Exhibit 99.1
Drexler Technology Reports Results
for FY04 Third Quarter Ended December 31, 2003
MOUNTAIN VIEW, Calif.--(BUSINESS WIRE)--Feb. 5,
2004--Border-security and multi-biometric ID card maker Drexler
Technology Corporation (Nasdaq:DRXR) today reported financial results
for its fiscal 2004 third quarter and nine months ended December 31,
2003.
For the three months ended December 31, 2003, the Company had a
net loss of $8,864,000, or 83 cents per share diluted, versus net
income of $397,000, or 4 cents per share diluted, for the three months
ended December 31, 2002. Revenues for the third quarter of fiscal 2004
were $5,467,000 compared with $5,365,000 for last year's third
quarter.
The Company recorded an income tax expense of $8,446,000 for the
third quarter due to increasing the valuation allowance to be equal to
the remaining balance of the Company's deferred tax asset. This income
tax expense is not a cash item and does not mean that the Company owes
income taxes, but rather that it no longer can demonstrate that in the
future it will likely be able to utilize the tax benefits of
previously generated net operating losses. The methodology for
determining the realizability of its deferred tax asset is a critical
accounting policy that has been described in the Company's SEC
filings. In summary, this methodology considers positive and negative
evidence regarding the Company's ability to generate sufficient future
taxable income to realize its deferred tax assets. Due in part to the
Company's recent cumulative tax loss history and the difficulty in
forecasting the timing of future revenue which could lead to positive
income on its financial statements and taxable income, the Company
determined it was necessary to increase the valuation allowance under
Statement of Financial Accounting Standards (SFAS) No. 109. If the
Company has taxable income in the future, any unexpired net operating
loss income tax carryforward amounts will be utilized to reduce
otherwise required income tax payments, and future tax expense, up to
the full amount of the deferred tax asset which is currently $13.7
million.
LaserCard(R) optical memory card revenues for the quarter ended
December 31, 2003 primarily included sales of Laser Visa Border
Crossing Cards manufactured for the U.S. government and sales of
Permanent Resident Cards made for the Canadian government. Shipments
of U.S. Permanent Resident Green Cards resumed under an order received
in December 2003. Additionally, the Company began shipping cards for
the Italian government's planned electronic national ID card program
(CIE card program) under card orders announced on July 28, 2003 and
December 16, 2003. Revenues also included the sale of 900 LaserCard
read/write drives and biometric verification systems software for the
U.S. Department of Homeland Security (DHS) under an order received in
October 2003.
Revenue on optical memory cards totaled $2,942,000 for the fiscal
2004 third quarter compared with $4,166,000 for the fiscal 2003 third
quarter. Revenue on read/write drives, drive accessories, and
maintenance totaled $2,490,000 for the fiscal 2004 third quarter
compared with $280,000 for the fiscal 2003 third quarter.
For the nine months ended December 31, 2003, the net loss was
$12,064,000, or $1.14 per share diluted, versus net income of
$2,431,000, or 22 cents per share diluted, for the nine months ended
December 31, 2002. Revenues for the first nine months of fiscal 2004
were $10,621,000 versus $21,446,000 for last year's first nine months.
Revenue on optical memory cards totaled $7,422,000 for the first
nine months of fiscal 2004 compared with $19,698,000 for the first
nine months of fiscal 2003. Revenue on read/write drives, drive
accessories, and maintenance totaled $3,076,000 for the fiscal 2004
first nine months compared with $616,000 for the fiscal 2003 first
nine months.
LaserCard(R) optical memory card product orders during the fiscal
2004 third quarter included the following:
-- On December 19, 2003, the Company announced receipt of a $2.6
million order for newly enhanced U.S. Permanent Resident Cards
(Green Cards) for the U.S. Department of Homeland Security.
The enhanced Green Card design beginning with this order
features new security technology, including the incorporation
of Drexler's high security optically variable device (OVD)
diffraction pattern into the card's optical media, additional
micro-images, and a new graphic design. This order was
received under the U.S. government five-year subcontract
awarded to the Company in June of 2000. The new order calls
for card deliveries from December 2003 through May 2004.
-- On December 16, 2003, the Company announced a $3.8 million
order for LaserCard optical memory cards to be used as Italy's
national ID card, called the CIE card (Carta d'Identica
Elettronica). Deliveries under the new order are scheduled to
be completed by June 2004. For an earlier, $2.4 million CIE
card order announced on July 28 2003, deliveries began in
November 2003 and should be completed by the end of March
2004.
-- On October 9, 2003, the Company announced receipt of an order
for 1,000 optical memory card read/write drives and biometric
verification systems software for the U.S. Visitor and
Immigration Status Indication Technology (US-VISIT) program.
