##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2005
 OR
 o
    
    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 000-31103
 LEXAR MEDIA, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
(State or other jurisdiction of
incorporation or organization)
    
    33-0723123
(I.R.S. Employer Identification No.)
 47300 Bayside Parkway
Fremont, California
(Address of principal executive offices)
    
    94538
(Zip Code)
 (510) 413-1200
(Registrants telephone number, including area code)
 
 þ o
 þ o
 o þ




---



LEXAR MEDIA, INC.
 FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2005
 TABLE OF CONTENTS
 PagePART I FINANCIAL INFORMATION3Item 1. Financial StatementsCondensed Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004 (unaudited)
    
    
    3Condensed Consolidated Statements of Operations for the Three-Month and Nine-Month Periods
Ended September 30, 2005 and September 30, 2004 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30,
2005 and September 30, 2004 (unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    53Item 4. Controls and Procedures
    
    
    54PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    56Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    59Item 3. Defaults Upon Senior Securities
    
    
    59Item 4. Submission of Matters to a Vote of Security Holders
    
    
    59Item 5. Other Information
    
    
    59Item 6. Exhibits
    
    
    59SIGNATURE
    
    
    60EXHIBIT 10.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
   2




---



##### Table of Contents



PART I-FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 LEXAR MEDIA, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
 September 30,
    
    
    December 31,2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    151,340
    
    
    $
    27,705Restricted cash
    
    
    5,000
    
    
    
    5,000Short-term investments
    
    
    1,000
    
    
    
    7,738Accounts receivable, net of allowances for sales returns, discounts
and doubtful accounts of $11,298 and $16,085, respectively
    
    
    65,905
    
    
    
    170,365Inventories
    
    
    155,336
    
    
    
    177,655Prepaid expenses and other current assets
    
    
    10,590
    
    
    
    12,799Total current assets
    
    
    389,171
    
    
    
    401,262Property and equipment, net
    
    
    11,745
    
    
    
    10,305Intangible assets, net
    
    
    246
    
    
    
    347Other assets
    
    
    2,917
    
    
    
    82Total assets
    
    $
    404,079
    
    
    $
    411,996LIABILITIES AND STOCK HOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    131,434
    
    
    $
    163,341Accrued liabilities
    
    
    42,398
    
    
    
    70,029Deferred license revenue and product margin
    
    
    25,952
    
    
    
    23,759Notes payable to bank
    
    
    29,087
    
    
    
    40,000Total current liabilities
    
    
    228,871
    
    
    
    297,129Deferred license revenue, net of current portion
    
    
    
    
    
    
    173Senior convertible notes payable
    
    
    70,000
    
    
    
    Total liabilities
    
    
    298,871
    
    
    
    297,302Contingencies (Note 11)Stockholders equity:Preferred stock, $0.0001 par value: 10,000,000 shares authorized; no
shares issued and outstanding
    
    
    
    
    
    
    Common stock, $0.0001 par value: 200,000,000 shares authorized;
80,476,716 and 79,234,651 shares issued and outstanding
    
    
    8
    
    
    
    8Additional paid-in capital
    
    
    285,130
    
    
    
    282,501Accumulated deficit
    
    
    (179,886
    )
    
    
    (167,465
    )Accumulated other comprehensive loss
    
    
    (44
    )
    
    
    (350
    )Total stockholders equity
    
    
    105,208
    
    
    
    114,694Total liabilities and stockholders equity
    
    $
    404,079
    
    
    $
    411,996
  3




---



##### Table of Contents



LEXAR MEDIA, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net revenues:Product revenues
    
    $
    184,868
    
    
    $
    164,069
    
    
    $
    607,370
    
    
    $
    487,255License and royalty revenues
    
    
    4,530
    
    
    
    1,152
    
    
    
    6,293
    
    
    
    5,891Total net revenues
    
    
    189,398
    
    
    
    165,221
    
    
    
    613,663
    
    
    
    493,146Cost of product revenues
    
    
    160,829
    
    
    
    141,650
    
    
    
    529,808
    
    
    
    434,641Gross margin
    
    
    28,569
    
    
    
    23,571
    
    
    
    83,855
    
    
    
    58,505Operating expenses:Research and development
    
    
    3,172
    
    
    
    2,484
    
    
    
    9,518
    
    
    
    7,170Sales and marketing
    
    
    14,577
    
    
    
    16,180
    
    
    
    50,730
    
    
    
    41,348General and administrative
    
    
    8,444
    
    
    
    8,292
    
    
    
    32,415
    
    
    
    20,245Total operating expenses
    
    
    26,193
    
    
    
    26,956
    
    
    
    92,663
    
    
    
    68,763Income (loss) from operations
    
    
    2,376
    
    
    
    (3,385
    )
    
    
    (8,808
    )
    
    
    (10,258
    )Other income (expense):Interest and other expense
    
    
    (1,368
    )
    
    
    (363
    )
    
    
    (3,221
    )
    
    
    (710
    )Interest and other income
    
    
    721
    
    
    
    243
    
    
    
    1,306
    
    
    
    671Foreign exchange gain (loss), net
    
    
    272
    
    
    
    344
    
    
    
    (66
    )
    
    
    (518
    )Total other income (expense)
    
    
    (375
    )
    
    
    224
    
    
    
    (1,981
    )
    
    
    (557
    )Income (loss) before income taxes
    
    
    2,001
    
    
    
    (3,161
    )
    
    
    (10,789
    )
    
    
    (10,815
    )Income taxes (benefit)
    
    
    (90
    )
    
    
    355
    
    
    
    1,632
    
    
    
    1,369Net income (loss)
    
    $
    2,091
    
    
    $
    (3,516
    )
    
    $
    (12,421
    )
    
    $
    (12,184
    )Net income (loss) per common share  basic:
    
    $
    0.03
    
    
    $
    (0.04
    )
    
