Lasercard (LCRD) 8-K Other events

Drexler Technology Corporation	NEWS RELEASE
1077 Independence Avenue, Mountain View, CA 94043 Telephone (650) 969-7277 — Fax (650) 969-6121	FOR FURTHER INFORMATION: STEVEN G. LARSON, VP-FINANCE (650) 969-7277

Drexler Technology Reports 2002 Fiscal Year Ended March 31, 2002;
Fourth Consecutive Year of Profitability

     Mountain View, Calif. — May 14, 2002. Border-security and biometrics-card maker, Drexler Technology Corporation (NasdaqNM:DRXR), supplier of over 13 million multi-biometric “Laser Visas” and “Green Cards” to the United States government, today announced financial results for its fiscal 2002 fourth quarter and year ended March 31, 2002. Despite current economic conditions and increased Company spending on product and market development, Drexler achieved profitability for its fourth consecutive fiscal year.

     Net income was $5,199,000, or 50 cents per share diluted, for the fiscal year ended March 31, 2002, compared with $7,912,000 (restated as described below), or 76 cents per share diluted, for the fiscal year ended March 31, 2001. Revenues for fiscal 2002 totaled $20,740,000 versus $24,906,000 (restated) for the previous fiscal year.

     For the fiscal fourth quarter ended March 31, 2002, net income was $988,000, or 9 cents per share diluted, compared with $2,538,000 (restated), or 25 cents per share diluted, for last year’s fourth quarter. Revenues for the fiscal 2002 fourth quarter were $4,864,000 compared with $7,751,000 (restated) for the fourth quarter of last year.

     For fiscal 2002, the Company sold 5.6 million LaserCard® optical memory cards and 450 optical card read/write drives compared with 5.9 million cards (restated) and 1,280 card drives for fiscal 2001.

     The Company also announced restatement of its previously reported results for fiscal years 1998-2001 and the first three quarters of fiscal 2002, as more fully described in the attached explanation and tables. The restatement is the result of a review conducted by the Company and its independent public accountants and was not initiated by any governmental or regulatory agency. The restatement is due to changes in the timing of revenue recognition of LaserCard® shipments in and out of a secure, government-funded vault built on Company premises to comply with security regulations under a U S. government subcontract for the sale of custom-made cards. The restatement reflects only changes in timing of recognition of revenue. While it reduces the Company’s cumulative revenues from sales to the government over a period of four years and nine months by $4.3 million out of a total sales value of $45.2 million, such reduction is now reported as deferred revenue which is being recognized as these cards are shipped out of the vault.

     In the restatement, revenue for fiscal 2001 and for the first nine months of fiscal 2002 increased, while revenue for fiscal 1998, fiscal 1999, and fiscal 2000 declined. As a consequence, net income for the first nine months of fiscal 2002 increased by $1,683,000, or 17 cents per share, to 41 cents per diluted share; net income for fiscal 2001 increased by $1,425,000, or 14 cents per share, to 76 cents per diluted share; net income for fiscal 2000 declined by $573,000, or 6 cents per share, to 48 cents per diluted share; net income for fiscal 1999 declined by $1,651,000, or 16 cents per share, to 25 cents per diluted share; and the previously reported fiscal 1998 net income of 19 cents per share reverted to a loss of $879,000, or 9 cents per diluted share. Another effect of the restatement is that approximately $4.3 million in revenues and $2.3 million of gross profit that previously had been recognized is deferred and will contribute to revenue and gross profit after December 31, 2001. Refer to the attachments for additional information.

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DREXLER TECHNOLOGY — 12 MONTHS ENDED MARCH 31, 2002 — PAGE 2

     For the fiscal year ended March 31, 2002, research and engineering expenditures, which were primarily related to the development of new or improved LaserCard® drive products, rose to $3,045,000, or 14.7% of revenues, compared with $2,370,000, or 9.5% of revenues, for the fiscal year ended March 31, 2001.

