conditions as set forth in the Lease.
Each Option shall be exercised only by written notice delivered to Landlord
at least one hundred twenty (120) days before the expiration of the Lease
Term or the preceding Extension of the Lease Term, respectively. If Tenant
fails to deliver Landlord written notice of the exercise of an Option within
the prescribed time period, such Option and any succeeding Options shall
lapse, and there shall be no further right to extend the Lease Term. Each
Option shall be exercisable by Tenant on the express conditions that (a) at
the time of the exercise, Tenant shall not be in default under any of the
provisions of this Lease. All options to extend shall run with this Lease
for benefit of Tenant's successors in interest, assignees and subtenants.

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THIS IS AN ADDENDUM TO THE AIR INDUSTRIAL/COMMERCIAL SINGLE-LESSEE- NET LEASE
DATED JANUARY 27,1995 BY AND BETWEEN RAGCO, A GENERAL PARTNERSHIP, AS "LESSOR",
AND PIERCE COMPANIES, INC., A DELAWARE CORPORATION, AS "LESSEE", FOR THE
PROPERTY COMMONLY KNOWN AS 2331 S. PULLMAN AVENUE, SANTA ANA, CALIFORNIA 92705.

1. LEASE TERM AND The new lease and term shall be for thirty-
COMMENCEMENT: six (36) months, commencing May 1, 1995 and
terminating April 30, 1998.

2. BASE RENTAL The base rent shall be $0.35 NNN
STRUCTURE: ( $ 13,013.35) per month throughout the
entire lease term.

3. RENTAL ABATEMENT: Lessor shall grant to Lessee six (6) months
of abated rent as compensation for
improvements to be made to the facility on
behalf of Lessee. Such abated rent shall
occur in months 1, 2, 3, 13, 14, and 15 of
the lease term.

4. TENANT Lessee shall contract to have the following
IMPROVEMENTS: improvements made to the facility:

A. Demolish stock room, add chain link
fence.
B. Remove low wall area in warehouse.
C. Remove walls in 1st and 2nd floor
office areas to create an open
"bullpen" environment consisting of
a total of approximately 9,000
square feet.
D. Install two (2) wind turbines on the
roof.

5. NEW ROOF: Lessor, at its sole cost and expense, shall
use its best efforts to install a new roof
on the facility prior to the commencement
of the new lease term. In the event Lessor
is unable to install new roof prior to
lease commencement, and provided there have
not been any unforeseen delays out of
control of Lessor to abate or remove, i.e.,
weather, Lessee shall have the ability to
install new roof at its sole cost and
expense and deduct such expense from future
rental obligation.

6. OPTION TO RENEW: Lessee shall have one (1) three (3) year
option to renew the lease with a minimum
120 days prior written notice. The rental
rate for the option period shall be at the
then fair market value, with a maximum
increase of six percent (6%) over the last
years rental rate of the new lease term
under the same terms and conditions of the
original lease and this Addendum. In no
event shall the new lease rate under this
option be less than $0.35 NNN per square
foot, per month.

21
<PAGE>

7. BROKERAGE Lessor recognizes CB Commercial Real Estate
COMMISSION: G r o up, Inc. for its effort in this
agreement, and therefore agrees to pay CB
Commercial Real Estate Group, Inc., --
David T. Desper, a commission of three
percent (3%) of the total lease value of
this Agreement. This commission shall be
due and payable upon execution of this
lease and Addendum by both parties.

AGREED AND ACCEPTED:

Lessee: Pierce Companies, Inc. Lessor: Ragco, a General
A Delaware Corporation Partnership

By: /s/ Brian P. Dirk By: /s/ John Garrison
------------------------------ ------------------------------
Brian P. Dirk John Garrison

Its: Vice President Its: General Partner
------------------------------ ------------------------------
Date: 3-16-95 Date:
----------------------------- -----------------------------

<PAGE>

[RAGCO LETTERHEAD]

May 18, 1998

Mr. Del Conrad
Troy Systems, Inc.
2331 South Pullman Street
Santa Ana, CA 92705

Dear Mr. Conrad:

The purpose of this letter is to notify you of the new rent for the
three-year extension the lease that you have exercised October 3, 1997. The
new lease term began May 1, 1998, and ends on April 30, 2001. Please note
that I have forgiven the increase for the first month. The new rent is
$13,794.00.

I look forward to three more years of your company's continued growth and
success.

Sincerely,

/s/ John M. Garrison
- --------------------
John M. Garrison

<PAGE>

Exhibit 10.24

[Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment under Rule 406 of the Securities Act of 1933, as
amended. A copy of this Exhibit with the portions included has been filed
with the Securities and Exchange Commission.]

HEWLETT-PACKARD COMPANY
U.S. AGREEMENT FOR AUTHORIZED RESELLERS
TABLE OF CONTENTS AND SIGNATURE PAGE

TROY SYSTEMS, INC.
- ------------------------------- --------------------------------------------
Company Name (Including DBA's) Agreement

2331 SOUTH PULLMAN STREET
- -------------------------------------------------------------------------------
Address

SANTA ANA CA 92705 (714) 250-3280
- --------------------------------- -----------------------------------------
City State Zip (Area Code) Telephone #

(714) 250-8972
- ---------------------------------
Fax #

BY THEIR SIGNATURE BELOW, THE PARTIES AGREE TO THE TERMS OF THE AGREEMENTS,
ADDENDA, EXHIBITS AND APPLICATlONS INDICATED, ALL TERMS OF WHICH ARE INCLUDED BY
THIS REFERENCE.

AGREEMENTS:
X U.S. RESELLER - LASERJET MICR SOLUTION
- ----

(AVAR) SOFTWARE LICENSE AGREEMENT
- ----

AGENDA:
X U.S. DIRECT VALUE-ADDED RESELLER- LASERJET MICR SOLUTION
- ----

STATEMENT OF OWNERSHIP

Name of Company: TROY, A DIVISION OF PIERCE COMPANIES, INC.
--------------------------------------------------------------

Form of Organization (e.g. Corporation, General Partnership, Limited
Partnership, Sole Proprietor):
For a Corporation, specify whether: Publicly Held or Privately Held
XX
---- ----
State of Incorporation/ Organization: Delaware
----------------------------------------

Identify Company ownership and management structure as follows (attach
additional pages, if necessary):

Sole proprietor: Identify all owners, officers and ownership percentages
held
Partnership: Identify all General Partners, Limited Partners, Officers and
ownership percentages held (Specify Dollar Investment of Limited Partners)
Privately held corporation: Identify all shareholders, (With class and
percentage ownership), Officers and Board of Director Members
Publicly held corporation: Identify owners of 20% or more of each class of
shares (with class and percentage ownership), Officers and Board of
Director Members
Trust: Identify Trustee (s) (administrators if /trust) and Beneficiaries
of Trust.