    $
    (0.16
    )
    
    $
    (0.15
    )Net income (loss) per common share  diluted:
    
    $
    0.02
    
    
    $
    (0.04
    )
    
    $
    (0.16
    )
    
    $
    (0.15
    )Shares used in computing net loss per common share  basic:
    
    
    80,307
    
    
    
    79,092
    
    
    
    79,888
    
    
    
    78,745Shares used in computing net loss per common share  diluted:
    
    
    85,753
    
    
    
    79,092
    
    
    
    79,888
    
    
    
    78,745
  4




---



##### Table of Contents



LEXAR MEDIA, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004Cash flows from operating activities:Net loss
    
    $
    (12,421
    )
    
    $
    (12,184
    )Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
    
    
    Depreciation and amortization
    
    
    3,170
    
    
    
    1,628Amortization of short-term investment premium
    
    
    
    
    
    
    49Loss on disposition of assets
    
    
    
    
    
    
    51Tax benefit from stock option and employee stock purchase plans
    
    
    
    
    
    
    466Provision to record inventory at net realizable value
    
    
    12,032
    
    
    
    2,790Amortization of deferred financing costs
    
    
    491
    
    
    
    Change in operating assets and liabilities:Accounts receivable, net
    
    
    102,726
    
    
    
    (17,042
    )Inventories
    
    
    8,320
    
    
    
    (33,933
    )Prepaid expenses and other assets
    
    
    2,764
    
    
    
    (4,560
    )Accounts payable and accrued liabilities
    
    
    (55,293
    )
    
    
    40,578Deferred license revenue and product margin
    
    
    1,990
    
    
    
    (8,584
    )Net cash provided by (used in) operating activities
    
    
    63,779
    
    
    
    (30,741
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (4,578
    )
    
    
    (4,010
    )Proceeds from sale or maturity of short-term investments
    
    
    8,738
    
    
    
    6,600Purchase of short-term investments
    
    
    (2,000
    )
    
    
    (25,910
    )Net cash provided by (used in) in investing activities
    
    
    2,160
    
    
    
    (23,320
    )Cash flows from financing activities:Issuance of stock under employee stock purchase plan
    
    
    1,835
    
    
    
    1,198Exercise of stock options
    
    
    851
    
    
    
    1,805Proceeds from issuance of convertible promissory notes net of issuance costs
    
    
    66,254
    
    
    
    Proceeds from asset-based notes payable to bank, net of issuance costs
    
    
    28,507
    
    
    
    Repayment of revolving credit notes payable to bank
    
    
    (40,000
    )
    
    
    Repayment of notes receivable from stockholders
    
    
    
    
    
    
    412Net cash provided by financing activities
    
    
    57,447
    
    
    
    3,415Effect of foreign currency exchange rates on cash and cash equivalents
    
    
    249
    
    
    
    139Net increase (decrease) in cash and cash equivalents
    
    
    123,635
    
    
    
    (50,507
    )Cash and cash equivalents at beginning of period
    
    
    27,705
    
    
    
    115,698Cash and cash equivalents at end of period
    
    $
    151,340
    
    
    $
    65,191
  5




---



##### Table of Contents



LEXAR MEDIA, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1-Basis of Presentation
    Note 2-Third Quarter Adjustment Relating to Prior Periods
  Note 3-Summary of Selected Accounting Policies
 Revenue Recognition
    6




---



##### Table of Contents



License and Royalty Revenues
    Deferred Taxes
  Short-Term Investments
  7




---



##### Table of Contents



Shipping and Handling Costs
  8




---



##### Table of Contents



Accounting for Stock-based Compensation
    Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine Monthsended
    
    
    ended
    
    
    ended
    
    
    endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004As reported:Net income (loss)
    
    $
    2,091
    
    
    $
    (3,516
    )
    
    $
    (12,421
    )
    
    $
    (12,184
    )Add: Stock based compensation expense (reversal)
included in reported net income (loss)
    
    
    
    
    
    
    
    
    
    
    (56
    )
    
    
    Less: Pro forma compensation expense determined based
on fair value, net of tax
    
    
    (5,677
    )
    
    
    (6,661
    )
    
    
    (12,972
    )
    
    
    (18,564
    )Pro forma net loss
    
    $
    (3,586
    )
    
    $
    (10,177
    )
    
    $
    (25,449
    )
    
    $
    (30,748
    )Net income (loss) per common sharebasic, as reported
    
    $
    0.03
    
    
    $
    (0.04
    )
    
    $
    (0.16
    )
    
    $
    (0.15
    )Net income (loss) per common sharebasic, pro forma
    
    $
    (0.04
    )
    
    $
    (0.13
    )
    
    $
    (0.32
    )
    
    $
    (0.39
    )Net income (loss) per common sharediluted, as reported
    
    $
    0.02
    
    
    $
    (0.04
    )
    
    $
    (0.16
    )
    
    $
    (0.15
    )Net income (loss) per common sharediluted, pro forma
    
    $
    (0.04
    )
    
    $
    (0.13
    )
    
    $
    (0.32
    )
    
    $
    (0.39
    )
  Three Months
    
    Three Months
    
    Three Months
    
    Three Months
    
    Nine Months
    
    Nine Months
    
    Nine Months
    
    Nine Monthsended
    
    ended
    
    ended
    
    ended
    
    ended
    
    Ended
    
    ended
    
    EndedSeptember
    
    September
    
    September
    
    September
    
    September
    
    September
    
    September
    
    September30, 2005
    
    30, 2004
    
    30, 2005
    
    30, 2004
    
    30, 2005
    
    30, 2005
    
    30, 2004
    
    30, 2004Options
    
    Options
    
    ESPP
    
    ESPP
    
    Options
    
    ESPP
    
    Options
    
    ESPPWeighted average fair value per option
    
    $
    3.98
    
    
    $
    3.97
    
    
    $
    2.67
    
    
    $
    1.62
    
    
    $
    3.64
    
    
    $
    1.91
    
    
    $
    6.94
    
    
    $
    2.05Risk free interest rate
    
    
    3.96
    %
    
    
    3.35
    %
    
    
    3.74
    %
    
    
    1.83
    %
    
    
    3.70
    %
    
    
    3.05
    %
    
    
    3.56
    %
    
    
    1.70
    %Expected life (years)
    