     Net income for the 2002 fiscal year included an income tax benefit of $2,786,000 compared with an income tax benefit of $1,097,000 (restated) for the previous fiscal year. Such benefits reflect the effects of the reversal of previously established allowances for the deferred tax assets. Fiscal 2002 fourth-quarter income included an income tax benefit of $885,000 compared with an income tax provision of $134,000 (restated) for the fourth quarter ended March 31, 2001.

     The Company’s cash, cash equivalents, and short-term investments were $17,076,000 at March 31, 2002, compared with $11,608,000 at March 31, 2001. The Company has no debt. As of March 31, 2002, there were 10,240,687 shares of Drexler Technology Corporation common stock outstanding compared with 9,951,451 shares outstanding as of March 31, 2001.

     Notable orders received during the fourth quarter ended March 31, 2002, included a $10.4 million purchase order release announced on January 23, 2002, for 3.25 million LaserCard® optical memory cards under the Company’s current U.S. government subcontract. On February 7, 2002, the Company announced a $1.6 million order for 350,000 multi-biometric LaserCard® ID cards for a new customer—a foreign government that later purchased 220 LaserCard® read/write drives for $600,000 under a follow-on order announced March 27, 2002.

     Other recent events include the appointment of PricewaterhouseCoopers LLP on April 8, 2002, as the Company’s independent public accountants for the fiscal year ended March 31, 2002. Additionally, on April 18, 2002, the United States Senate passed Senate Bill 1749, known as the “Enhanced Border Security and Visa Entry Reform Act,” which would fund, among other things, “tamper-resistant” visas and other travel documents that can be read by machines. On May 8, 2002, this legislation passed the U.S. House of Representatives as House Bill 3525. This Act of Congress was signed by President George W. Bush today, May 14, 2002. By invitation of the U.S. Senate, the Company gave expert testimony related to its multi-biometric optical memory cards at a Senate subcommittee hearing on November 14, 2001, and believes it is well positioned to provide LaserCard products for the implementation of this new legislation.

     The Company plans to file an amended Form 10-K for fiscal 2001 ended March 31, 2001, and amended Form 10-Qs for each of the first three quarters of fiscal 2002, including the restated interim financial information. Therefore, the financial information contained in the annual and quarterly reports previously filed with the Securities and Exchange Commission for these periods, including the Company’s former independent accountants’ reports for the restated periods, should not be relied upon without taking into account the restated financial information contained in this press release and attachments.

     Headquartered in Mountain View, Drexler Technology Corporation (www.lasercard.com) develops and manufactures optical data storage products and systems, including LaserCard® optical memory cards and “chip ready” optical memories for smart cards. Drexler’s wholly owned subsidiary, LaserCard Systems Corporation, makes optical card read/write drives, develops optical card system software, and markets card-related data systems and peripherals. LaserCard® optical memory cards are used in homeland security, digital governance, and other digital read/write wallet-card applications for high security cards.

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DREXLER TECHNOLOGY — 12 MONTHS ENDED MARCH 31, 2002 — PAGE 3

DREXLER TECHNOLOGY CORPORATION AND SUBSIDIARIES
SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

			THREE MONTHS ENDED					FISCAL YEAR ENDED
			3/31/01		3/31/02			3/31/01			3/31/02
			(Unaudited)		(Unaudited)			(Restated*)
			(Restated*)
Revenues:
	Product sales		$	6,103	$	4,613		$	22,690		$	19,413
	License and royalty revenue			1,648		251			2,216			1,327
		Total revenues	$	7,751	$	4,864		$	24,906		$	20,740
Cost of sales				3,378		2,544			12,199			10,503
Selling, general, and administrative expenses				1,103		1,512			4,134			5,165
Research and engineering expenses				771		792			2,370			3,045
Other income, net				173		87			612			386
Income before income taxes				2,672		103			6,815			2,413
Income tax provision (benefit)				134		(885	)		(1,097	)		(2,786	)
Net income			$	2,538	$	988		$	7,912		$	5,199
Net income per share:
	Basic		$	.26	$	.10		$	.80		$	.52
	Diluted		$	.25	$	.09		$	.76		$	.50
Shares used in computing net income per share:
	Basic number of shares			9,885		10,194			9,897			9,961
	Diluted number of shares			10,332		10,975			10,446			10,468

* Reflects adjustments due to changes in the timing of revenue recognition for fiscal year 2001 and the first, second, and third quarters of fiscal year 2002 under a United States government subcontract.

