<PAGE>   1
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q

[Mark One]
     [X]         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                For the Quarterly Period Ended September 30, 1997

                                       OR

    [ ]        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                        THE SECURITIES EXCHANGE ACT OF 1934
              For the Transition Period from_________to___________


                         Commission File Number: 0-6377


                         DREXLER TECHNOLOGY CORPORATION
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

            Delaware                                            77-0176309
 -------------------------------                           ------------------
(State or other jurisdiction of                             (I.R.S.  Employer
 ncorporation or organization)                             Identification No.)


1077 Independence Avenue, Mountain View, CA                     94043-1601
-------------------------------------------                     ----------
 (Address of principal executive offices)                       (Zip Code)


                                 (650) 969-7277
              ----------------------------------------------------
              (Registrant's telephone number, including area code)



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No


       Number of outstanding shares of Common Stock, $.01 par value, at October
28, 1997: 9,519,351



<PAGE>   2
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                 DREXLER TECHNOLOGY CORPORATION AND SUBSIDIARIES
             CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

    The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes the
disclosures which are made are adequate to make the information presented not
misleading. Further, the condensed consolidated financial statements reflect, in
the opinion of management, all adjustments (which included only normal recurring
adjustments) necessary to present fairly the financial position and results of
operations as of and for the periods indicated.

    It is suggested that these condensed consolidated financial statements be
read in conjunction with the financial statements and the notes thereto for the
year ended March 31, 1997 included in the Company's Form 10-K Annual Report.

    The results of operations for the three months ended September 30, 1997 are
not necessarily indicative of results to be expected for the entire year ending
March 31, 1998.

    NET INCOME (LOSS) PER SHARE: Earnings per share for the three- and six-month
periods ended September 30, 1997 is computed using the weighted average number
of shares of common stock outstanding and dilutive common stock equivalents
(using the treasury stock method). Loss per share for the three- and six-month
periods ended September 30, 1996 is computed using the weighted average number
of shares of common stock outstanding and does not include common stock
equivalents, as they are anti-dilutive.

    RECEIVABLE ON SALE OF COMMON STOCK: The Company records the receivable on
sale of common stock as a component of current assets when (i) the transaction
is entered into during the quarter, (ii) shares are outstanding for that
quarter, and (iii) payment is made within a reasonably short period of time of
the transaction and prior to statement issuance. The Company had a receivable of
this type at the end of the fiscal 1998 second quarter. Such receivable was
fully paid within two business days of quarter end.

    RECENT ACCOUNTING PRONOUNCEMENTS: In February 1997, the Financial Accounting
Standards Board (FASB) issued SFAS 128, "Earnings Per Share," which simplifies
the standards for computing earnings per share previously found in Accounting
Principles Board Opinion (APBO) No. 15. SFAS 128 replaces the presentation of
primary earnings per share with a presentation of basic earnings per share,
which excludes dilution. SFAS 128 also requires dual presentation of basic and
diluted earnings per share on the face of the income statement for all entitles
with complex capital structures and requires a reconciliation. Diluted earnings
per share is computed similarly to fully diluted earnings per share pursuant to
APBO No. 15. SFAS 128 must be adopted for financial statements issued for
periods ending after December 15, 1997, including interim periods; earlier
application is not permitted. SFAS 128 requires restatement of all prior-period
earnings per share data presented. The Company does not expect the adoption of
SFAS 128 to have a material impact on its financial statements.

    In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income,"
which becomes effective for fiscal years beginning after December 15, 1997. The
adoption of SFAS 130 is not expected to impact the Company's consolidated
financial position or results of operations.

    Also in June 1997, the FASB issued SFAS 131, "Disclosures about Segments of
an Enterprise and Related Information," which becomes effective for fiscal years
beginning after December 15, 1997. The Company has yet to determine the impact,
if any, of adoption of this new pronouncement.

    FISCAL PERIOD: For purposes of presentation, the Company has indicated its
accounting period as ending on March 31 and its interim quarterly periods as
ending on the corresponding month end. The Company, in fact, operates and
reports quarterly periods ending on the Friday closest to month end. The
three-month period ended October 3, 1997 (presented as September 30, 1997)
contained 14 weeks, whereas the three-month period ended September 27, 1996
(presented as September 30, 1996) contained 13 weeks.