    
    4.08
    
    
    
    4.06
    
    
    
    1.25
    
    
    
    0.58
    
    
    
    4.03
    
    
    
    1.25
    
    
    
    4.12
    
    
    
    0.8Expected stock price volatility
    
    
    98
    %
    
    
    93
    %
    
    
    107
    %
    
    
    89
    %
    
    
    90
    %
    
    
    88
    %
    
    
    92
    %
    
    
    87
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 9




---



##### Table of Contents



Product Warranties
   Product Revenues
   Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine Monthsended
    
    
    ended
    
    
    ended
    
    
    endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Digital media
    
    $
    136,390
    
    
    $
    160,769
    
    
    $
    491,693
    
    
    $
    474,965Controller, digital media accessories and other components
    
    
    48,478
    
    
    
    3,300
    
    
    
    115,677
    
    
    
    12,290Product revenues
    
    $
    184,868
    
    
    $
    164,069
    
    
    $
    607,370
    
    
    $
    487,255
 Note 4-Restricted Cash
  Note 5-Balance Sheet Disclosures (in thousands):
  September 30,
    
    
    December 31,2005
    
    
    2004Inventories:Raw materials
    
    $
    44,047
    
    
    $
    16,981Controllers
    
    
    7,242
    
    
    
    9,848Digital media products
    
    
    102,167
    
    
    
    147,909Ancillary products
    
    
    1,880
    
    
    
    2,917$
    155,336
    
    
    $
    177,655
 10




---



##### Table of Contents



Note 6-Net Income (Loss) Per Common Share (in thousands, except per share data):
  Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine Monthsended
    
    
    ended
    
    
    ended
    
    
    endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Numerator for basic and diluted net income (loss) per common share:Net income (loss)
    
    $
    2,091
    
    
    $
    (3,516
    )
    
    $
    (12,421
    )
    
    $
    (12,184
    )Denominator for basic and diluted net income (loss) per common share:Weighted average common shares outstanding, basic
    
    
    80,307
    
    
    
    79,092
    
    
    
    79,888
    
    
    
    78,745Incremental common shares attributable to exercise of outstand stock
options and warrants (assuming proceeds would be used to purchase
common stock)
    
    
    5,446
    
    
    
    
    
    
    
    
    
    
    
    Weighted average common shares outstanding, diluted
    
    
    85,753
    
    
    
    79,092
    
    
    
    79,888
    
    
    
    78,745Net income (loss) per common share-basic
    
    $
    0.03
    
    
    $
    (0.04
    )
    
    $
    (0.16
    )
    
    $
    (0.15
    )Net income (loss) per common share- diluted
    
    $
    0.02
    
    
    $
    (0.04
    )
    
    $
    (0.16
    )
    
    $
    (0.15
    )
 Anti-dilutive Securities
  Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine Monthsended
    
    
    ended
    
    
    ended
    
    
    endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Weighted average shares under warrants for common stock
    
    
    
    
    
    
    41
    
    
    
    21
    
    
    
    41Weighted average shares under options for common stock
    
    
    10,316
    
    
    
    19,108
    
    
    
    19,853
    
    
    
    19,108Weighted average shares under convertible notes
    
    
    10,476
    
    
    
    
    
    
    
    6,776
    
    
    
    
 Note 7-Notes Payable:
   11




---



##### Table of Contents



Note 8  Senior Convertible Notes Payable
     
    
    the option to receive, if and only to the extent the holders convert their Notes into our
common stock, a make-whole premium of additional shares of common stock equal to the
approximate lost option time value, if any, plus accrued but unpaid interest, if any, up to
but excluding the conversion date; or
 12




---



##### Table of Contents




    
    the right to require us to purchase for cash any or all of its Notes at a repurchase
price equal to the principal amount of the Notes being repurchased plus accrued but unpaid
interest, if any, up to but excluding the repurchase date.
  
    
    We declare certain dividends or distributions;
    
    We effect a stock split or combination;
    
    We offer certain rights or warrants to all or substantially all our stockholders; and
    
    We purchase shares of our common stock pursuant to a tender or exchange offer under certain circumstances.
   Note 9-Comprehensive Income (Loss):
  Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss)
    
    $
    2,091
    
    
    $
    (3,516
    )
    
    $
    (12,421
    )
    
    $
    (12,184
    )Other comprehensive income:Effect of foreign currency translation
    
    
    127
    
    
    
    69
    
    
    
    291
    
    
    
    53Unrealized gains (losses) on available for sale securities
    
    
    
    
    
    
    (25
    )
    
    
    15
    
    
    
    (25
    )Total other comprehensive income:
    
    
    127
    
    
    
    44
    
    
    
    306
    
    
    
    28Comprehensive income (loss)
    
    $
    2,218
    
    
    $
    (3,472
    )
    
    $
    (12,115
    )
    
    $
    (12,156
    )
  Note 10-Hedging:
   13




---



##### Table of Contents



Note 11-Contingencies
 Indemnifications
   Litigation with Toshiba
  Lexar Media, Inc. v. Toshiba Corporation, Toshiba America, Inc. and Toshiba America
Electronics Corporation
      .
 14




---



##### Table of Contents



Toshiba Corporation v. Lexar Media, Inc.; Lexar Media, Inc. v. Toshiba Corporation
         Toshiba Corporation v. Lexar Media, Inc.
   15