Name: Title(s): Ownership Interest
Percentage Ownership Type of Ownership
(Dollar Investment Interest (Assets,
for Limited Common or Preferred
Partners) Shares)
Dirk Family Trust
- ----------------- ---------------- -------------- --------------
Patrick J. Dirk Chairman
- ----------------- ---------------- -------------- --------------

- ----------------- ---------------- -------------- --------------
Robert S. Messina General Manager
- ----------------- ---------------- -------------- --------------

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

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

<PAGE>

*If Company is 100% owned by another corporation, identify the parent
corporation's ownership and management structure above and the identity of the
parent corporation below:

- -------------------------------------------------------------------------------
Parent/Owner (including DBA's)

- -------------------------------------------------------------------------------
Address

- -------------------------------- ----------- --------------------------
City State Zip (Area Code) Telephone #

- ------------------------------------- --------------------------
State of Parent/Owner's Incorporation (Fax#)

AUTHORIZED SIGNATURES

DIRK FAMILY TRUST
- -------------------------------------------------------
Parent/Owner

/S/ PATRICK J. DIRK
- -------------------------------------------------------
Authorized Signature

ROBERT S. MESSINA /S/ ROBERT S. MESSINA
- -------------------------------------------------------
Typed Name

GENERAL MANAGER
- -------------------------------------------------------
Title

HEWLETT-PACKARD COMPANY

/S/ WALT SLEDZIESKI 10-1-96
- -------------------------------------------------------
Walt Sledzieski
Hardcopy Marketing Center Manager

Effective Date: APRIL 1, 1996
-------------

Expiration Date: MARCH 31, 1999
--------------

2
<PAGE>

U.S. AGREEMENT FOR AUTHORIZED DIRECT LaserJet MICR Solution VALUE-ADDED
RESELLERS

TABLE OF CONTENTS

U.S. LaserJet MICR Solution RESELLER AGREEMENT

1. APPOINTMENT
2. STATUS CHANGE
3. PRICES
4. PAYMENT
5. ORDERS; SHIPMENTS; CANCELLATIONS AND CHANGES
6. PRICE ADJUSTMENTS; PRICE PROTECTION
7. STOCK ADJUSTMENTS
8. DEFECTIVE UNITS & CUSTOMER SATISFACTION RETURNS
9. USER WARRANTY
10. LIMITATION OF REMEDIES AND LIABILITY
11. INDEMNITY
12. RELATIONSHIP
13. RESELLER RECORD-KEEPING
14. TRADEMARK
15. SOFTWARE
16. PATENT INDEMNITY
17. TERMINATION
18. AMENDMENT
19. GENERAL
20. NOTICES

U.S. DIRECT LaserJet MICR Solution VALUE-ADDED RESELLER ADDENDUM

1. APPOINTMENT
2. APPROVED LOCATIONS
3. RESELLER SALES
4. END-USER SALES
5. VAR RESPONSIBILITIES
A. FACE TO FACE SUPPORT
B. TRAINING
C. PRIMARY CONTACT
D. NEW PRODUCT INTRODUCTIONS
E. PRODUCT SERVICE AND CUSTOMER SUPPORT
F. ADVERTISING
6. POLICIES AND PROGRAMS
7. NONBINDING FORECASTING
8. BINDING FORECASTING
9. INDEPENDENT SOURCING
10. TOOLS AND DEVELOPMENT ENVIRONMENT
11. PRODUCT SUPPORT LIFE
12. PRIVATE LABELING & LOSS OF HP PRODUCT IDENTITY
13. ADVANTAGE AND PROMOTIONAL FUNDS
14. PROMOTION AND EXCLUSIVITY

EXHIBITS

A. APPROVED PRODUCT EXHIBIT
B. FORECASTS
C. APPROVED US AND INTERNATIONAL DISTRIBUTlON AND RESELLER LOCATIONS
D. APPROVED INTERNATIONAL COUNTRIES FOR EXPORT
E. DEFINITION OF VAR'S VALUE ADD
F. MILESTONES

3
<PAGE>

U. S. LaserJet MlCR Solution RESELLER AGREEMENT

TROY SYSTEMS, INC.
- ------------------------------- --------------------------------------------
Company Name (Including DBA's) Agreement

2331 SOUTH PULLMAN STREET
- -------------------------------------------------------------------------------
Address

SANTA ANA CA 92705 (714) 250-3280
- --------------------------------- -----------------------------------------
City State Zip (Area Code) Telephone #

(714) 250-8972
---------------------------------
Fax #

1. APPOINTMENT

A. Hewlett-Packard Company ("HP") appoints the company named above
("Reseller") as an authorized, exclusive United States reseller for
the HP LaserJet MICR Solution Products. This contract entitles
Reseller to offer for sale the select MICR products (identified as
such on the product Exhibit A) on an exclusive basis in the United
States and the other products listed on the Product Exhibits or
designated in writing by HP as being subject to this Agreement on a
non-exclusive basis. To encourage aggressive promotion of HP MICR
products, Reseller agrees to not offer for sale MICR products
competitive with the HP LaserJet 4 Plus and LaserJet 5 printers or
subsequent LaserJet brand printers for the duration of this contract.
Unless otherwise indicated the provisions in this Agreement for "HP
Products" apply with equal effect to Reseller private-labeled versions
of HP Products.

B. Reseller's appointment is subject to the terms of this U.S. LaserJet
MICR Solution Reseller Agreement and the associated Addenda and
Product exhibits (collectively, "Agreement") for the period from the
effective date through the expiration date specified. Reseller
accepts appointment on these terms.

2. STATUS CHANGE

A. If Reseller wishes to:

1) Change its name or that for any approved location;
2) Add, close or change an approved location; or
3) Undergo a significant change in control of Reseller operations;

then Reseller shall notify HP in writing prior to the intended date of
change.

B. HP must approve proposed Reseller changes prior to any obligation of
HP to perform under this Agreement with Reseller as changed.

C. HP agrees to promptly notify Reseller of its approval or disapproval
of any proposed change, provided that Reseller has given HP all
requested information and documents reasonably required by HP.

3. PRICES

A. HP's corporate price lists are internal data bases indicating current
list prices for HP Products ("list prices"). In addition, HP offers
products to customers and resellers that are not on HP's corporate
price lists. Whether listed or unlisted, HP reserves the right to
change list prices and discounts upon reasonable notice to Reseller.
If Reseller is unsure of the list price to use in calculating net
Reseller price for any HP Product. Reseller should contact its HP
sales representative.

B. Price changes on listed or unlisted products will be communicated in
writing to the reseller at least 30 days prior to the price change
taking effect.

C. Net Reseller price for HP Products purchased under this Agreement will
be the list price at the time of Reseller's orders, less the discounts
based on Reseller's volume or other commitments or elections specified
in the Product Exhibits. Please note that LaserJet
signature/font/macro cartridge kits shall be available to Reseller at
net kit prices available to other authorized custom product third
parties with similar volumes. Net kit prices are not listed on
product exhibit.

