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Lexar Media Reports Narrow Loss, Makes Progress Toward Profitability

Press release from the issuing company

FREMONT, Calif., Oct. 18 -- Lexar Media, Inc., a leading developer of flash media and an innovator of high-performance, USB(TM) enabled CompactFlash(TM) digital film, today reported revenues for the third quarter ended September 30, 2001. Total revenues of $18.1 million increased 4.7% sequentially compared to $17.3 million in the second quarter of 2001. Excluding stock-based compensation and imputed interest charges, Lexar Media's pro forma loss for the third quarter of 2001 was $3.2 million, or $0.06 per share, compared to a pro forma loss of $13.3 million, or $0.23 per share, for the second quarter of 2001. Including stock-based compensation and imputed interest, Lexar Media's loss was $3.5 million, or $0.06 per share, for the third quarter of 2001, compared to a loss of $17.4 million, or $0.30 per share, for the second quarter of 2001. "We are proud to report third quarter results that exceeded expectations on all fronts,'' said Eric Stang, Lexar Media's president and chief executive officer. "Despite continuing pricing pressures in the marketplace, revenues grew sequentially, driven by strong retail sales in North America. Customers are recognizing the importance of speed, connectivity and the other advantages unique to the proprietary technology in Lexar Media products. Our third quarter gross margin, at 29%, and our substantial bottom line improvement were achieved through ambitious cost reduction measures, strong supplier partnerships and improved product mix. Our results demonstrate that we are on track toward our goal of reaching profitability on an operating basis in the fourth quarter, excluding stock-based compensation.'' Michael Perez, vice president of finance and chief financial officer, stated, "We continued to show strong improvement in our financial performance as reflected on both our P&L and balance sheet for the third quarter. We are very pleased with the success of the measures we have taken in improving the bottom line and strengthening our financial position. Our cash balance improved to $15 million and we saw a further reduction in inventory during the quarter to $6.5 million from $9.3 million in the second quarter. We look forward to realizing further operating efficiencies in the fourth quarter as we continue to execute according to our business plan.'' Recent Highlights Lexar Media continued its technology leadership by: * Announcing that its 16x Professional Series CompactFlash Digital Film will begin shipping November 1, 2001. The 16x memory cards, capable of a minimum sustained write speed of 2.4MB per second (1x=150KB/sec), will reduce the time it takes for many digital cameras to read and write high-resolution image files. * Announcing the shipment of its USB CompactFlash Reader. Lexar Media's latest card reader is compatible with all brands of Type I and Type II CompactFlash and offers portability and connection to PCs or Macintoshes through the USB port on the computer. * Shipping its 512MB 12x-speed USB enabled Type I CompactFlash digital film, Lexar Media's highest capacity CompactFlash card designed to meet the needs of the most demanding photographer. Additionally, Lexar Media recently: * Added WYNIT, a distributor of digital imaging and computer peripheral products, as its newest distributor for the Company's complete line of products throughout the U.S. and Canada. WYNIT is one of the leading photo specialty distributors in the U.S. and serves more than 2,500 photo and imaging specialists across the U.S. and Canada. * Bundled its digital film with high-end consumer and professional digital film cameras from Minolta, Nikon, Olympus and Pentax. * Announced a worldwide licensing and controller sales agreement with Viking Components to license and integrate Lexar Media's ATA flash controller technology into Viking's flash-based industrial and consumer CompactFlash, PC Card and IDE product lines. * Divested Printroom.com, significantly reduced its operating expenses and positioned the Company for profitability. * Repaid all existing long-term debt and established a new larger credit facility to provide for future growth. Financial Outlook Lexar Media reiterated its fourth quarter goal of reaching profitability on an operating basis excluding non-cash stock based compensation charges. While this target is based on cautious revenue growth assumptions, the Company acknowledges that forecasting remains difficult in the wake of continued uncertainty regarding the overall market, consumer spending and continued pricing pressures in the industry. Eric Stang commented, "Lexar turned the corner in the third quarter and is solidly executing its new plan, even in difficult market conditions. Our strong technology, brand presence, strategic partnerships and scaleable business model position us to capitalize upon the strong growth in the digital media market.''

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