---



##### Table of Contents



Litigation Against Fuji, Memtek and PNY
      Litigation Against Pretec, PNY, Memtek and C-One
    16




---



##### Table of Contents



Litigation With Willem Vroegh
   Stockholder Litigation
    Note 12-Recent Accounting Pronouncements
   17




---



##### Table of Contents



Note 13-Subsequent Events
  
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
  Changes to Previously Announced Third Quarter Results
    18




---



##### Table of Contents



Overview
      19




---



##### Table of Contents



Revenues.
 20




---



##### Table of Contents



21




---



##### Table of Contents



Cost of Product Revenues.
    Research and Development.
 22




---



##### Table of Contents



Sales and Marketing
 General and Administrative.
 Critical Accounting Policies and Estimates
    
    
    Revenue recognition, including price protection, rebates and other customer programs; and
    
    Valuation allowances and accrued liabilities, including sales returns and other
allowances, inventory valuation reserves, warranty accruals, the allowance for doubtful
accounts and deferred tax asset valuation allowances.
 Revenue Recognition
 Product Revenues
  23




---



##### Table of Contents



License and Royalty Revenues
    24




---



##### Table of Contents



Valuation Allowances and Accrued Liabilities
 Valuation of Inventory
     Deferred Tax Valuation Allowance
  Other Valuation Allowances, Accrued Liabilities and Warranty
   25




---



##### Table of Contents



Allowance for Doubtful Accounts
  Results of Operations
  Revenues, Cost of Product Revenues and Gross Margin
  Three Months
    
    
    Three Months
    
    
    
    
    
    
    Nine Months
    
    
    Nine Monthsended
    
    
    ended
    
    
    % Change
    
    
    ended
    
    
    ended
    
    
    % ChangeSeptember 30, 2005
    
    
    September 30, 2004
    
    
    2004 to 2005
    
    
    September 30, 2005
    
    
    September 30, 2004
    
    
    2004 to 2005Digital media
    
    $
    136,390
    
    
    $
    160,769
    
    
    
    (15.2
    )%
    
    $
    491,693
    
    
    $
    474,965
    
    
    
    3.5
    %Controller, digital
media accessories
and other components
    
    
    48,478
    
    
    
    3,300
    
    
    
    1,369.0
    %
    
    
    115,677
    
    
    
    12,290
    
    
    
    841.2
    %Product revenues
    
    
    184,868
    
    
    
    164,069
    
    
    
    12.7
    %
    
    
    607,370
    
    
    
    487,255
    
    
    
    24.7
    %License and royalty
revenues
    
    
    4,530
    
    
    
    1,152
    
    
    
    293.2
    %
    
    
    6,293
    
    
    
    5,891
    
    
    
    6.8
    %Total net revenues
    
    
    189,398
    
    
    
    165,221
    
    
    
    14.6
    %
    
    
    613,663
    
    
    
    493,146
    
    
    
    24.4
    %Cost of product revenues
    
    
    160,829
    
    
    
    141,650
    
    
    
    13.5
    %
    
    
    529,808
    
    
    
    434,641
    
    
    
    21.9
    %Gross margin
    
    $
    28,569
    
    
    $
    23,571
    
    
    
    21.2
    %
    
    $
    83,855
    
    
    $
    58,505
    
    
    
    43.3
    %Product gross margin
    
    $
    24,039
    
    
    $
    22,419
    
    
    
    7.2
    %
    
    $
    77,562
    
    
    $
    52,614
    
    
    
    47.4
    %
  Three Months
    
    Three Months
    
    Nine Months
    
    Nine Monthsended
    
    ended
    
    ended
    
    endedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Digital media
    
    
    72.0
    %
    
    
    97.3
    %
    
    
    80.1
    %
    
    
    96.3
    %Controller, digital media accessories and other components
    
    
    25.6
    %
    
    
    2.0
    %
    
    
    18.9
    %
    
    
    2.5
    %Product revenues
    
    
    97.6
    %
    
    
    99.3
    %
    
    
    99.0
    %
    
    
    98.8
    %License and royalty revenues
    
    
    2.4
    %
    
    
    0.7
    %
    
    
    1.0
    %
    
    
    1.2
    %Total net revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of product revenues
    
    
    84.9
    %
    
    
    85.7
    %
    
    
    86.3
    %
    
    
    88.1
    %Gross margin
    
    
    15.1
    %
    
    
    14.3
    %
    
    
    13.7
    %
    
    
    11.9
    %
  Three Months
    
    Three Months
    
    Nine Months
    
    Nine Monthsended
    
    ended
    
    ended
    
    endedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Digital media
    
    
    73.8
    %
    
    
    98.0
    %
    
    
    81.0
    %
    
    
    97.5
    %Controller, digital media accessories and other components
    
    
    26.2
    %
    
    
    2.0
    %
    
    
    19.0
    %
    
    
    2.5
    %Product revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of product revenues
    
    
    87.0
    %
    
    
    86.3
    %
    
    
    87.2
    %
    
    
    89.2
    %Product gross margin
    
    
    13.0
    %
    
    
    13.7
    %
    
    
    12.8
    %
    
    
    10.8
    %
 26




---



##### Table of Contents



Revenues
        27




---



##### Table of Contents



Cost of Product Revenues
   Gross Margin
   Operating Expenses
  % Change
    
    
    
    
    
    
    
    
    
    
    % ChangeThree Months
    
    
    Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine Months
    
    
    Nine Monthsended
    
    
    ended
    
    
    ended September 30,
    
    
    ended
    
    
    ended
    
    
    ended September 30,September 30,
    
    
    September 30,
    
    
    2005 to September 30,
    
    
    September 30,
    
    
    September 30,
    
    
    2005 to September 30,2005
    
    
    2004
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2004Research and development
    
    $
    3,172
    
    
    $
    2,484
    
    
    27.7%
    
    
    $
    9,518
    
    
    $
    7,170
    
    
    32.7%Sales and marketing
    
    
    14,577
    
    
    