D. Net Reseller price includes shipment arranged by HP. HP reserves the
right to charge Reseller for any special routing, handling or
insurance requested by Reseller and agreed to by HP. Orders shipped
special routing shall be F.O.B. Origin. Requests for proof of
delivery are subject to limitations and service charges.

E. Net Reseller price excludes State and local taxes. HP will invoice
Reseller for these taxes, based on point of delivery, unless the
appropriate resale exemption certificates are on file at HP's order
entry point or HP agrees the sale is otherwise exempt.

4. PAYMENT

4
<PAGE>

A. Reseller will pay all invoices in full within 30 days after date of
invoice unless other terms are specified in its HP flooring agreement.
HP reserves the right to specify cash in advance or other terms for
credit reasons.

B. Claims for adjustment of any invoice will be waived if Reseller fails
to present them within 90 days from date of HP invoice. No claims,
credits or offsets may be deducted from any invoice.

5. ORDERS; SHIPMENTS; CANCELLATIONS AND CHANGES

A. HP will honor written, fax and telephone orders from Reseller's
approved Selling Locations. Reseller's orders must comply with the
minimum order, release, ship-to and other requirements specified in
this Agreement. Reseller is responsible for ensuring that only
authorized employees place, change or delete orders and that the
orders conform to all requirements of this Agreement.

B. Reseller's requested date for shipment must be within 90 days after
order dates. HP reserves the right to schedule and re-schedule any
order, at HP's discretion, and to decline any order for credit reasons
or because the order specifies an unreasonably large quantity or makes
an unreasonable shipment request.

C. HP will use reasonable efforts to meet scheduled shipment dates.
However, HP will not be liable for delay in meeting a scheduled
shipment date.

D. Shipments are subject to availability. If HP Products are in short
supply, HP will allocate them equitably at HP's discretion.

E. Reseller may cancel a shipment or request changes in a scheduled
shipment date at no charge up to 5 working days before scheduled
shipment. Any later cancellation or change will be subject to a
charge of 5% of the shipment's list price value. If in transit, it
will be subject also to applicable freight charges.

F. If HP makes a purchase of unique material (such as SIMM kits) at
Reseller's request and such unique material is not utilized due to
cancellation of orders by Reseller, then HP may invoice Reseller for
the cost of the unique material and Buyer shall pay the invoice in
accordance with the payment terms of this agreement.

G. Title to HP Products and risk of loss and damage will pass to Reseller
F.O.B. Destination.

6. PRICE ADJUSTMENTS; PRICE PROTECTION

A. If HP raises Net Reseller prices (either through list price increases
or Product Exhibit discount reductions), HP will invoice Reseller
based on the old list price or discount for affected HP Product orders
placed by Reseller within one month after the effective date of the
increase. Limited quantity restrictions may apply.

B. If HP reduces Net Reseller prices (either through a list price
reduction or a combination of list price and discount changes) then HP
will invoice Reseller based on the reduced Net Reseller price for
affected HP Products shipped on or after the effective date of the
reduction.

C. If HP offers a limited time promotional HP product discount to all
Resellers (excluding rebates and spiffs of all forms), HP will invoice
Reseller based on the Net Reseller price less the promotional discount
for orders conforming to and shipments made pursuant to the terms and
conditions of the promotion.

D. If HP reduces Net Reseller prices and the HP Products are eligible for
price protection as designated on the Product Exhibits then HP will
grant Reseller a price protection credit calculated by one of the two
following methods at HP's discretion:

1) The credit will equal the total reduction in Net Reseller price
(less any previous promotional discount available from HP) for
those HP products in Reseller's inventory and in transit to
Reseller on the effective date of the reduction, using a
verification process determined by HP; or

2) The credit will equal 100% of the total reduction in Net Reseller
price (less any previous promotional discount available from HP)
for those HP Products shipped within 30 days before the effective
date of the reduction, or 75% of the reduction for those HP
Products shipped within 60 days before that date, whichever is
greater.

E. If HP offers a limited time promotional HP Product discount to all
Resellers (excluding rebates and spiffs of all forms) and the HP
Products are eligible for price protection as designated on the
Product Exhibits, then HP will grant Reseller a price protection
credit calculated by one of the two following methods, at HP's
discretion:

1) The credit will equal the promotional discount for those HP
Products in Reseller's inventory and in transit to Reseller on
the effective date of the

5
<PAGE>

promotion, using a verification process determined by HP; or

2) The credit will equal 100% of the promotional discount for
Products shipped within 30 days before the effective date of the
promotion or 75% of the promotional discount for those HP
Products shipped within 60 days before that date, whichever is
greater.

F. To receive a price protection credit by the inventory method, Reseller
upon notification of a change in price from HP and upon request, will
complete, sign and return to HP a form showing the number of units in
inventory and in transit to Reseller on the effective date of the
reduction. The format for the form may be defined by Reseller but
must meet the approval of HP. If Reseller fails to submit the form
within 30 days of the effective date of the reduction, Reseller will
receive no price protection for eligible products.

G. In all cases, HP may require that Reseller accumulate a minimum credit
of $200 in a particular month before HP extends price protection to
Reseller for that month.

H. HP reserves the right to offer Reseller obsolete, used or refurbished
HP Products and to offer Reseller HP Products through special
promotions at discounts different from those in the Product Exhibits
and on terms which may not include rights to price protection, stock
adjustment, promotional funds allowance or count towards Reseller's
volume commitment levels, if any.

7. STOCK ADJUSTMENTS

A. HP and Reseller agree that there shall be no stock adjustment for HP
Products which have been relabelled as reseller's products or on MICR
toner or on bootable SIMM kits.

B. HP Products eligible for stock adjustment are designated on the
Product Exhibits. To be eligible for stock adjustment, at the time of
return the HP Products must still be listed on HP's then current
Product Exhibits returned in their unopened, original packaging, and
marketable as new merchandise. Ineligible items will be returned at
Reseller's expense.

C. Eligible HP Products may be returned for stock adjustment in one
consolidated shipment from each approved location, freight prepaid,
once each month during the term of this Agreement. Total returns in
any one quarter may not exceed 5% of, the invoiced amount of HP
shipments during the previous quarter. Quarters will be calculated as
follows: February through April, May through July, August through
October and November through January. At the time of the return,
Reseller must have outstanding orders for HP Products of equal or
greater value scheduled for shipment.

D. In any one quarter, restocking charges will apply to cumulative
returns of HP Products exceeding 5% of shipments to Reseller during
the previous Quarter. Restocking charges are indicated on the Product
Exhibits.

E. Reseller must obtain a Notice of Return number (NOR) for each shipment
of hardware and a separate NOR for each shipment of software returned
for stock adjustment. If a NOR does not appear on the outside of all
boxes returned to HP the shipment will be ineligible for stock
adjustment and will be returned to Reseller at Reseller's expense.