Forward-Looking Statements: Except for the historical information contained herein, the matters set forth in this press release and attachments, including expectations as to deferred revenue and gross profit as a result of the restatement of financial information discussed above; statements as to plans to amend the Company’s SEC filings to reflect the restatement; estimates of future card shipment volumes and future revenue; statements as to current and potential market segments, customers, and applications for the Company’s products; statements as to anticipated business related to government legislation; and the Company’s plans, objectives, and anticipated economic performance, are forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including, but not limited to, the impact of litigation or governmental or regulatory proceedings; Arthur Andersen LLP’s ability to timely consent to including the restated financial information in the Company’s SEC filings; the Company’s ability to initiate and grow new programs utilizing the Company’s card products; manufacturing difficulties; general economic trends; the unpredictability of customer demand for products and customer issuance and release of corresponding orders; risks associated with doing business in and with foreign countries; the Company’s reliance on VARs and licensees; risks associated with development, manufacture, and deployment of optical card drives and systems; the U.S. government’s right to withhold order releases, reduce the quantities released, and extend delivery dates; the impact of technological advances and competitive products; and other risks detailed from time to time in the SEC reports of Drexler Technology Corporation, including its annual report on Form 10-K for the year ended March 31, 2001, and in the prior press releases summarized in this press release. These forward-looking statements speak only as of the date hereof. Drexler Technology disclaims any intention or obligation to update or revise any forward-looking statements. There is no assurance that the passage of U.S. government legislation related to homeland security will materially increase the current level of government procurement of the Company’s optical memory cards.

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ATTACHMENT #1
DREXLER TECHNOLOGY CORPORATION
EXPLANATION CONCERNING RESTATEMENT OF FISCAL 1998-2001
AND FISCAL 2002 FIRST NINE MONTHS

     Drexler Technology Corporation’s restatement of its financial statements for fiscal years 1998-2001 and the first nine months of fiscal year 2002 ended March 31, 2002, is due to changes in the timing of revenue recognition of LaserCard® shipments into and out of a secure, government-funded vault built on Company premises to comply with security regulations for product storage and handling under a U.S. government subcontract for custom-made cards.

     Drexler currently manufactures LaserCard® optical memory cards for the United States Immigration and Naturalization Service (INS) under a U.S. government subcontract having an authorized maximum of $81 million for up to 24 million cards at an average selling price of about $3.23 per card, in order quantities of at least one million optical memory cards per order. The subcontract specifies that these custom-made cards be delivered into a secure, INS-funded vault located on the Company’s premises. Title to the cards passes and invoices are issued when cards are delivered into the vault, and payment typically is made promptly to the Company per the subcontract terms. The Company, acting as the INS’s agent, makes shipments out of the INS vault when the INS issues shipping instructions to the Company which are scheduled to enable the INS to meet its utilization requirements for INS “Green Cards” and Department of State “Laser Visa” cards. Through December 31, 2001, Drexler had delivered 14 million cards into the vault, of which the INS had requested 12.7 million cards to be shipped from the vault, leaving 1.3 million cards remaining in the government vault. Through the years, the cards have remained in the vault for an average of less than one year after they were paid for.