These products were delivered in December 2003. The 1,000
drives and software systems are expected to be deployed by the
U.S. Department of Homeland Security (DHS) to air, land, and
sea ports of entry around the United States. They will enable
the DHS to read the encoded data on over 13 million U.S.
Permanent Resident Cards and Border Crossing Cards previously
manufactured by Drexler Technology and issued by the U.S.
government since 1998.
The following additional announcements were made during the third
quarter ended December 31, 2003:
-- On November 13, 2003, the Company announced that it had
entered into a Letter of Intent to acquire two related German
card companies, Challenge Card Design Plastikkarten GmbH of
Rastede, Germany, and cards & more GmbH of Ratingen, Germany,
including their sales operations in the USA and Korea. The
Letter of Intent calls for acquisition of substantially all of
the assets but not the liabilities of the two German companies
in exchange for assumption of approximately $500,000 of debt
and payment of approximately $5.5 million cash, consisting of
approximately $3 million payable at closing and approximately
$2.5 million payable in four equal annual installments.
Challenge Card Design (CCD) and cards & more (C&M) provide
advanced contactless card solutions, primarily in the
consumer, event, and access control sectors of the European
market. The final acquisition agreement is expected to be
signed and announced during the first calendar quarter of
2004, after (1) a due diligence period is completed, including
preparing financial statements for CCD and C&M in accordance
with accounting principles generally accepted in the United
States; (2) the terms and conditions of the definitive
agreement are negotiated; and (3) any required approvals are
obtained. CCD and C&M will continue serving their existing
customer base for card-related products. The addition of the
CCD card manufacturing plant in Rastede is expected to add
significant capacity and product flexibility to the Drexler
product line.
-- On December 26, 2003, the Company announced that it had
entered into an agreement to conduct an equity private
placement to institutional investors, with gross proceeds to
the Company of approximately $10.1 million. On December 30,
2003, the Company completed this equity private placement and
on January 23, 2004, the Company filed an S-3 registration
statement with the Securities and Exchange Commission covering
the resale of the common stock issued and issuable in such
financing. There can be no assurance that the Securities and
Exchange Commission will declare the registration statement
effective. Morgan Keegan & Company, Inc. acted as the
Company's exclusive placement agent for this transaction. The
Company presently intends to use the net proceeds from this
private placement (1) to purchase capital equipment and make
leasehold improvements to further expand Drexler's LaserCard
optical memory card production capacity, (2) for the planned
cash purchase of CCD and C&M, and (3) for general corporate
purposes. The value of the warrants and options issued was
treated as a liability, with the remaining financing proceeds
being allocated to value of the stock and being treated as
equity. Under Emerging Issues Tax Force (EITF) Issue No.
00-19, the Company marked-to-market the value of the warrants
and options at the end of the third quarter, resulting in
$118,000 recorded as other income. The Company is circulating
an amendment to the agreement that will result in ceasing to
classify the value of the warrants and options as a liability.
Upon the execution of the amendment by the Company and
investors, the Company will mark-to-market the value of the
warrants and options prior to their reclassification as
equity, with any difference from their last valuation being
recorded as other income or expense in the March 2004 quarter.
Including proceeds of the private placement discussed above, the
Company's cash, cash equivalents, short-term investments, and
long-term investments (maturities ranging from 1 to 2.5 years) were
$26,420,000 as of December 31, 2003 compared with $17,015,000 at March
31, 2003. As of December 31, 2003, there were 11,368,777 shares of
Drexler Technology Corporation common stock outstanding compared with
10,433,140 shares outstanding as of December 31, 2002.
Drexler Technology Corporation (www.drexlertechnology.com) and its
wholly owned subsidiary, LaserCard Systems Corporation
(www.lasercard.com), are based in Mountain View. Drexler manufactures
LaserCard(R) optical memory cards and chip-ready Smart/Optical(TM)
cards. LaserCard Systems manufactures optical card read/write drives;
develops optical card system software; and markets optical cards,
card-related data systems, and peripherals.