F. Reseller will receive a credit for eligible HP Products returned for
stock adjustment at the Net Reseller price in effect when HP receives
them, less the return charges indicated above, and any promotional or
other discounts, and any price protection or other credit extended to
Reseller by HP for the HP Products. In no event will credits be
extended by HP which would result in a negative outstanding balance
owed by Reseller.

8. DEFECTIVE UNITS & CUSTOMER SATISFACTION RETURNS

A. Reseller and HP agree that the procedure provided below for return and
repair, replacement or credit will be Reseller's exclusive remedy for
any claim relating to any dissatisfaction, defect or nonconformity in
HP Products.

B. At HP's discretion, HP will repair, replace or provide credit to
Reseller for any HP Product found defective by Reseller within 180
days of its shipment to Reseller and within 30 days of purchase by the
customer and no later than 210 days after original shipment by HP to
Reseller. HP and Reseller agree that HP is under no obligation to
accept product which has been relabelled as Reseller's product for
replacement or credit. HP shall only be responsible for repairs to
such product if the defect is solely attributable to HP's
manufacturing or handling.

1) Reseller must first notify HP that the unit is being returned,
identify the reason for return (defect or customer
dissatisfaction) and obtain a separate Notice of Return number
(NOR) for each return.

6
<PAGE>

2) The HP Product may then be returned freight collect, marked with
the assigned NOR on the outside of the box. Boxes not marked
with the assigned NOR may be returned by HP to Reseller at its
expense (FOB Reseller).

3) HP may inspect each unit returned as a defective HP Product to
verify that it is eligible for repair, replacement or credit. HP
will not be obligated to repair, replace or provide credit for
units returned as defective and damaged from abuse or misuse
(including improper storage), from attempted repair by an
unauthorized service center or during repossession or shipment to
HP. Reseller will reimburse HP for freight for HP Products
returned as defective units which are found not to be defective
or for customer satisfaction returns exceeding the three percent
limitation for total returns.

4) Units repaired by local HP repair personnel may be repaired with
remanufactured parts.

5) HP's credit to Reseller will be the lowest Net Reseller price
(less promotional HP Product discounts) in effect on the date of
the shipment by Reseller to HP.

9. USER WARRANTY

A. No other warranty for the products shown on the Product Exhibit will
be offered (except as set forth in Section 8 of this agreement).

B. NO OTHER WARRANTIES, WRITTEN OR ORAL, EXPRESS OR IMPLIED, INCLUDING
BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE ARE OFFERED.

C. Some HP Products may contain selected remanufactured parts equivalent
to new in performance.

D. Reseller

1) shall be solely responsible for and indemnify HP from and against
all warranties extended by Reseller to any third party other than
an end-user, including VARs, resellers, independent sales
representatives, distributors and Reseller;

2) shall include in all shipments of Reseller labeled products
purchased under this Agreement an end-user warranty card no more
extensive in coverage, or time or less protective in terms of
limitations of remedies, damages or exclusions than is in effect
for corresponding, standard, HP-labeled Products on the date of
shipment by Reseller to its customer; and

3) Reseller's independent sales representatives shall be instructed,
as well as any other 3rd party distributor, VAR, reseller or
subsidiary to the extent Reseller is able to control their resale
practice, to extend a hardware warranty for Reseller products in
conformity with that warranty authorized by Section 9D2 above.

4) The warranty specified in the Reseller private labeled products
purchased under the Agreement at current U.S. domestic price is
return to HP in the United States only. Any HP local country
service requested of HP by Reseller in the destination country
will be on a time and materials basis or as otherwise negotiated
between Reseller and HP's international subsidiaries.

10. LIMITATION OF REMEDIES AND LIABILITY

A. THE REMEDIES PROVIDED IN THIS AGREEMENT, INCLUDING THE PROCEDURE FOR
RETURN OF DEFECTIVE GOODS, ARE RESELLER'S SOLE AND EXCLUSIVE REMEDIES
FOR HP PRODUCTS PURCHASED UNDER THIS AGREEMENT. HP WILL NOT BE LIABLE
FOR ANY DIRECT, INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER LEGAL THEORY.

B. The foregoing limitation of liability will not apply in the event that
any HP Product sold hereunder is determined by a court of competent
jurisdiction to be defective and to have directly caused bodily
injury, death or property damage, provided that in no event will HP's
liability for property damage exceed the greater of $50,000 or the
purchase price of the specific HP Product that caused such damage.

11. INDEMNITY

A. Each party agrees to indemnify the other party from and against any
claim, demand, or liability brought by a third party and based upon
the acts or omissions of the first party in performance of its
responsibilities under this agreement.

12. RELATIONSHIP

A. Reseller's relationship to HP will be that of an independent
contractor in purchasing HP

7
<PAGE>

Products for resale to Reseller's customers. Reseller and HP agree
that this Agreement does not establish a franchise, joint venture or
partnership.

B. Unless expressly authorized by HP in writing in advance, any
commitment made by Reseller to its customers with respect to price,
quantities, delivery, specifications, warranties, modifications,
interfacing capability or suitability will be Reseller's sole
responsibility, and Reseller will indemnify HP from liability for any
such commitment by Reseller.

C. List prices are suggested prices for resale to Reseller's customers
and a basis for calculating Net Reseller price. Reseller has the
right to determine its own resale prices, and no HP representative
will require that any particular resale price be charged by Reseller
or grant or withhold any treatment to Reseller based on Reseller's
resale pricing policies. Reseller agrees that it will promptly report
any effort by HP personnel to interfere with its pricing policies
directly to an HP officer or manager.

D. This Agreement applies only to the HP Products listed on the Product
Exhibits or otherwise designated in writing by HP as being HP Products
sold pursuant to this Agreement. Reseller acknowledges that HP may
market other products, including products in competition with those
listed on the Product Exhibits without making them available to
Reseller. HP reserves the right to advertise, promote and sell any
product, including HP Products, in competition with Reseller.
However, nothing in this paragraph shall be construed as diminishing
the distribution rights granted in paragraph 1 of this Agreement.

13. RESELLER RECORDKEEPING

A. For purposes of contract compliance verification, product safety
information, operational problems correction and the like, Reseller
must maintain records of customer purchases of printers, plotters,
scanners and computers for one year. Records must include customer
name, address, phone number, serial number and date of sale of the
above products. Reseller is the only authorized purchaser under this
Amendment, the recordkeeping requirements of this Section do not apply
to resale by any of Reseller's subsidiaries or international
distributors, although Reseller agrees to maintain data for all HP and
Reseller-labeled product purchased from HP under this Agreement
identifying the model number, quantity, date of shipment and country
of shipment from Reseller to its international subsidiary and
distributor customers.

B. At HP's discretion and upon reasonable notice to Reseller, HP or HP's
designate will be given prompt access, either on site or through other
means specified by HP, to Reseller's customer records, inventory
records and other books and records of accounts HP believes are
reasonably necessary to verify and audit Reseller's compliance with
this Agreement. The intent of this paragraph is to allow HP to audit
Reseller records reasonably pertaining to the sale of HP Products.