     Drexler had been recognizing revenue and invoicing the customer when cards were delivered into the vault, which triggered cash payments pursuant to the payment terms of the subcontract, and the Company thus had recognized $45.2 million in revenue from the 14 million cards delivered to the vault from April 1, 1997 through December 31, 2001. However, Drexler’s newly appointed independent accountants have advised the Company that under the terms and conditions of the Company’s U.S. government supply subcontract, the transfer of title and the imminent cash payment pursuant to the contract payment terms upon delivery of the cards to the vault are necessary but not necessarily sufficient under the SEC’s Staff Accounting Bulletin 101, Revenue Recognition. SAB 101 sets forth accounting requirements for revenue recognition and requires that there be a fixed schedule for the delivery of the cards that is reasonable and consistent with the buyer’s business purpose prior to revenue recognition. Beginning in April 1997, Drexler had relied upon the instructions from the customer for delivery of cards into the secure, government-funded vault to trigger the recognition of revenue under the subcontract. Drexler has now been advised that this is not sufficient for revenue recognition under SAB 101, which was issued by the SEC in December 1999. By applying the SAB 101 principles back to the inception of the U.S. government subcontract in 1997, revenue for Drexler’s prior periods under the subcontract has been deferred and recognized when the cards left the government-funded vault, even though title had passed and cash payment may have been received by Drexler, because the Company was not provided with a fixed schedule, notification, or plan for shipments out of the government vault by its customer.

     By now restating its revenue in accordance with SAB 101, Drexler will be reducing its revenue during the first three years of the affected time period (fiscal years 1998 through 2000) by $9.8 million and increasing its revenue during fiscal 2001 and the first three quarters of fiscal 2002 by $5.5 million. The resulting net decrease in previously reported revenue during the affected time period of $4.3 million is the sales price of the 1.3 million cards remaining in the INS vault on December 31, 2001. These cards thus represent $2.3 million of previously reported gross profit, which will instead be gross profit recognized after December 31, 2001. This has no effect on the Company’s cash position which reflects that the Company had already received non-refundable payment prior to December 31, 2001 for most of these 1.3 million cards remaining in the vault. The Company will continue to invoice the customer when cards are delivered into the vault, according to the terms of the subcontract.

SEE ATTACHMENTS #2, #3, AND #4 FOR RESTATED FINANCIAL TABLES.

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ATTACHMENT #2

DREXLER TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (RESTATED*)
(In thousands, except per share data)

			FISCAL 1998								FISCAL 1999							FISCAL 2000
			Twelve Months Ended								Twelve Months Ended							Twelve Months Ended
			3/31/1998								3/31/1999							3/31/2000
			As		Adjust-						As		Adjust-					As			Adjust-
			Reported		ments			Restated			Reported		ments			Restated		Reported			ments			Restated
Revenues:
	Product sales		$	9,844	$	(4,920	)	$	4,924		$	15,102	$	(3,273	)	$	11,829	$	16,948		$	(1,649	)	$	15,299
	License fees and royalties			417		—			417			748		—			748		144			—			144
	Development contract			820		—			820			—		—			—		—			—			—
		Total revenues	$	11,081	$	(4,920	)	$	6,161		$	15,850	$	(3,273	)	$	12,577	$	17,092		$	(1,649	)	$	15,443
Cost of sales				5,923		(2,210	)		3,713			7,709		(1,622	)		6,087		9,362			(694	)		8,668
Selling, general, and administrative expenses				2,978		—			2,978			3,698		—			3,698		3,996			—			3,996
Research and engineering expenses				435		—			435			456		—			456		1,299			—			1,299
Other income, net				154		—			154			268		—			268		388			—			388
	Income (loss) before income taxes			1,899		(2,710	)		(811	)		4,255		(1,651	)		2,604		2,823			(955	)		1,868
Income tax provision (benefit)				68		—			68			128		—			128		(2,537	)		(382	)		(2,919	)
	Net income (loss)		$	1,831	$	(2,710	)	$	(879	)	$	4,127	$	(1,651	)	$	2,476	$	5,360		$	(573	)	$	4,787
	Net income (loss) per share:
		Basic	$	.19				$	(.09	)	$	.42				$	.25	$	.55					$	.49
		Diluted	$	.19				$	(.09	)	$	.41				$	.25	$	.54					$	.48
Shares used in computing net income (loss) per share:
		Basic		9,391					9,391			9,748					9,748		9,812						9,812
		Diluted		9,677					9,391			10,007					10,007		9,935						9,935