    16,180
    
    
    (9.9)%
    
    
    
    50,730
    
    
    
    41,348
    
    
    22.7%General and administrative
    
    
    8,444
    
    
    
    8,292
    
    
    1.8%
    
    
    
    32,415
    
    
    
    20,245
    
    
    60.1%Total operating expenses
    
    $
    26,193
    
    
    $
    26,956
    
    
    (2.8)%
    
    
    $
    92,663
    
    
    $
    68,763
    
    
    34.8%
 28




---



##### Table of Contents



Three
    
    ThreeMonths
    
    Months
    
    Nine Months
    
    Nine Monthsended
    
    ended
    
    ended
    
    endedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Research and development
    
    
    1.7
    %
    
    
    1.5
    %
    
    
    1.6
    %
    
    
    1.5
    %Sales and marketing
    
    
    7.7
    %
    
    
    9.8
    %
    
    
    8.3
    %
    
    
    8.4
    %General and administrative
    
    
    4.4
    %
    
    
    5.0
    %
    
    
    5.2
    %
    
    
    4.0
    %Total operating expenses
    
    
    13.8
    %
    
    
    16.3
    %
    
    
    15.1
    %
    
    
    13.9
    %
 Research and Development
   Sales and Marketing
   General and Administrative
   29




---



##### Table of Contents



Income Taxes
  Three Months Ended
    
    
    % Change
    
    
    Nine Months Ended
    
    
    % ChangeSeptember 30
    
    
    Three Months
    
    
    September 30,
    
    
    Nine MonthsEnded
    
    
    
    
    
    
    
    
    
    
    Ended2005
    
    
    2004
    
    
    2004 to 2005
    
    
    2005
    
    
    2004
    
    
    2004 to 2005Income taxes (benefit)
    
    $
    (90
    )
    
    $
    355
    
    
    
    *
    
    
    $
    1,632
    
    
    $
    1,369
    
    
    
    19
    %Income taxes as a
percentage of total
net revenues
    
    
    0.0
    %
    
    
    0.2
    %
    
    
    *
    
    
    
    0.3
    %
    
    
    0.3
    %
    
    
    0.0
    %Effective tax rate
    
    
    *
    
    
    
    *
    
    
    
    *
    
    
    
    *
    
    
    
    *
    
    
    
    *
 
 *
    
    percentage is not meaningful  Other Income and Expense
     30




---



##### Table of Contents



Liquidity and Capital Resources
 Liquidity and Capital Resources
  Nine Months
    
    
    Nine Monthsended
    
    
    endedSeptember 30,
    
    
    September 30,2005
    
    
    2004Net cash provided by (used in) operating activities
    
    $
    63,779
    
    
    $
    (30,741
    )Net cash provided by (used in) investing activities
    
    
    2,160
    
    
    
    (23,320
    )Net cash provided by financing activities
    
    
    57,447
    
    
    
    3,415
  Quarter
    
    Quarterended
    
    endedSeptember 30,
    
    September 30,2005
    
    2004Days sales outstanding (net of change in deferred revenue)
    
    
    34
    
    
    
    56Inventory turns per year
    
    
    4
    
    
    
    5
     31




---



##### Table of Contents




    
    the option to receive, if and only to the extent the holders convert their Notes into our
common stock, a make-whole premium of additional shares of common stock equal to the
approximate lost option time value, if any, plus accrued but unpaid interest, if any, up to
but excluding the conversion date; or
 32




---



##### Table of Contents




    
    the right to require us to purchase for cash any or all of its Notes at a repurchase price
equal to the principal amount of the Notes being repurchased plus accrued but unpaid
interest, if any, up to but excluding the repurchase date.
  
    
    We declare certain dividends or distributions;
    
    We effect a stock split or combination;
    
    We offer certain rights or warrants to all or substantially all our stockholders; and
    
    We purchase shares of our common stock pursuant to a tender or exchange offer under certain circumstances.
   Commitments
    33




---



##### Table of Contents



Payments due by period (in thousands)Totalamount
    
    
    Less than
    
    
    
    
    
    
    
    
    
    
    Aftercommitted
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsContractual obligations and commercial commitments:Senior convertible notes payable:Principal
    
    $
    70,000
    
    
    $
    
    
    
    $
    
    
    
    $
    70,000
    
    
    $
    Interest
    
    
    17,719
    
    
    
    3,938
    
    
    
    11,813
    
    
    
    1,968
    
    
    
    Open purchase orders with vendors and suppliers*
    
    
    65,359
    
    
    
    65,359
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    5,656
    
    
    
    1,229
    
    
    
    2,271
    
    
    
    970
    
    
    
    1,186Standby letters of credit
    
    
    5,000
    
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations and commercial commitments
    
    $
    163,734
    
    
    $
    75,526
    
    
    $
    14,084
    
    
    $
    72,938
    
    
    $
    1,186
 
 *
    
    At any given point in time, in the normal course of business, we place cancelable purchase
orders with our vendors and suppliers. Off Balance Sheet Arrangements
  Indemnifications
   Warranties
  Recent Accounting Developments
   34




---



##### Table of Contents



RISKS THAT COULD AFFECT FUTURE RESULTS
  Risks Related to Our Business
 We have a history of losses and may not be able to sustain profitability.
  Our operating results and gross margins have fluctuated in the past, may fluctuate significantly
in the future and are difficult to predict. If our future results are below the financial guidance
provided by us or the expectations of investors or securities analysts, the market price of our
common stock could decline significantly.
  