Failure to promptly comply with HP's request will be considered a
repudiation of this Agreement justifying HP's termination of this
Agreement on 30 days' notice without further cause.

C. HP may require Reseller to provide HP or its designate with HP Product
inventory and sales data including but not limited to, information
such as total units of selected HP Products sold and held in inventory
by month for each approved location in a format specified by HP
(including Use Of Electronic Data Interchange reporting methods). HP
may require monthly reporting incorporating the previous month's data
for each approved location.

14. TRADEMARK

A. From time to time, HP may authorize Reseller to display one or more
designated HP trademarks. Reseller may display the trademarks solely
to promote HP Products. Any display of the trademarks must be in good
taste, in a manner that preserves heir value as HP trademarks, and in
accordance with standards provided by HP for their display. Reseller
will not use any name or symbol in a way which may imply that Reseller
is an agency or branch of HP; Reseller will discontinue nay such use
of a name or mark as requested by HP. Any rights or purported rights
in any HP trademarks acquired through Reseller's Use belong solely to
HP.

B. Reseller grants HP the non-exclusive, royalty free right to display
Reseller's trademarks in advertising and promotional material solely
for directing prospective purchasers of HP Products to Resellers
Selling Locations. Reseller may only indicate in such advertisements
or promotional materials that HP supplied components were used. Any
display of the trademarks must be in good taste, in a manner that
preserves their value as Reseller's trademarks, and in accordance with
standards provided by Reseller for their display. Any rights or
purported rights in any Reseller trademarks acquired through HP's Use
belong solely to Reseller.

8
<PAGE>

C. HP authorizes and licenses Reseller to modify and market HP Products
as private labeled Reseller MICR solution products and as HP labeled
products under the terms and conditions called out in the U.S.
LaserJet MICR Direct Value-Added Reseller Addendum, and to distribute
them in conformance with the distribution authorization and other
terms in this Agreement.

15. SOFTWARE

Reseller is granted the right to use or distribute software materials
supplied by HP only in accordance with the terms of the software license
agreement executed in conjunction with this Agreement.

16. PATENT INDEMNITY

A. HP will, except as otherwise provided below, defend or settle any
claim made or proceeding brought against Reseller so far as it is
based on an allegation that any HP Product sold under this Agreement
infringes a U.S. patent, trademark or copyright, provided HP is
notified promptly in writing and given information, assistance and
sole authority to defend or settle same at HP's expense; and HP will
pay all damages and costs finally awarded therein against Reseller.
If any such HP Product is held to infringe and its use is enjoined, or
in case of a settlement; HP will have the option at HP's expense to
replace same with a non-infringing product, or modify same so it
becomes non-infringing; or repurchase same from Reseller at net
Reseller price, provided it is new and in its unopened, original
packaging.

B. The foregoing states HP's entire liability for intellectual property
infringement by products furnished under this Agreement.

C. Reseller will defend or settle any claim made or proceeding brought
against HP so far as it is based on an allegation that Reseller's
modification of any HP product sold under this Agreement infringes a
U.S. Patent, trademark or copyright, provided Reseller is notified
promptly in writing and given information, assistance and sole
authority to defend or settle at Reseller's expense; and Reseller will
pay all damages and costs finally awarded therein against HP.

17. TERMINATION

A. This Agreement may be terminated as follows:

1) On the expiration date of this Agreement or with mutual agreement
of the parties. If the parties agree in writing to continue this
Agreement after the expiration date, the Agreement may then be
terminated at any time provided that the terminating party gives
180 days notice, in writing, of the intent to terminate. During
this 180 day period, neither party shall be bound by the
exclusivity provisions set forth in paragraph 1 of this Agreement
and referred to elsewhere in this Agreement.

2) by either party at any time in the event the other party, ceases
to do business, becomes or is declared insolvent or bankrupt, is
the subject of any proceeding relating to this liquidation or
insolvency which is not dismissed within thirty (30) days, or
makes an assignment for the benefit of its creditors;

3) by either party upon thirty (30) days written notice in the event
of a material breach of any obligations under this Agreement by
the other party; provided, however that the party in breach shall
have an opportunity to cure such breach during the thirty (30)
day period, and if so cured to the reasonable satisfaction of the
other party, no termination will be deemed to have occurred. For
purposes of this agreement, material breach shall be defined as
a) material and repeated breach of any payment or delivery term
of this agreement not otherwise excused in the agreement or by
the agreement, c) failure to comply with warranty provisions of
the Agreement, d) any intentional or reckless infringement of
intellectual property rights of either company (including but not
limited to rights in confidential information, patent, trademark,
trade secret, copyright or software rights granted pursuant to
license), e) intentional or reckless behavior resulting in
violation of law, f) sale of product not consistent with the
intent of this Agreement (e.g. Troy sale of printers without
appropriate value added or HP disregard of exclusivity
provisions), or g) consistent failure to fulfill support
obligations set out in the Agreement.

B. Neither party will be liable to the other for delays in the
performance of or completion of this Agreement if the delay is caused
by strike, riots, wars, government regulations, acts of God, fire,
flood, or other causes beyond its reasonable control. If the delay
continues 90 days or longer, or it becomes obvious that the delay will
continue for 90 days, then either party shall have the option,
exercisable by written notice, to cancel all or any portion of orders
placed hereunder without charge or liability.

C. If either party gives the other notice of termination or advises the
other of its intent not

9
<PAGE>

to renew this Agreement, HP may require that Reseller pay cash in
advance for additional shipments during the remaining term,
regardless of Reseller's previous credit status, and may withhold
all such shipments until Reseller pays its outstanding balance.

D. Upon termination or expiration of this Agreement for any reason,
Reseller will immediately cease to be an authorized HP Reseller and
will refrain from representing itself as such and from using any HP
trademark or trade name.

E. Upon any termination or expiration, either party may required that HP
repurchase from Reseller any HP Products on HP's then current Product
Exhibits, which are in their unopened, original packaging and
marketable as new merchandise. The repurchase price shall be the
lower of either the Net Reseller Price on the date of termination or
expiration or Reseller's original purchase price, in each case less
any promotional or other discounts or price protection or other credit
extended by HP to Reseller for the Product. Reseller should contact
its HP sales representative for information about the items eligible
for repurchase and instructions for their return at HP's expense.

F. The indemnities provided in this Agreement will survive termination or
expiration of this Agreement.

18. AMENDMENT

A. HP may, from time to time, add products to or delete them from the
product Exhibits, change its list prices and discounts, or implement
promotional or other programs, at HP's discretion, upon reasonable
notice to Reseller.

B. Each party agrees that the other has made no commitments regarding the
duration or renewal of this Agreement beyond those expressly stated in
this Agreement.

19. GENERAL

A. Neither party may assign any rights or obligations in this Agreement
without the prior written consent of the other party. Any attempted
assignment will be deemed void.