[Additional columns below]

[Continued from above table]

			FISCAL 2001								FISCAL 2002
			Twelve Months Ended								Nine Months Ended
			3/31/2001								12/31/01
			As			Adjust-					As			Adjust-
			Reported			ments		Restated			Reported			ments			Restated
Revenues:
	Product sales		$	18,661		$	4,029	$	22,690		$	13,296		$	1,504		$	14,800
	License fees and royalties			2,216			—		2,216			1,076			—			1,076
		Total revenues	$	20,877		$	4,029	$	24,906		$	14,372		$	1,504		$	15,876
Cost of sales				10,331			1,868		12,199			7,317			642			7,959
Selling, general, and administrative expenses				4,134			—		4,134			3,653			—			3,653
Research and engineering expenses				2,370			—		2,370			2,253			—			2,253
Other income, net				612			—		612			299			—			299
	Income before income taxes			4,654			2,161		6,815			1,448			862			2,310
Income tax provision (benefit)				(1,833	)		736		(1,097	)		(1,080	)		(821	)		(1,901	)
	Net income		$	6,487		$	1,425	$	7,912		$	2,528		$	1,683		$	4,211
	Net income per share:
		Basic	$	.66				$	.80		$	.26					$	.43
		Diluted	$	.62				$	.76		$	.24					$	.41
Shares used in computing net income per share:
		Basic		9,897					9,897			9,883						9,883
		Diluted		10,446					10,446			10,335						10,335

* Reflects adjustments due to changes in the timing of revenue recognition for fiscal years 1998, 1999, 2000, 2001, and the first nine months of fiscal 2002 under United States government subcontracts.

ATTACHMENT #3

DREXLER TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)

			RESTATED* FISCAL 2002 FIRST NINE MONTHS (UNAUDITED)
			FY02 1st Quarter									FY02 2nd Quarter									FY02 3rd Quarter
			Ended 6/30/2001									Ended 9/30/2001									Ended 12/31/2001
			As			Adjust-						As			Adjust-						As			Adjust-
			Reported			ments			Restated			Reported			ments			Restated			Reported			ments			Restated
Revenues:
	Product sales		$	3,644		$	308		$	3,952		$	4,383		$	(504	)	$	3,879		$	5,269		$	1,700		$	6,969
	License fees and royalties			311			–			311			765			–			765			–			–			–
		Total revenues	$	3,955		$	308		$	4,263		$	5,148		$	(504	)	$	4,644		$	5,269		$	1,700		$	6,969
Cost of sales				2,135			118			2,253			2,290			(257	)		2,033			2,892			781			3,673
Selling, general, and administrative expenses				1,194			–			1,194			1,170			–			1,170			1,289			–			1,289
Research and engineering expenses				623			–			623			736			–			736			894			–			894
Other income, net				116			–			116			95			–			95			88			–			88
	Income before income taxes			119			190			309			1,047			(247	)		800			282			919			1,201
Income tax benefit				(509	)		(316	)		(825	)		(133	)		(485	)		(618	)		(438	)		(20	)		(458	)
	Net income		$	628		$	506		$	1,134		$	1,180		$	238		$	1,418		$	720		$	939		$	1,659
	Net income per share:
		Basic	$	.06					$	.12		$	.12					$	.14		$	.07					$	.17
		Diluted	$	.06					$	.11		$	.12					$	.14		$	.07					$	.15
Shares used in computing net income per share:
		Basic		9,820						9,820			9,813						9,813			10,015						10,015
		Diluted		10,135						10,135			10,039						10,039			10,847						10,847