    
    increases in the price of flash memory that we buy or the failure of cost decreases to
keep up with price decreases for our products;
    
    the mix of business between retail, OEM and licensing;
 35




---



##### Table of Contents




    
    whether we can sell controllers, digital media accessories and other components in the
volumes and at the prices we anticipate;
    
    the timing and amount of expenses related to obsolescence and disposal of excess
inventory and the difficulty of forecasting and managing our inventory levels, including
inventories on consignment and at contract manufacturers;
    
    fluctuation in demand for our products, including seasonal demand for our products and
the volume and timing of potential retail customer and distributor orders;
    
    the timely availability of flash memory, particularly flash memory that meets our technological requirements;
    
    the decision of our customers to return products or rotate their stock;
    
    the amount of price protection, volume incentive rebates, discounts, market development
funds, cooperative advertising payments and other concessions and discounts that we may need
to provide to some of our customers due to competitive pricing pressures;
    
    competitive pricing pressures for the products we sell;
    
    the inability of new NAND flash memory suppliers to fully indemnify us should we be subjected to litigation;
    
    the rate of growth of the market for digital cameras, digital media, cell phones with
card slots, USB flash drives and MP3 players;
    
    the availability of sufficient silicon wafer foundry capacity and product components to
meet customer demand;
    
    the difficulty of forecasting sell-through rates of our products and their impact on
inventory levels at our resellers if sell-through data is not timely reported to us, which
may result in additional orders being delayed or reduced and inventory being returned;
    
    the timing and amount of any reductions in the average selling prices of our products and
services;
    
    price reductions in key components, such as flash memory, which could result in reduced
margins when selling products that include previously purchased components held in
inventory;
    
    increases in costs charged by our component or card suppliers or the failure of our
suppliers to decrease the prices they charge to us when industry prices decline;
    
    the timing and amount of orders or cancellations from existing and new customers and
penalties imposed by customers for failure to meet their requirements;
    
    the commencement of, involvement in or the expansion, appeal or settlement of our litigation;
    
    any changes in the trend of declining average selling prices per unit sold of digital storage media;
    
    competing flash card standards, which displace the standards used in our products;
    
    shortages of components such as capacitors and printed circuit boards required for the manufacturing of our products;
    
    exchange rate fluctuations, particularly the U.S. dollar to British pound and Japanese
yen and the British pound to Euro exchange rates;
    
    the announcement or introduction of products and technologies by competitors; and
    
    potential product quality problems which could raise return or rework costs.
 36




---



##### Table of Contents



We expect that Toshiba and Toshiba America Electronics Components, Inc. will appeal a jurys award
to us of over $465 million in damages, and an unfavorable outcome could lead to a decline in our
stock price and have a negative impact on our ability to increase our licensing revenues.
  If we are unable to continue our sales of controllers, digital media accessories or other
components or continue to develop, competitively market and successfully sell our JumpDrive
portable flash storage product line, our revenues, gross margins and results of operations would
be negatively impacted.
    We depend on a few key customers and the loss of any of them could significantly reduce our
revenues.
  37




---



##### Table of Contents



A lack of effective internal control over financial reporting could result in an inability to
accurately report our financial results that could lead to a loss of investor confidence in our
financial reports and have an adverse effect on our stock price.
  
    
    revenue recognition with respect to certain customers (primarily our resellers),
including adequate consideration of our estimates regarding offsets to or discounts from
revenue such as price protection and promotional activities; and
    
    the accounting for inventory valuation reserves.
  Our strategic partnership with Kodak and our ongoing relationships with OEM customers pose
significant challenges for us, and if we are unable to manage these relationships, our business
and operating results will be adversely affected.
  
    
    properly manage the distribution and use of the KODAK brand;
    
    control the sales and marketing expenses associated with launching the brand in new channels;
    
    plan for anticipated changes in demand;
 38




---



##### Table of Contents




    
    effectively leverage the KODAK brand to achieve premium pricing and grow market share;
    
    maintain the market share position of the Lexar brand; and
    
    appropriately allocate resources to support a dual branding strategy.
   We are substantially leveraged, which could adversely affect our ability to adjust our business,
to develop or enhance our products, expand our operations, respond to competitive pressures or
obtain additional financing.
   
    
    our ability to obtain additional financing in the future for working capital, capital
expenditures, acquisitions, general corporate or other purposes may be limited;
    
    a substantial portion of our cash flow from operations will be dedicated to the payment
of the principal and interest on our indebtedness;
    
    if we elect to pay any premium on the senior convertible notes with shares of our common
stock or we are required to pay a make-whole premium with our shares of common stock, our
existing stockholders interest in us would be diluted; and
    
    we may be more vulnerable to economic downturns, less able to withstand competitive
pressures and less flexible in responding to changing business and economic conditions.
   39




---



##### Table of Contents



Our products are characterized by average selling prices that have historically declined over
relatively short time periods. If we are unable to effectively manage our inventories and channel
inventories, reduce our costs, introduce new products with higher average selling prices or
increase our sales volumes, our revenues and gross margins will be negatively impacted.
   Because we protect many of our retail customers and distributors against the effects of price
decreases on their inventories of our products, we have in the past and may in the future incur
large price protection charges if we reduce our prices when there are large quantities of our
products in our distribution channel.
  We have written down and may need to further write-down our inventory if our sales levels do not
match our expectations or if selling prices decline more than we anticipate, which could adversely
impact our revenues and gross margins.
  40




---



##### Table of Contents



We primarily depend upon Samsung for our flash memory. If Samsung is unable to provide us with
sufficient quantities of flash memory when we need it at prices and sales terms that allow us to
be competitive in the marketplace, if Samsung is unable to remain technologically competitive, or
if Samsung were to reduce or eliminate our credit terms, we would not be able to manufacture and
deliver digital media to our customers in accordance with their volume, price and schedule
requirements, which would have a serious negative impact on our revenues and margins.
     41