B. Neither party's failure to enforce any provision of this Agreement
will be deemed a waiver of that provision or of the right to enforce
it in the future.

C. This Agreement including the attached Addenda and associated Product
Exhibits, and any associated software license contains the entire
understanding between the parties relating to its subject matter. HP
hereby gives notice of objection to any additional or inconsistent
terms set forth in any purchase order or other document issued by
Reseller. No modification of this Agreement will be binding on either
party unless made in writing and signed by both parties.

D. If all or any part of a term of this Agreement is held invalid, the
balance of the Agreement shall remain in effect as stated.

E. No U.S. Government procurement regulations will be deemed included in
this Agreement or binding on either party unless specifically accepted
in writing and signed by both parties.

F. This Agreement will be governed by the laws of the State of
California.

20. NOTICES

All notices and demands under the terms of this agreement shall be in writing,
delivered by fax, personal, first class mail postage prepaid, or registered
mail to a location set forth in this Agreement or to HP at 5301 Sevens
Creek Boulevard, P.O. Box 58059, Santa Clara, California 95052-059 or to
the assigned local HP sales representative.

10
<PAGE>

U.S. LaserJet MICR Solution DIRECT
VALUE-ADDED RESELLER ADDENDUM

TROY SYSTEMS, INC.
- ------------------------------- --------------------------------------------
Company Name (Including DBA's) Agreement

2331 SOUTH PULLMAN STREET
- -------------------------------------------------------------------------------
Address

SANTA ANA CA 92705 (714) 250-3280
- --------------------------------- -----------------------------------------
City State Zip (Area Code) Telephone #

(714) 250-8972
---------------------------------
Fax #

1. APPOINTMENT

HP appoints the reseller named above as an exclusive LaserJet MICR Solution
Value-Added Reseller ("VAR") for the length of this contract period.

2. APPROVED LOCATIONS

A. VAR's distribution center location(s) are listed on Exhibit C. VAR
must own more than forty percent of its business at each approved
location. Any additions to this list will be promptly provided to HP.

B. All VAR's, sales, advertising, and promotional activities for HP
Products must be conducted from Selling Locations listed on Exhibit C.

3. RESELLER SALES

A. VAR may sell HP Products through the company names and selling
locations set out on Exhibit C.

B. VAR may not sell HP Product to other resellers for stock balancing.

C. VAR may sell HP Products internationally to the countries set out on
Exhibit D as part of a MICR configuration to authorized international
resellers subject to the following conditions:
1. VAR will purchase the international version HP Products from HP
under its US LaserJet MICRO Solution Direct Value-Added Reseller
Agreement existing on the date of order at HP's applicable US
domestic price.
2. VAR must remanufacture any international version HP Product to be
exported outside the United States in a MICR configuration.
3. Re-manufacture will be performed at VAR's remanufacture facility
based in the United States.
4. VAR will export the re-manufactured configuration discussed here
only to the countries listed on Exhibit D.
5. VAR shall be responsible for export permit requirements, export
reporting, costs, duties, taxes, and freight, and for conforming
to US export regulations. Customer will not export products or
technical data in violation of applicable export regulations.
6. HP shall have the right to inspect the records of VAR to verify
such information on reasonable notice, not to be less than two
business days.
7. VAR agrees to extend product warranty as required by law.
8. VAR agrees that international product purchases will not be
entitled to accrual of co-op or MDF funds. All parties agree
such purchases are not eligible for stock adjustment or price
protection.
9. VAR agrees to promptly notify HP of any additions or deletions to
the list of countries set out on Exhibit D.

4. END-USER SALES

A. VAR may sell HP Products only through the company names and selling
locations set out on Exhibit C to end-user customers (including
government and corporate users as well as individual users).

B. All HP Products purchased by VAR will be incorporated into a complete
MICR system, marketed as such, and sold only with substantial value
added in one of the following ways:

1) a. Through the integration of the HP Products into a complete
system providing a total solution to customers in a specific
market recognized and agreed to by HP, where sale of the
system depends on VAR's specialized knowledge of those
customers and their needs.

b. Through addition of a substantial amount of other software
and/or hardware that VAR manufactures, or develops, or
acquires added value in this form must represent a
significant functional enhancement to the HP Products
included in the system. If the added value consists
exclusively

11
<PAGE>

of the software it must solve a major application need of
the end-user.

c. As an addition or consumable to any product or system sold
under conditions specified in sections a or b, above.

2) VAR will not sell standard HP LaserJet printers into the general
office printer market without their MICR value added solution.
The VAR value added is reflected in this agreement and set out in
Exhibit E.

5. VAR RESPONSIBILITIES

A. FACE TO FACE SUPPORT
VAR must sell value added HP Products on a face-to-face basis and must
provide pre-sale and post-sale support for its customers sufficient to
ensure a high level of customer satisfaction with VAR's value added
support capabilities.

B. TRAINING
VAR will ensure that its employees complete any required training
courses designated by HP.

C. PRIMARY CONTACT
VAR will identify and keep current a primary and secondary support
contact for both marketing communications and post-sales technical
support at each approved location.

D. NEW PRODUCT INTRODUCTIONS
VAR will not sell, advertise, promote, display, or disclose the
features, availability or price of any new HP product before HP's
public announcement of that product.

E. PRODUCT SERVICE AND CUSTOMER SUPPORT
1) VAR assumes responsibility for repairs and all support of VAR
private labelled products within end user customer locations.

2) HP may, at its discretion, require VAR to qualify to perform
in-warranty repairs for HP Products in order to remain eligible
to carry them. However, VAR is not authorized to establish,
market or promote themselves as service providers, authorized or
otherwise, for HP labelled products. Service of HP labelled
products is understood to be authorized only as an adjunct to
authorized sales under this Agreement.

3) VAR assumes full responsibility for warranty and service of any
existing end user installed LaserJet printer upgraded by the VAR
to their value added product solution unless otherwise expressly
agreed to in writing by HP's marketing manager for Boise Printer
Division.

4) VAR agrees to offer and provide to its end-users customers
adequate support for its value-added solution(s). This support
must be offered in a format that ensures a high level of customer
satisfaction with the VAR's value-added support capabilities.

F. ADVERTISING
VAR may advertise its value-added solutions using HP Products
nationwide. Each advertisement must focus on VAR's value-added
solution. Such advertisements may, however, refer to the use of HP
component parts.

6. POLICIES AND PROGRAMS

A. From time to time, HP may offer or change HP policies and VAR
Programs.

7. NONBINDING FORECASTING

A. Regular monthly 18 month rolling forecasts will be expected of VAR on
all product listed in the associated Product Exhibit. These are
nonbinding forecasts except as set forth below.