DREXLER TECHNOLOGY CORPORATION AND SUBSIDIARIES
SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In Thousands, Except per Share Data)
Three Months Ended Nine Months Ended
December 31, December 31,
2003 2002 2003 2002
-------- -------- --------- ---------
Revenue:
Product sales $ 5,467 $ 4,490 $ 10,621 $20,571
License and royalty
revenue -- 875 -- 875
-------- -------- --------- ---------
Total revenue 5,467 5,365 10,621 21,446
Cost of product sales 3,905 2,580 8,987 10,960
-------- -------- --------- ---------
Gross profit 1,562 2,785 1,634 10,486
-------- -------- --------- ---------
Selling, general, and
administrative expenses 1,560 1,566 4,971 4,574
Research and engineering
expenses 588 653 1,941 2,171
Other income, net 168 96 300 310
-------- -------- --------- ---------
Income (loss) before
income taxes (418) 662 (4,978) 4,051
Income tax expense 8,446 265 7,086 1,620
-------- -------- --------- ---------
Net income (loss) $(8,864) $ 397 $(12,064) $ 2,431
======== ======== ========= =========
Net income (loss) per
share:
Basic $ (.83) $ .04 $ (1.14) $ .24
Diluted $ (.83) $ .04 $ (1.14) $ .22
Weighted-average shares
used in computing net
income (loss) per share:
Basic 10,631 10,376 10,554 10,330
Diluted 10,631 10,788 10,554 10,915
DREXLER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In Thousands, Except Share and per Share Data)
Dec. 31, March 31,
2003 2003
-------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 17,917 $ 5,754
Short-term investments 2,559 4,363
Accounts receivable 1,324 1,659
Inventories 3,769 5,711
Deferred tax asset, net -- 2,689
Prepaid and other current assets 1,193 1,016
-------- --------
Total current assets 26,762 21,192
-------- --------
Property and equipment, at cost 25,073 23,204
Less -- accumulated depreciation
and amortization (15,482) (15,795)
-------- --------
Property and equipment, net 9,591 7,409
Long-term investments 5,944 6,898
Patents and other intangibles, net 465 567
Deferred tax asset, net -- 4,397
-------- --------
Total assets $ 42,762 $ 40,463
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,441 $ 1,085
Accrued liabilities 1,289 1,434
Advance payments from customers 4,133 1,096
Deferred revenue 231 5
-------- ---------
Total current liabilities 7,094 3,620
Long-term liabilities:
Warrants 1,111 --
-------- --------
Total liabilities 8,205 3,620
-------- --------
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 -- 10,443,192 shares at March 31, 2003
and 11,368,777 shares at December 31, 2003 114 104
Additional paid-in capital 52,324 42,556
Accumulated deficit (17,881) (5,817)
-------- --------
Total stockholders' equity 34,557 36,843
-------- --------
Total liabilities and
stockholders' equity $ 42,762 $ 40,463
======== ========
Forward-Looking Statements: All statements contained in this press
release that are not historical facts are forward-looking statements
that are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 and are not historical facts
or guarantees of future performance or events. Rather, they are based
on current expectations, estimates, beliefs, assumptions, and goals
and objectives and are subject to uncertainties that are difficult to
predict. As a result, our actual results may differ materially from
the statements made. Often such statements can be identified by their
use of words such as may, will, intends, plans, believes, anticipates,
visualizes, expects, and estimates. Forward-looking statements made in
this release include statements as to current and potential market
segments, customers, and applications for and deployment of the
Company's and CCD-C&M products; the Company's expectation that it will
complete the acquisition of CCD-C&M during the first calendar quarter
of 2004; statements as to the business benefits to the Company as a
result of the private placement and/or the acquisitions -- including
increased card production capacity and product flexibility; production
quantities, delivery rates and expected delivery schedule, backlog,
and revenue recognition for Company products for U.S. or foreign
government programs; statements as to potential deployment and use of
the Company's products in the DHS US-VISIT program; and the Company's
plans, objectives, and expected future economic performance. These
forward-looking statements are based upon our assumptions about and
assessment of the future, which may or may not prove true, and involve
a number of risks and uncertainties including, but not limited to,
whether there is a market for cards for homeland security and if so
whether such market will utilize optical memory cards as opposed to
other technology; risks associated with doing business in and with
foreign countries; whether the results of the CCD-C&M due diligence
will support the Company proceeding with the acquisition and whether
the Company and CCD-C&M can timely negotiate and execute an
acquisition agreement; lengthy sales cycles and changes in and
dependence on government policy-making; reliance on value-added
resellers and system integrators to generate sales, perform customer
system integration, develop application software, test products, and
work with governments to implement card programs; risks and
difficulties associated with development, manufacture, and deployment
of optical cards, drives, and systems; the possibility that optical
memory cards will not be selected for the full implementation of the
US-VISIT program or for new government programs abroad; the impact of
technological advances, competitive products, and general economic
trends; and whether the Company conducts its planned production
capacity expansion and acquisition of CCD-C&M; as well as other risk
factors detailed in the Company's Form 8-K, 10-K, and 10-Q filings
with the Securities and Exchange Commission. Due to these and other
risks, the Company's future actual results could differ materially
from the Company's expectations. These forward-looking statements
speak only as to the date of this release, and, except as required by
law, we undertake no obligation to publicly release updates or
revisions to these statements whether as a result of new information,
future events, or otherwise.
CONTACT: Drexler Technology Corp.
Steve Larson, 650-969-7277