                                       -2-

<PAGE>   3
                 DREXLER TECHNOLOGY CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

               (In thousands, except share and per share amounts)



<TABLE>
<CAPTION>
                                                                             March 31,     September 30,
                                                                               1997           1997
                                                                             --------       --------
                                                                                           (Unaudited)
<S>                                                                          <C>            <C>     
                                     Assets
Current assets:
   Cash and cash equivalents ..........................................      $  2,916       $  1,720
   Accounts receivable ................................................           615          1,298
   Receivable on sale of common stock .................................            --          1,900
   Inventories ........................................................           852          1,356
   Other current assets ...............................................           205            235
                                                                             --------       --------
      Total current assets ............................................         4,588          6,509
                                                                             --------       --------

Property and equipment, at cost .......................................        13,404         14,229
   Less--accumulated depreciation and amortization ....................       (11,790)       (11,992)
                                                                             --------       --------
      Property and equipment, net .....................................         1,614          2,237

Patents, net ..........................................................           887            839
                                                                             --------       --------

         Total assets .................................................      $  7,089       $  9,585
                                                                             ========       ========


                      Liabilities and Stockholders' Equity

Current liabilities:
   Accounts payable ...................................................      $    501       $    876
   Accrued payroll costs ..............................................           230            284
   Advance payments from customers ....................................         2,183          1,018
   Other accrued liabilities ..........................................           116             82
                                                                             --------       --------
      Total current liabilities .......................................         3,030          2,260
                                                                             --------       --------

Stockholders' equity:
   Preferred stock, $.01 par value:
      Authorized--2,000,000 shares
      Outstanding--none ...............................................            --             --
   Common stock, $.01 par value:
      Authorized--15,000,000 shares
      Outstanding--9,150,416 shares at March 31, 1997 and
          9,519,351 shares at September 30, 1997 ......................            91             95
Additional paid-in capital ............................................        31,516         34,476
Accumulated deficit ...................................................       (27,548)       (27,246)
                                                                             --------       --------
      Total stockholders' equity ......................................         4,059          7,325
                                                                             --------       --------

         Total liabilities and stockholders' equity ...................      $  7,089       $  9,585
                                                                             ========       ========
</TABLE>



                                       -3-

<PAGE>   4
                 DREXLER TECHNOLOGY CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

               (In thousands, except share and per share amounts)


<TABLE>
<CAPTION>
                                                        Three Months Ended        Six Months Ended
                                                           September 30,             September 30,
                                                        1996         1997          1996           1997
                                                      -------       -------       -------       -------
<S>                                                   <C>           <C>           <C>           <C>    
Revenues .......................................      $ 1,018       $ 2,902       $ 1,636       $ 4,391
                                                      -------       -------       -------       -------
Costs and expenses:
   Cost of sales ...............................          675         1,613         1,098         2,505
   Selling, general, and administrative expenses          578           744         1,212         1,392
   Research and engineering expenses ...........          211           112           447           223
                                                      -------       -------       -------       -------
      Total costs and expenses .................        1,464         2,469         2,757         4,120
                                                      -------       -------       -------       -------

        Operating income (loss) ................         (446)          433        (1,121)          271

Other income and expense:
   Other income (expense), net .................            5            18            20            (5)
   Interest income .............................            5            21            21            51
   Interest expense ............................           (1)           (1)           (3)           (3)
                                                      -------       -------       -------       -------
      Total other income, net ..................            9            38            38            43
                                                      -------       -------       -------       -------

        Income (loss) before income taxes ......         (437)          471        (1,083)          314

Provision for income taxes .....................           --            11            --            12
                                                      -------       -------       -------       -------

        Net income (loss) ......................      $  (437)      $   460       $(1,083)      $   302
                                                      =======       =======       =======       =======

Net income (loss) per share ....................      $ (0.05)      $  0.05       $ (0.12)      $  0.03
                                                      =======       =======       =======       =======

Weighted average number of common
and common equivalent shares ...................        8,942         9,525         8,895         9,355
                                                      =======       =======       =======       =======
</TABLE>



                                       -4-

<PAGE>   5
                 DREXLER TECHNOLOGY CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                                 (In thousands)


