Drexler Technology Reports Results for FY03 Third Quarter and Nine Months Ended December 31, 2002

MOUNTAIN VIEW, Calif.--Jan.14/02 -- Drexler Technology Corporation (Nasdaq: DRXR), the manufacturer of LaserCard optical memory cards for digital governance, homeland security, and multi-biometric ID systems, today reported financial results for its fiscal 2003 third quarter and nine months ended December 31, 2002.

For the three months ended December 31, 2002, net income was $397,000, or 4 cents per share diluted, versus $1,659,000, or 15 cents per share diluted (which includes an income tax benefit of 4 cents per share), for the three months ended December 31, 2001. Pre-tax income for the fiscal 2003 third quarter was $662,000 compared with $1,201,000 for the fiscal 2002 third quarter. Fiscal 2003 third-quarter revenues were $5,365,000 compared with $7,030,000 for last year's third quarter.

For the nine months ended December 31, 2002, net income was $2,431,000, or 22 cents per share diluted, versus $4,211,000, or 41 cents per share diluted (which includes an income tax benefit of 18 cents per share), for the nine months ended December 31, 2001. Pre-tax income for the first nine months of fiscal 2003 was $4,051,000 compared with $2,310,000 for the first nine months of fiscal 2002. Revenues for the first nine months of fiscal 2003 were at a record high level of $21,446,000 versus $15,987,000 for last year's first nine months.

Income tax EXPENSE was $265,000 for the quarter ended December 31, 2002 compared with an income tax BENEFIT of $458,000 for the quarter ended December 31, 2001. For the nine months ended December 31, 2002, income tax EXPENSE was $1,620,000 compared with an income tax BENEFIT of $1,901,000 for the nine months ended December 31, 2001. As reported previously, the Company has recognized all prior federal income tax benefits for income statement purposes, but still has substantial tax benefits available to reduce actual tax payments.

The Company sold approximately 6 million LaserCard(R) optical memory cards and 158 read/write drives in the fiscal 2003 first nine months compared with approximately 4.4 million optical memory cards and 210 read/write drives in the fiscal 2002 first nine months. For the full 12 months of fiscal 2003, ending March 31, 2003, sales of optical memory cards are forecasted to increase to approximately 8 million cards compared with 5.6 million cards for fiscal 2002. To achieve the 8 million card sales goal, the Company estimates that it will need to book additional orders for approximately 800,000 cards to be shipped during the fiscal 2003 fourth quarter. The Company will announce any such orders when they are received. For fiscal 2004, which begins April 2003, the Company expects a significant increase in foreign business over the fiscal 2003 level, due to currently anticipated orders from a Balkan country, a Middle Eastern country, Italy, and possibly others.

LaserCard optical memory card sales during the third quarter ended December 31, 2002 included Laser Visa BCCs (Border Crossing Cards) for the U.S. Department of State; Department of Homeland Security/INS Permanent Resident Cards (Green Cards); Automated Manifest System military cargo cards for the U.S. Department of Defense; and Permanent Resident Cards for the Government of Canada. Also during the third quarter, a purchase order agreement was signed for supplying LaserCard products to a large U.S. company for a potential ID card application under development in a foreign country. And in December 2002, the U.S. government began extensive testing of 24 of Drexler's LaserCard Biometric ID Verification Systems at six U.S. border entry points (including the Los Angeles and Atlanta airports) in connection with the Enhanced Border Security and Visa Entry Reform Act signed into law on May 14, 2002.

Licensing revenue in the amount of $875,000 for the fiscal 2003 third quarter represents the unamortized portion of a $1,000,000 nonrefundable distribution license fee received in 2000 from a licensee in Asia that had committed to purchase a minimum number of optical memory cards for a program in the licensee's country. The Company recorded this fee as deferred revenue and has been amortizing it as revenue in proportion to the actual card purchases by the licensee. During the quarter ended December 31, 2002, the Company determined that, due to the licensee's failure to meet the minimum contractual purchase commitment, the licensee's distribution rights had become unenforceable and that the licensee would no longer be acting as the card supplier for that program.

The Company's cash, cash equivalents, short-term investments, and long-term investments (maturities ranging from 1 to 2.5 years) were $18,156,000 at December 31, 2002 compared with $18,078,000 at March 31, 2002. The Company has no debt. As of December 31, 2002, there were 10,433,140 shares of Drexler Technology Corporation common stock outstanding compared with 10,149,683 shares outstanding as of December 31, 2001.

Drexler's patented, recordable, 2.8 megabyte LaserCard optical memory cards are used for border security, immigrant Permanent Resident Cards, biometrics ID, vehicle registration, permits, and other wallet-card applications. The LaserCard optical memory can hold up to 2,800 kilobytes (2.8 megabytes) of digital data, making it capable of storing all or any combination of biometric identifiers currently being used commercially throughout the world -- including fingerprint, hand geometry, iris or retina scan, facial image recognition, digitized signature, and photograph. The Company owns approximately 40 U.S. patents and 60 foreign patents primarily in a half-dozen countries, involving optical memory cards and systems and related technology.

Headquartered in Mountain View, the Company develops and manufactures LaserCard(R) optical memory cards and chip-ready Smart/Optical(TM) cards (a combination of optical memory card and smart card). Drexler's wholly owned subsidiary, LaserCard Systems Corporation (www.lasercard.com), makes optical card read/write drives, develops complete biometric card verification systems and optical card system software, and markets other card-related data systems and peripherals. In October 2002, Drexler Technology was named one of FORBES magazine's "200 Best Small Companies in America" for 2002.

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