---



##### Table of Contents



In the first nine months of 2005, we modified our pricing strategy and significantly reduced our
promotional programs. Additionally, in the first quarter of 2005, we increased prices on certain
products to most of our customers to better align our selling prices with our cost structure. Many
of our retail customers and distributors have rights of return, and if they decide to terminate
their relationships with us and purchase from other vendors as a result of our recent actions,
similar future actions or otherwise, we may be required to take back large quantities of unsold
customer inventory which could have an adverse effect on our revenues.
   We depend on single suppliers for certain key components and products. We do not have long-term
supply contracts with many of these suppliers and we are therefore exposed to certain risks,
including price increases, late deliveries, poor component quality and a potential inability to
obtain an adequate supply of components. In addition, there is a risk that we will have inadequate
or incomplete indemnification from these suppliers, so we also face the risk that our margins and
operating results would be severely negatively impacted if such components or products infringe
the intellectual property rights of a third party or if we are found to owe license fees or
royalties relating to these products.
  42




---



##### Table of Contents



If we are unable to generate increased revenue from licensing our intellectual property, our gross
margins and results of operations would be negatively impacted.
  Our unit volume continues to increase and has strained our operations infrastructure and our
supply chain.
     43




---



##### Table of Contents



The solid-state storage market is evolving and we may not have rights to manufacture and sell
certain types of flash card formats or we may be forced to pay a royalty to sell digital media in
these formats. Future digital media formats may not use our core technology.
   We market our digital media primarily on the basis of its superior technology. If we are unable to
achieve or maintain technological leadership or gain commercial acceptance of the performance and
technology advantages of our products, our revenues and gross margins would likely decline
significantly.
  TM TM
  44




---



##### Table of Contents



Increased competition in the digital media market may lead to a decrease in our revenues and
market share.
          45




---



##### Table of Contents



If we are unable to develop and introduce, on a timely basis, new products or services that are
accepted by our customers and consumers, we will not be able to compete effectively in our market.
  If we are unable to develop or maintain the strategic relationships necessary to develop, sell and
market products that are commercially viable and widely accepted, the growth and success of our
business may be limited.
  We rely to a significant degree on retailers to sell our digital media products and our inability
to control the activities of such retailers could cause our operating results and gross margins to
fluctuate significantly.
  
    
    continued downward pricing pressure in the retail channel has necessitated, and we expect
will continue to necessitate price protection of the inventories of our products that many
of our customers carry;
    
    retailers may emphasize our competitors products over our products or decline to carry
our products or we may lose our exclusive relationship with certain retailers;
    
    loss of market share if the retailers that carry our products do not grow as quickly and
sell as many digital media products as the retailers that carry the digital media products
of our competitors;
    
    loss of business or monetary penalties if we are unable to satisfy the product needs of
these customers or fulfill their orders on a timely basis;
    
    increased sales and marketing expenses if we are unable to accurately forecast our
customers orders, including, among other items, increased freight and fulfillment costs if
faster shipping methods are required to meet customer demand;
 46




---



##### Table of Contents




    
    product returns could increase as a result of our strategic interest in assisting retailers in balancing their inventories;
    
    reduced ability to forecast sales; and
    
    reduced gross margins, delays in collecting receivables and increased inventory levels
due to the increasing tendency for some retailers to require products on a consignment
basis.
  We depend primarily on United Microelectronics Corporation, or UMC, to manufacture our
controllers, and if we are unable to obtain from UMC sufficient quantities of controllers at
acceptable quality, yields and prices, and in a timely manner, we may not be able to meet customer
demand for our products, which could limit the growth and success of our business.
  
    
    reduced control over delivery schedules, quality assurance, manufacturing yields and production costs; and
    
    unavailability of, or delayed access to, next-generation or key process technologies.
   47




---



##### Table of Contents



We depend solely on third-party subcontractors for assembly and testing of our digital media
products, which could result in product shortages or delays or increase our costs of
manufacturing, assembling or testing our products.
  If our efforts to optimize our supply chain are unsuccessful and we are unable to meet our
customers requirements, our business could be negatively impacted.
  Our failure to successfully promote our brand and achieve strong brand recognition in target
markets could limit or reduce the demand for our products and services.
  If we encounter difficulties in attracting and retaining qualified personnel, we may not be able
to successfully execute our business strategy, we may need to grant large stock-based incentives
that could be dilutive to our stockholders and we may be required to pay significant salaries
which would increase our general and administrative costs.
   48




---



##### Table of Contents



If our products contain defects, we may incur unexpected and significant operating expenses to
correct the defects, we may be required to pay damages to third parties and our reputation may
suffer serious harm.
  Our significant sales outside the United States subject us to increasing foreign political and
economic risks, including foreign currency fluctuations, and it may be difficult for us to
anticipate demand and pricing in those regions or effectively manage the distributor channels and
relationships in those regions.
  
    
    foreign currency exchange fluctuations;
    
    political and economic instability;
    
    delays in meeting customer commitments due to difficulties associated with managing an international distribution system;
    
    increased time to collect receivables caused by slower payment practices that are common in many international markets;
    
    difficulties associated with managing export licenses, tariffs and other regulatory issues pertaining to international trade;
    
    increased effort and costs associated with the protection of our intellectual property in foreign countries;
    
    natural disasters, political uncertainties and changing regulatory environments in foreign countries; and
    
    difficulties in hiring and managing employees in foreign countries.
   49




---



##### Table of Contents



If our suppliers or customers elect to compete with us in the digital media market, our revenues
and gross margins would likely decline.
  Our financial results may be affected by mandated changes in accounting and financial
reporting.
   Changes in securities laws and regulations have increased our costs; further, in the event we are
unable to satisfy regulatory requirements relating to internal control over financial reporting,
or if our internal control over financial reporting is not effective, our business could suffer.
  Our stock price and those of other technology companies have experienced extreme price and volume
fluctuations, and, accordingly, our stock price may continue to be volatile.
  