<TABLE>
<CAPTION>
                                                                          Three Months Ended
                                                                            September 30,
                                                                         1996          1997
                                                                        -------       -------
<S>                                                                     <C>           <C>    
Cash flows from operating activities:
   Net income (loss) .............................................      $(1,083)      $   302
   Adjustments to reconcile net income (loss) to net cash used
        for operating activities:
      Depreciation and amortization ..............................          244           292
      Compensation on stock plan activity ........................            7            14
   Changes in operating assets and liabilities:
      (Increase) decrease in accounts receivable .................          377          (683)
      Increase in inventories ....................................         (498)         (504)
      Increase in other assets ...................................          (19)          (30)
      (Decrease) increase in accounts payable and accrued expenses         (950)          395
      (Decrease) increase in advance payments from customers
        and deferred revenue .....................................            4        (1,165)
                                                                        -------       -------

        Net cash used for operating activities ...................       (1,918)       (1,379)
                                                                        -------       -------

Cash flows from investing activities:
   Purchase of property and equipment ............................         (161)         (827)
   Increase in patents ...........................................          (41)          (40)
                                                                        -------       -------

        Net cash used for investing activities ...................         (202)         (867)
                                                                        -------       -------

Cash flows from financing activities:
   Proceeds from sale of common stock ............................        1,665         1,050
                                                                        -------       -------

        Net cash provided by financing activities ................        1,665         1,050
                                                                        -------       -------

        Net decrease in cash and cash equivalents ................         (455)       (1,196)

Cash and cash equivalents:
   Beginning of period ...........................................        2,094         2,916
                                                                        -------       -------
   End of period .................................................      $ 1,639       $ 1,720
                                                                        =======       =======
</TABLE>



                                       -5-

<PAGE>   6
ITEM 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
              AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS--FISCAL 1998 SECOND QUARTER AND FIRST SIX MONTHS
COMPARED WITH FISCAL 1997 SECOND QUARTER AND FIRST SIX MONTHS

Revenues

    For the fiscal 1998 second quarter ended September 30, 1997, the Company's
total revenues were $2,902,000 compared with $1,018,000 for last year's second
quarter. Total revenues for the current six-month period were $4,391,000
compared with $1,636,000 for the same period last year.

    PRODUCT SALES. Sales of LaserCard(R) optical memory cards and related
products to value-added resellers (VARs), licensees, and end-user customers were
$3,961,000 for the first six months of fiscal 1998 compared with $1,622,000 for
last year's comparable period. The Company sold 202 reader/writer units for the
fiscal 1998 first six months compared with 195 reader/writer units for the first
six months of fiscal 1997.

    Optical memory card sales for the fiscal 1998 first six months were 850,000
cards compared with 183,000 cards for last year's first six months. The increase
in sales of optical memory cards resulted primarily from a $7.1 million order
received in February 1997 for 2 million optical memory cards for the U.S.
Immigration and Naturalization Service (INS). Of these, approximately 608,000
cards were delivered during the first six months of fiscal 1998. Deliveries
under this order are expected to average approximately 200,000 cards per month.

    Applications for the Company's optical memory card products include: medical
data applications in the United States; various programs in Europe and Asia; two
programs in the Philippines--an admission pass/retail purchase log at a
duty-free shopping zone and a vehicle warranty and maintenance records card; and
United States government-related programs--the U.S. Department of Defense
"automated manifest card" and the U.S. Immigration and Naturalization Service
"border crossing card" and "green card."

    For the development of commercial markets and applications for its products,
the Company utilizes VAR companies as part of its marketing and distribution
program for LaserCard products. Sales to VARs include the Company's optical
memory cards, the Company's system software, optical card reader/writers made by
a licensee of the Company, and add-on peripherals made by other companies (such
as equipment for adding a digitized photo, fingerprint, hand template, or
signature to the cards). The VARs may add application software, personal
computers, and other peripherals, and then resell these products, integrated
into data systems, for end-user customers.

    There can be no assurances that any new or existing VAR company in any
country will be successful in its markets or field trials or that it will place
follow-on orders with the Company for additional quantities of cards and
systems. In order to upgrade its VAR customer base to increase the probability
of success, the Company will continue its efforts to recruit new VARs and
eliminate nonproductive ones. The Company provides marketing leads, customer
technical support, and system software to assist VARs.

    Software is an important factor in developing the commercial markets for
optical memory cards. The Company's system software consists of optical card
interface software/device drivers, file systems, software development tools, and
demonstration software. The Company does not provide software for specific
applications, but instead depends on its VARs to integrate optical card products
into existing software products, write new application software for specific
optical card programs, or license software from other VARs. Several VARs have
written optical card software programs for applications such as automobile
warranty and maintenance records, cargo manifesting, digital optical key
systems, admissions/ID, data logging systems, and various medical-related
applications such as medical image storage and health history cards. Other
application software development is underway by VARs and their customers.