8. BINDING FORECASTING ON MICR TONER PRODUCT

A. VAR will not be held to a binding forecast for the first six months of
this agreement. During that 6 month period, VAR agrees to work with
HP to provide accurate forecasts. After the first 6 months VAR is
required to purchase amounts set out in six month rolling forecasts,
which are subject to the flexibility percentage set out in the
attached Exhibit B. Changes outside these parameters must be agreed
to in writing by HP.

9. INDEPENDENT SOURCING

A. At HP's discretion, technical schematics will be provided to VAR upon
written request for sourcing by VAR from independent technology
sources. However, HP reserves the right to limit what technical
schematics are provided.

10. TOOLS AND DEVELOPMENT ENVIRONMENT

A. HP will share information about development environment with VAR.

B. HP will provide VAR with support for HP customer developed products
and development tools from date of product release until three

12
<PAGE>

years after HP discontinues the custom products and development tools.

11. PRODUCT SUPPORT LIFE

A. HP is expected to provide technical and service part support for HP
products from date from first procurement for HP until three years
after product is discontinued by HP.

B. VAR is expected to provide technical and service part support to Var's
customer for HP products from date of first procurement from HP until
three years after product is discontinued by HP.

12. PRIVATE LABELING & LOSS OF HP PRODUCT IDENTITY

A. The product purchased hereunder are for OEM purposes. VAR will
replace HP product identity (except as otherwise required in Exhibit
E) with VAR's product identity. Identity loss will include, but not
be limited to, HP product front panel printer brand and model names,
and HP product serial numbers on HP product rear panel serial number
tags and all reference to HP in documentation (except as otherwise
required to identify intellectual property rights). VAR may advertise
"HP components" but VAR may not advertise that HP products are offered
for sale.

13. ADVANTAGE AND PROMOTIONAL FUNDS

A. VAR shall not be entitled to Advantage funds or promotional
allowances, facilities or services from HP in connection with this
Agreement.

14. PROMOTION AND EXCLUSIVITY

A. VAR recognizes that HP expects VAR to actively promote HP products
sold under this agreement. To ensure such promotion, VAR agrees that
as set forth in Paragraph 1 of this Agreement, VAR shall not offer for
sale products competitive with the HP products described in the
Product Exhibit. VAR also agrees to meet the Shipment Milestones as
set out in Exhibit F.

13
<PAGE>

Exhibits to the MICR Solution Reseller Agreement

Exhibit A

[Portions of this Exhibit A have been omitted pursuant to a request for
confidential treatment under Rule 406 of the Securities Act of 1933, as
amended. A copy of the Agreement with this Exhibit A intact has been filed
separately with the Securities and Exchange Commission]

Product Discount Schedule: Schedule A Schedule B Schedule C Schedule D
X % X % X % X
--- --- --- --------

Approved Product List:

- --------------------------------------------------------------------------------------------------
Discount Schedule Product Schedule Product Description Product Price List
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
A C2037A #ABA LJ 4 Plus 120 volt CPL
A C2037A #ABB LJ 4 Plus 220 volt CPL
C C3130A 1 Mbyte SIMM CPL
C C3131A 2 Mbyte SIMM CPL
C C3132A 4 Mbyte SIMM CPL
C C3133A 8 Mbyte Simm CPL
C C3146A 16 Mbyte Simm CPL
C C3129A #ABA LJ 4 Plus PS SIMM CPL
C C2082B LJ 4 Plus Envelope Feeder CPL
C C2083D 500 sheet tray & assembly CPL
C C2084C 500 sheet tray CPL
C C2084D 500 sheet repl. tray CPL
C C2085D 250 sheet repl. tray CPL
C C2085E 250 sheet repl. tray CPL
C C2085F 250 sheet repl. tray CPL
C* 92298X MICR Toner $ X
D* 36595A #115 2MB OTP SIMM Custom SIMM
B C3150A #ABA LJ 5P 120 volt CPL
B C3150A #ABB LJ 6P 220 volt CPL
B C3141A #ABA LJ 4V 120 volt CPL
B C3141A #ABB LJ 4V 220 volt CPL
B C3916A #ABA LJ 5 120 volt CPL
B C3916A #ABB LJ 5 220 volt CPL
B C3980A #ABA LJ 6P 120 volt CPL
B C3980A #ABB LJ 6P 220 volt CPL
B C3982A #ABA LJ 6MP 120 volt CPL
B C3982A #ABB LJ 6MP 220 volt CPL
B C3166A #ABA LJ 5SI 120 volt CPL
B C3166A #ABA LJ 5Si 220 volt CPL
C J2550A #ABA JetDirect/10BaseT CPL
C J2552A #ABA JetDirect/10BaseT, BNC, LocalTalk CPL
C C3903A LaserJet 5P Toner CPL
C 92291A LaserJet 4Si Toner CPL
C C3909A LaserJet 5Si Toner CPL
C C3909A LaserJet 5Si Toner CPL
C C2975A Printer Cabinet CPL
C C3762A Duplex Unit CPL
C C3763A 2,000-Sheet Input Tray CPL
C C3764A Multi-Bin Mailbox CPL
C C3765A Envelope Feeder CPL
C C3768A Paper-handling controller board CPL
C C2965A 420-Mbyte disk drive CPL
C C3920A Duplex-LJ5/5M/5N CPL
C C3921A 500-sht fdr-LJ5/SM/5N CPL
C C3927A Envelope fdr-LJ5 CPL
</TABLE>
* These are MICR products and are subject to exclusivity.

X Information has been redacted pursuant to a request for confidential
treatment.

<PAGE>

Exhibit B

[Portions of this Exhibit B have been omitted pursuant to a request for
confidential treatment under Rule 406 of the Securities Act of 1933, as
amended. A copy of the Agreement with this Exhibit B intact has been filed
separately with the Securities and Exchange Commission.]

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Planning Month in Forecast: (Forecast is Month 1 Month 2 Month 3 Month 4 Month 5 Month 6
received in 0)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Maximum increase/Decrease: (vs. same X% X% X% X% X% X%
calendar month in previous forecast)
- ------------------------------------------------------------------------------------------------------
</TABLE>

X Information has been redacted pursuant to a request for confidential
treatment.

<PAGE>

Exhibit C

[Portions of this Exhibit C have been omitted pursuant to a request for
confidential treatment under Rule 406 of the Securities Act of 1933, as
amended. A copy of the Agreement with this Exhibit C intact has been filed
separately with the Securities and Exchange Commission.]