    
    variations in our quarterly operating results;
    
    announcements of technological innovations by us or by our competitors;
    
    introductions of new products or new pricing policies by us or by our competitors;
    
    departure of key personnel;
    
    the gain or loss of significant orders or customers;
    
    sales of common stock by our officers and directors;
    
    changes in the estimates of our operating performance or changes in recommendations by securities analysts;
    
    announcements related to our outstanding litigation; and
    
    market conditions in our industry and the economy as a whole.
 50




---



##### Table of Contents



Risks Related to Our Industry
 Our business will not succeed unless the digital photography market and other markets that use
flash media continue to grow and are accepted by consumers.
  
    
    the availability of digital cameras at prices and with performance characteristics
comparable to traditional cameras;
    
    the availability of digital media that meets users requirements with respect to price,
speed, connectivity, capacity and compatibility;
    
    the speed at which digital cameras are able to take successive photographs;
    
    the ease with which digital files can be transferred to a personal computer or printer;
    
    the availability of digital image prints comparable in quality and price to traditional photographs; and
    
    market conditions in the industry and the economy as a whole.
  
    
    marketing campaigns that increase brand awareness in end-user markets, both domestically and internationally;
    
    increased association between brand names and attractive price and performance characteristics; and
    
    heightened consumer confidence in digital photography technology.
  51




---



##### Table of Contents



General economic conditions, political and military conditions associated with current worldwide
conflicts and similar events may prevent consumers from purchasing our products, and reduced
demand for digital media and related products may prevent us from achieving targeted revenues and
profitability.
  If digital camera manufacturers do not develop and promote products that are able to take
advantage of our fastest digital media products, the growth and success of our business may be
limited.
  The manufacturing of our products is complex and subject to yield problems, which could decrease
available supply and increase costs.
  Risks Related to Our Intellectual Property
 If we are unable to adequately protect our intellectual property, our competitors may gain access
to our technology, which could harm our ability to successfully compete in our market.
   52




---



##### Table of Contents




    
    any of our existing or future patents will not be invalidated;
    
    patents will be issued for any of our pending applications;
    
    any claims allowed from existing or pending patents will have sufficient scope or strength; or
    
    our patents will be issued in the primary countries where our products are sold in order
to protect our rights and potential commercial advantage.
  We are involved in intellectual property litigation, and expect to become involved in additional
litigation that could divert managements time and attention, be time-consuming and expensive to
defend and limit our access to important technology.
  
    
    pay damages on products that were found to infringe the other partys intellectual property;
    
    stop selling products or using technology that contain the allegedly infringing intellectual property;
    
    attempt to obtain a license to the relevant intellectual property, which license may not
be available on reasonable terms or at all; and
    
    attempt to redesign those products that contain the allegedly infringing intellectual
property.
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Foreign Currency Risk.
 53




---



##### Table of Contents



Interest Rate Risk. ,
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures.
  Changes in Internal Control Over Financial Reporting.
 
    
    Revenuerecognition. During the first nine months of 2005, we began taking steps toward
remediation of the material weakness described above with respect to revenue recognition by
taking the following actions:
 54




---



##### Table of Contents









    
    Hiring additional personnel to review the effects of each price movement on our
customers inventory and the impact on price protection accruals;
    
    Instituting more rigorous policies and procedures regarding the approvals that must
be obtained from management personnel before reducing prices to either a specific
customer or on a national level;
    
    Recording revenue from all of our retail customers on a sell-through basis to
ensure that at the time revenue is recognized for financial reporting purposes the
effects of offsets or discounts to revenue, including the impact of price moves we
implemented in response to price moves by competitors, are accurately reflected in our
statement of operations;
    
    Increasing training and awareness to sales and marketing representatives on our
processes and procedures; and
    
    Instituting more rigorous procedures regarding the approvals that must be obtained
from management personnel before promotional activities can be accepted.



    
    Accounting for inventory and related accounts and valuation reserves.During the first nine months of 2005, we began taking steps
toward remediation of the material weaknesses described above with respect to accounting for
inventory and related accounts and valuation reserves:



    
    Performing a more detailed and comprehensive review of our inventory to identify
all excess and slow moving products;
    
    Increased management oversight on the analysis or review of inventory valuation
reserves and their changes from period to period;
    
    Enhancing review of inventory valuation reserves to ensure that all known price
reductions and estimates of future price reductions are considered to identify
write-downs to net realizable value; and
    
    Evaluating responsibilities within our finance organization to improve our controls
and increase the level of management oversight of the process.










55



---



##### Table of Contents



PART II-OTHER INFORMATION
 
 Item 1. Legal Proceedings.
 Litigation with Toshiba
  Lexar Media, Inc. v. Toshiba Corporation, Toshiba America, Inc. and Toshiba America
Electronics Corporation
      .
  Toshiba Corporation v. Lexar Media, Inc.; Lexar Media, Inc. v. Toshiba Corporation
  56




---



##### Table of Contents



Toshiba Corporation v. Lexar Media, Inc.
    Litigation Against Fuji, Memtek and PNY
  57




---



##### Table of Contents



Litigation Against Pretec, PNY, Memtek and C-One
    Litigation With Willem Vroegh
  58




---



##### Table of Contents



Stockholder Litigation
     
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
 ExhibitNumber
    
    Exhibit10.1
    
    License and Strategic Alliance Agreement with Samsung Electronics Co., Ltd. dated October 25, 2005++31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 ++
    
    Indicates that confidential treatment has been requested for portions of this agreement. 59




---



##### Table of Contents



SIGNATURE
  LEXAR MEDIA, INC./s/ Brian T. McgeeBrian T. McGeeChief Financial Officer(Principal Financial Officer and DulyAuthorized Officer)Date: November 9, 2005
 60




---



##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    Exhibit10.1
    
    License and Strategic Alliance Agreement with Samsung Electronics Co., Ltd. dated October 25, 2005++31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C Section
1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 ++
    
    Indicates that confidential treatment has been requested for portions of this agreement.