                                       -6-

<PAGE>   7
    Optical memory cards are used in conjunction with card reader/writer
equipment connected to personal computers and accessed in the same manner as
floppy disk drives. Such reader/writers are incorporated into LaserCard systems
sold to VARs and other customers of the Company. The price, performance, and
availability of such reader/writers are factors in the commercialization of
optical cards. The Company sells reader/writers for a few thousand dollars per
unit, and these units generally include the Company's interface software/device
drivers.

    The Company does not manufacture card reader/writers but instead continues
to purchase such equipment from a Japanese licensee, Nippon Conlux Co., Ltd.,
currently the Company's sole supplier of reader/writers. The Company's inventory
level for reader/writers fluctuates based on the timing of purchases and sales
and is typically approximately 50 to 75 units. The Company can give no assurance
that increased production of card reader/writers will occur in the near term or
that high-volume sales and correspondingly lower prices will result. If market
demand increases sharply over a short period of time, an initial shortage of
reader/writers could result. Also, an interruption or change in the supply of
reader/writers could cause a delay in product shipments and a possible loss of
sales, which would adversely affect operating results.

    DEVELOPMENT CONTRACT. Under a customer-funded development contract for a
multi-technology workstation, development contract revenues were $365,000 for
the second quarter of fiscal 1998 and $420,000 for the fiscal 1998 first six
months versus no revenue of this type in the previous fiscal year. Upon
completion of the development program, revenues of $500,000 to $800,000 will
have been recorded on this contract, and the Company does not anticipate
material ongoing revenues of this type in the future.

    LICENSES. There were no licenses sold in the fiscal 1998 or fiscal 1997
first six months. The Company no longer relies on license fees to finance
operations.

    ROYALTIES. Royalty revenues were $10,000 for the first six months of fiscal
1998 compared with $14,000 for the same period last year. The Company cannot
predict whether or when equipment or card sales by its licensees will result in
material royalties to the Company. Therefore, the Company is not relying on
royalty income and does not expect it to be a significant factor in the near
term.

Backlog

    As of September 30, 1997, the backlog for optical memory cards was
approximately $5.3 million, or 1.5 million cards. This backlog includes 1.4
million cards scheduled for shipment at the rate of approximately 200,000 card
per month through March of 1998, under the INS contract described on the
preceding page. As is the case in all U.S. government procurement, the
government reserves the right to change specifications, delay deliveries, and
cancel all or part of the order.

Margins

    The gross margin on product sales and the development contract revenues for
the first six months of fiscal 1998 was 43% compared with 32% for the prior-year
period. The Company believes that gross margins for the remainder of fiscal 1998
will continue at levels above fiscal 1997, due to higher production volumes. The
gross margin on optical memory card sales will fluctuate based upon type and
volume of cards sold. With the increase in card manufacturing for commercial
orders, the Company's optical memory card manufacturing facility is used less
for the purposes of research and engineering. Therefore, more of the
manufacturing facility costs (depreciation expense, building lease payments, and
other costs) are allocated to cost of card manufacturing, and less of these
costs are charged to research and engineering. For the first six months of
fiscal 1998, the Company allocated substantially all of the facility expenses to
card manufacturing versus approximately 49% of these expenses for last year's
first six months.

Income and Expenses

    SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES (SG&A). For the fiscal 1998
second quarter and first six months, SG&A expenses were $744,000 and $1,392,000,
respectively, compared with $578,000 and $1,212,000, respectively, for the
second quarter and first six months of fiscal 1997. The $180,000 increase in
expenses for the first



                                       -7-

<PAGE>   8
six months of fiscal 1998 is due mainly to a $109,000 increase in payroll
expenses and a $38,000 bad-debt reserve. The Company's plans include increased
marketing and customer technical support activity, to be implemented during
fiscal 1998.

    RESEARCH AND ENGINEERING EXPENSES. Research and engineering expenses were
$112,000 and $223,000, respectively, for the second quarter and first six months
of fiscal 1998 compared with $211,000 and $447,000, respectively, for the
year-earlier periods. The expense reduction is due primarily to accounting for
facility costs rather than an actual reduction in research and engineering. The
optical memory card facility is used for both engineering and manufacturing.
Therefore, the facility costs (depreciation expense, building lease payments,
and other costs) are allocated between manufacturing and engineering based upon
the level of activity in the respective areas. Substantially all of these
expenses were allocated to card production during the first six months of fiscal
1998 because of the substantial increase in card production. During the first
six months of fiscal 1997, approximately half of these expenses were allocated
to research and engineering.