Distribution, US Reseller, and International Reseller Locations

WORLDWIDE DISTRIBUTION CENTERS Mechanized Methods
- ------------------------------ Gus Weddepohl
M.M. House 69 Juta Street
Troy Braamfontein Johannesburg
2331 S. Pullman Street 2000, South Africa
Santa Ana, CA 92705
Secure Data Systems
3 Brian Drive Artura Sandoval
Wheeling, West Virginia 26003 4640 West 77th Street
Suite 170
11 C Valentia Avenue Lugarno, Australia Edina, MN 55435

SIMA
WORLDWIDE STOCKING & RESELLER LOCATIONS Christian Benier
- --------------------------------------- 21, place de la Loire SILIC
X 176 92453 Rungis Cedex,
BDC France
Herman Estay Villaroel
Av. Bulnes 166-84 Sirius Sistemas Degitais, LTD.
Santiago, Chile David Feler Estrada Do
Tindiba 815 - Taquara
Data Card Toppan Moore Rio de Janeiro, Brazil CEP
Wilson Ho 22740
3/F China Insurance Bldg.
48 Cameron Road WORLDWIDE RESELLER OR SALES AGENTS
Tsimshatsui, KLN, Hong Kong ----------------------------------
X
Equifisa Gemadec S.A.
Ignacio Sternberg Bernard Pellier
Avenida Sucre Los Dos Caminos 290 Boulevard Mohammed V
Edificio Centro Casablanca 01, Morocco
Parque Boyaca
Caracas, Venezuela 1010-A Webster Sygne
Ruben Plaza
Guillamet, S.A. 8405 N.W. 53rd, Suite A 209
Silvano Guillament Ecuador 3 Miami, FL 33166
Barcelona, Spain 08029
Pacifique Technologie
Guillamet, S.A. 65 Avenue de Marechal FOCH
Venancio Guillamet P.O. Box 65 - NOUMEA
Paseo de la Castellana, 123 New Caledonia
Madrid, Spain 28046
Data Card France
Inotech Systems LTD. Tour Gallieni II-36 Avenue
Peter Humphries Gallieni 93170 Bagnolet,
Unit 17 Loomer Road France
Chesterton New Castle
Staffordshire, England ST5 7LB Sistemas Analiticos
Apartado 6244
Marinter Systems PTY LTD. Martin Lissing San Jose 1000
11 C Valentia Avenue Lugarno, Australia Costa Rica

X Information has been redacted pursuant to a request for confidential
treatment.

<PAGE>

Exhibit D

INTERNATIONAL COUNTRIES FOR EXPORT:

Argentina
Australia
Brazil
Canada
Chile
China
Colombia
Costa Rica
Ecuador
El Salvador
England
Finland
France
Germany
Hong Kong
India
Indonesia
Israel
Italy
Japan
Jordan
Korea
Mexico
Morocco
New Caledonia
New Zealand
Norway
Oman
Peru
Philippines
South Africa
Spain
Sweden
Thailand
Turkey
Venezuela

<PAGE>

Exhibit E

Value-added by Troy FOR THE LASERJET 4 PLUS is in the following areas:
warranty, service, two tier distribution, software and hardware customization,
Troy identify on products, product liability responsibilities assumed, Troy will
conduct product testing on each printer with a MICR configuration before the
solution is shipped, Troy manuals, Troy will provide pre/post sale consulting on
MICR technology, and Troy will maintain product inventory sufficient to fulfill
customer needs.

VALUE-ADDED BY TROY FOR THE LASERJET 4P. 5P. 4V. 5. AND 5SI IS IN THE FOLLOWING
AREAS: (1) WARRANTY AND SERVICE FOR ALL MICR TONER AND TECHNOLOGY RELATED
PROBLEMS THAT AFFECT PRINTER PERFORMANCE, (2) WARRANTY AND SERVICES FOR MICR
TONER CARTRIDGES AND SOFTWARE CUSTOMIZATION, (3) TROY SERVICE LABEL ON PRINTERS
AND IN USER'S GUIDE MANUAL, (4) TROY WILL PROVIDE PRE/POST SALES CONSULTING ON
MICR TECHNOLOGY.

<PAGE>

Exhibit F

SHIPMENT MILESTONES

[Portions of this Exhibit F have been omitted pursuant to a request for
confidential treatment under Rule 406 of the Securities Act of 1933, as
amended. A copy of the Agreement with this Exhibit F intact has been filed
separately with the Securities and Exchange Commission]

SHIPMENT MILESTONES
- ------------------

The following shipment milestones (VAR will have taken delivery of said
quantities by the established dates) will be in effect in order for VAR to
maintain exclusive rights to resell HP MICR LaserJet printers. If milestones
are not met by the dates specified, the Agreement will remain in effect but
the exclusivity granted to the VAR to sell MICR LaserJet printers may be
removed at the discretion of HP. If HP chooses to withdraw exclusivity under
the Agreement then the VAR will no longer be bound to exclusivity sell
LaserJet printers, unless HP restores exclusivity to the VAR.

Milestone 1 - July 1, 1996 through June 30, 1997 ( X printers)
-----------------------------------------------------------------
Milestone 2 - July 1, 1997 through June 30, 1998 ( X printers)
-----------------------------------------------------------------
Milestone 3 - July 1, 1998 through March 31, 1999 ( X printers)
-----------------------------------------------------------------

X Information has been redacted pursuant to a request for confidential
treatment.

<PAGE>
EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the use in this Amendment No. 6 to the Registration
Statement on Form S-1 (No. 333-51523) of our report, dated January 6, 1999,
relating to the consolidated financial statements of Troy Group, Inc. We also
consent to the reference to our Firm under the caption "Experts" in the
prospectus.

McGLADREY & PULLEN, LLP

Anaheim, California
July 14, 1999

<PAGE>
EXHIBIT 23.2

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the use in this Amendment No. 6 to the Registration
Statement on Form S-1 (No. 333-51523) of our report, dated October 20, 1998,
relating to the consolidated financial statements of XCD Incorporated. We also
consent to the reference to our Firm under the caption "Experts" in the
prospectus.

McGLADREY & PULLEN, LLP

Anaheim, California
July 14, 1999

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> NOV-30-1999 NOV-30-1998
<PERIOD-START> DEC-01-1998 DEC-01-1997
<PERIOD-END> MAY-31-1999 NOV-30-1998
<CASH> 42 308
<SECURITIES> 0 0
<RECEIVABLES> 7,995 6,519
<ALLOWANCES> 153 140
<INVENTORY> 7,012 5,783
<CURRENT-ASSETS> 15,796 13,605
<PP&E> 8,250 7,738
<DEPRECIATION> 6,276 5,833
<TOTAL-ASSETS> 22,420 18,918
<CURRENT-LIABILITIES> 8,201 7,799
<BONDS> 2,564 2,374
0 0
0 0
<COMMON> 77 77
<OTHER-SE> 10,838 8,188
<TOTAL-LIABILITY-AND-EQUITY> 22,420 18,918
<SALES> 23,466 35,758
<TOTAL-REVENUES> 23,466 35,758
<CGS> 14,167 21,496
<TOTAL-COSTS> 14,167 21,496
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 29 134
<INTEREST-EXPENSE> 162 101
<INCOME-PRETAX> 3,359 4,364
<INCOME-TAX> 1,334 (70)
<INCOME-CONTINUING> 2,025 4,434
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,025 4,434
<EPS-BASIC> .26 .32
<EPS-DILUTED> .25 .31

</TABLE>