[Additional columns below]

[Continued from above table, first column(s) repeated]

						FISCAL			FISCAL
						2001			2002
			FY02 4th
			Quarter			Restated*
			Ended			12 Months			12 Months
			3/31/2002			Ended			Ended
			(Unaudited)			3/31/2001			3/31/2002
Revenues:
	Product sales		$	4,613		$	22,690		$	19,413
	License fees and royalties			251			2,216			1,327
		Total revenues	$	4,864		$	24,906		$	20,740
Cost of sales				2,544			12,199			10,503
Selling, general, and administrative expenses				1,512			4,134			5,165
Research and engineering expenses				792			2,370			3,045
Other income, net				87			612			386
	Income before income taxes			103			6,815			2,413
Income tax benefit				(885	)		(1,097	)		(2,786	)
	Net income		$	988		$	7,912		$	5,199
	Net income per share:
		Basic	$	.10		$	.80		$	.52
		Diluted	$	.09		$	.76		$	.50
Shares used in computing net income per share:
		Basic		10,194			9,897			9,961
		Diluted		10,975			10,446			10,468

* Reflects adjustments due to changes in the timing of revenue recognition for fiscal year 2001 and the first, second, and third quarters of fiscal year 2002 under a United States government subcontract.

ATTACHMENT #4
DREXLER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

March 31, 2001 and 2002
(In thousands, except share and per share data)

				2001			2001			2001			2002
				(As Reported*)			(Adjustments*)			(Restated*)
ASSETS
Current assets:
	Cash and cash equivalents			$	6,221		$	—		$	6,221		$	8,193
	Short-term investments				5,387			—			5,387			8,883
	Accounts receivable, net of product return reserve of $234 in 2001 and $100 in 2002				1,278			—			1,278			1,659
	Inventories				4,881			—			4,881			4,973
	Other current assets				566			—			566			561
		Total current assets			18,333			—			18,333			24,269
Property and equipment, at cost					19,310			—			19,310			20,979
	Less—accumulated depreciation and amortization				(13,423	)		—			(13,423	)		(14,561	)
		Property and equipment, net			5,887			—			5,887			6,418
Long-term investments					—			—			—			1,002
Patents and other intangibles, net					878			—			878			612
Deferred tax asset, net					5,282			(354	)		4,928			8,412
Other assets					111			—			111			—
			Total assets	$	30,491		$	(354	)	$	30,137		$	40,713
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable			$	1,039		$	—		$	1,039		$	738
	Accrued payroll costs				439			—			439			525
	Advance payments from customers				1,275			—			1,275			2,551
	Deferred revenue				994			—			994			235
	Deferred gross profit				—			3,155			3,155			2,860
	Other accrued liabilities				422			—			422			592
		Total current liabilities			4,169			3,155			7,324			7,501
	Deferred revenue, long-term				—			—			—			875
			Total liabilities	$	4,169		$	3,155		$	7,324		$	8,376
Commitments and contingencies
Stockholders’ equity:
	Preferred stock, $.01 par value:
		Authorized—2,000,000 shares
		Issued—none			—			—			—			—
	Common stock, $.01 par value:
		Authorized—30,000,000 shares
		Issued—9,951,451 shares at March 31, 2001 and 10,240,687 shares at March 31, 2002			99			—			99			102
	Additional paid-in capital				37,852			—			37,852			40,334
	Less: 127,424 common stock treasury shares at March 31, 2001, at cost				(1,840	)		—			(1,840	)		—
	Accumulated deficit				(9,789	)		(3,509	)		(13,298	)		(8,099	)
		Total stockholders’ equity			26,322			(3,509	)		22,813			32,337
		Total liabilities and stockholders’ equity		$	30,491		$	(354	)	$	30,137		$	40,713

* Reflects adjustments due to changes in the timing of revenue recognition for fiscal years 1998, 1999, 2000, and 2001 under United States government subcontracts.