    The Company continues to undertake ongoing research and engineering project
activities. However, research and engineering expenses for fiscal year 1998 are
expected to be less than for fiscal year 1997, as optical card production
increases and card manufacturing resources are allocated to card production to a
greater degree than last fiscal year. Future projects will require increased
spending as the optical card industry grows.

    OTHER INCOME AND EXPENSE. Net other income for the first six months of
fiscal 1998 was $43,000 compared with $38,000 for the first six months of fiscal
1997. The Company purchases Japanese yen for payment of reader/writers purchased
from a Japanese supplier. Thus, the Company's normal operations are subject to
gains or losses on fluctuations in the yen/dollar exchange rate. Net other
income for the fiscal 1998 first six months included a $5,000 loss on foreign
currency exchange versus a $20,000 gain on foreign currency exchange during the
comparable period last year.

    Interest income for the first six months of fiscal 1998 was $51,000 compared
with $21,000 for the year-earlier period, due to changes in average invested
funds. The Company's interest expense on short-term loans was $3,000 for the
first six months of fiscal 1998 and fiscal 1997.

LIQUIDITY

    As of September 30, 1997, the Company had cash and cash equivalents of
$1,720,000, a current ratio of 2.9 to 1, and no long-term debt. Net cash used
for operating activities was $1,379,000 for the fiscal 1998 first six months
compared with $1,918,000 for the first six months of fiscal 1997. The net cash
used for operating activities during the first six months of fiscal 1998
consisted of $608,000 provided by revenues less expenses, minus $1,987,000 used
for changes in operating assets and liabilities. The cash used for changes in
operating assets and liabilities consisted of a $683,000 increase in accounts
receivable, a $504,000 increase in inventories, and a $1,165,000 decrease in
advance payments from customers, partially offset by a $365,000 change in other
items.

    The current level of revenues is sufficient to generate cash from operations
after expenses, primarily due to the INS order. Fluctuations in operating assets
and liabilities will use cash in some quarters and provide cash in other
quarters. If the INS order is not renewed and there are delays in other
customers' development of optical-card based programs and corresponding
commercialization of the Company's optical cards and related products, losses
could recur.

    Cash increased to approximately $3,600,000 on October 7, 1997, from the
receipt of $1,900,000 in payment for 200,000 shares of common stock, split
amongst three investors in private-placement transactions entered into during
the Company's fiscal 1998 second quarter. The Company has agreed to file an S-3
registration statement covering these shares in the near future. At such time as
the SEC approves the registration statement, the shareholders may resell the
shares on the open market.



                                       -8-

<PAGE>   9
    The Company has not established a line of credit. Generally, the Company's
customers make advance payments, in whole or in part, at the time of order
placement because the Company's optical memory cards are usually made to custom
specifications that are specific to each customer, end user, or application. The
Company believes that although working capital requirements should grow in
proportion to product shipment levels, the advance payments will reduce the need
for working capital financing. The Company may negotiate a line of credit if and
when it becomes appropriate, although no assurance can be made that such
financing would be available, if needed.

    At September 30, 1997, the Company's accumulated deficit was reduced to
$27,246,000, as a result of the profit recorded for the first six months of
fiscal 1998. Stockholders' equity increased 80%, or $3,266,000, to $7,325,000
during the first six months of fiscal 1998 due to the $302,000 profit, the
$1,900,000 private placement investment, and $1,064,000 received by the Company
for stock issued under the Employee Stock Purchase Plan and the 1991 Stock
Option Plan.

    The Company's total deferred income tax asset was $16,114,000 at March 31,
1997. If utilized, the total deferred income tax asset would reduce future tax
expense and payments. Included are amounts derived from federal income tax net
operating losses that will expire at various dates from 2001 through 2012,
amounts from state income tax net operating losses that will expire at various
dates from 1998 through 2002, and amounts from tax credits that will expire from
2000 through 2004. The ability of the Company to utilize this deferred tax asset
is contingent upon generating sufficient income within the stated time periods.
In view of the uncertain value of this asset, the Company has recorded a full
valuation allowance against it; therefore, no part of the total deferred tax
asset of $16,114,000 has been added to stockholders' equity on the Company's
balance sheet.

    The Company is planning to install an additional $3 million of capital
equipment and leasehold improvements in its card production facility by the end
of July 1998. These assets are for the production of advanced optical cards with
new features and for manufacturing-process improvements and will result in a
production capacity of 8 million cards annually. The Company believes that an
additional investment of about $7 million in production equipment and automatic
inspection equipment may be required to produce the more advanced optical cards
at rates approximating 25 million cards per year. Currently, the Company intends
to purchase such equipment incrementally as commercial orders for optical memory
cards justify increased production capacity. The Company will make additional
capital expenditures for cost savings and other purposes.

    During the fiscal 1998 first six months, Company employees and consultants
purchased from the Company 165,250 shares of registered common stock, at an
average price of $6.18 per share, through the exercise of stock options under
the Company's 1991 Stock Option Plan, which resulted in additional cash receipts
to the Company of $1,020,000. As of September 30, 1997, Company employees and
consultants held unexercised, vested, in-the-money options to purchase 560,817
shares of common stock at exercise prices ranging from $4.56 to $10.75 per
share, for an average of $7.27 per share. These stock options, if exercised,
would provide the Company with cash in the amount of $4,079,000.


                           FORWARD-LOOKING STATEMENTS

    Certain statements made above relating to plans, objectives, and economic
performance go beyond historical information and may provide an indication of
future results. To that extent, they are forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and
each is subject to factors that could cause actual results to differ from those
in the forward-looking statement. In particular, the ability of the Company to
maintain a profitable level of optical memory card sales is subject to risks and
uncertainties with respect to customer diversification, customer expansion, the
economic availability of reader/writers, the implementation of ongoing
commercial applications by customers, and the economic configuration and
operation of the Company's card manufacturing facility for increased output
levels. Such factors are described in the Company's Report on Form 10-K and
other documents filed by the Company from time to time with the Securities and
Exchange Commission.



                                       -9-

<PAGE>   10
PART II.      OTHER INFORMATION

ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    At the Company's September 26, 1997 Annual Meeting of Stockholders, the
Company's stockholders (i) re-elected the Board of Directors; and (ii) approved
an amendment to the 1991 Stock Option Plan to increase in the number of shares
reserved thereunder by 450,000 shares.

    Of the 9,238,066 shares outstanding as of the record date of August 1, 1997,
8,437,682 shares were voted by proxy, equaling 92.30% and constituting a quorum.
On the election of directors, votes cast for the election of Messrs. Jerome
Drexler, Arthur Hausman, and William E. McKenna were 8,117,759; 8,116,080; and
8,116,080, respectively, and votes withheld were 400,130; 401,809; and 401,809,
respectively. On the amendment of the 1991 Stock Option Plan, 7,766,215 shares
were voted in favor; there were 652,975 negative votes and 98,299 abstentions;
and broker non-votes totalled 710,177.

    There were no other matters submitted to a vote of security holders during
the quarter for which this report is filed.

ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K

      (a)     Exhibit No.    Exhibit Description

                10.1         Amended "1991 Stock Option Plan"
                             (Approved by Stockholders on September 26, 1997)

                27           Financial Data Schedule

              The above-listed exhibits are filed herewith. No other exhibits
are included in this report as the contents of the required exhibits are either
not applicable to Registrant, to be provided only if Registrant desires, or
contained elsewhere in this report.

      (b) No reports on Form 8-K were filed by Registrant during the quarter for
which this report is filed.

SIGNATURES

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

                                       DREXLER TECHNOLOGY CORPORATION
                                      (Registrant)


Date:    November 3, 1997              /s/Jerome Drexler
                                       ---------------------------------------
                                       Jerome Drexler, Chairman of the Board 
                                       of Directors and Chief Executive Officer
                                       (Principal Executive Officer)

Date:    November 3, 1997              /s/Steven G. Larson
                                       ---------------------------------------
                                       Steven G. Larson, Vice President of 
                                       Finance and Treasurer (Principal 
                                       Financial Officer and Principal 
                                       Accounting Officer)



                                      -10-
<PAGE>   11
                                  EXHIBIT INDEX

Ex. 10.1      Amended "1991 Stock Option Plan"
              (Approved by Stockholders on September 26, 1997)

Ex. 27         Financial Data Schedule