Mike Smargiassi – Investor Relations Chun Ki Hong – Co-Founder, President and Chief Executive Officer Gail Sasaki – Vice President and Chief Financial Officer Noel Whitley – Vice President-Intellectual Property

Mark D. Kelleher – Dougherty & Company LLC David M. Rold – Needham & Company, LLC

Good afternoon and welcome to the Netlist’s Second Quarter 2013 Earnings Call and Webcast. All participants will be in a listen-only mode. (Operator Instructions) After today’s presentation there will be an opportunity for you to ask questions. (Operator Instructions) Please note that today’s event is being recorded. I’d now like to turn the conference call over to Mr. Mike Smargiassi. Please go ahead.

Thank you, Jamie, and good afternoon ladies and gentlemen. Welcome to Netlist's second quarter 2013 conference call. On today's call will be Chuck Hong, Chief Executive Officer of Netlist; Gail Sasaki, Chief Financial Officer and Noel Whitley, VP of IP. As a reminder, our earnings release and a replay of today's call can be accessed under the Investor Section of the Netlist website at netlist.com. Before we start the call, I’d note that today's presentation of Netlist's results and the answers to questions may include forward-looking statements, which are based on current expectations. The actual results could differ materially from those projected in the forward-looking statements because of a number of risks and uncertainties that are expressed in the call, annual and current SEC filings, and the cautionary statements contained in the press release today. We assume no obligation to update forward-looking statements. During this call, non-GAAP financial measures will be discussed. Reconciliations for those directly comparable GAAP financial measures are included in the press release, which was filed on Form 8-K. I would now like to turn the call over to Chuck.

Thanks Mike, and good afternoon everyone. Our second quarter results, which were in line with our expectations, continue to reflect the transitional process underway in our business model, combined with our focus on managing costs, and improving liquidity. Since our last call, we made notable progress with regard to introducing industry leading products to the high performance server market, while laying the groundwork to fully maximize our IP assets. In July, we announced that 32GB HyperCloud Memory Modules were qualified on the world’s best selling server, HP's ProLiant DL380p Gen8. We also strengthened our financial position through financing arrangement and strategic relationship with Fortress Investment Group LLC. And we took a number of important steps aimed at further building and unlocking the value of our extensive patent portfolio. I’ll review our progress in a moment. But first, let me turn the call over to Gail for the financial review, and to Noel Whitley, our new Vice President of Intellectual Property for a brief review of our patent monetization progress. Gail?

Thanks Chuck. Revenue for the second quarter ended June 30, 2013 was $5.1 million compared to $10.6 million for the second quarter of 2012 and flattish consecutively. Gross profit for the second quarter of 2013 was $247,000 compared to a gross profit of $2.7 million in the second quarter of 2012, mainly due to the lower revenues, unabsorbed manufacturing capacity, a changing product mix, and the startup costs of our new product lines. Gross profit over the next few quarters will be dependent on the factors just stated, as well as higher cost of materials, some of which we may not be able to pass through in form of higher ASPs. Operating expenses were $3 million in the second quarter of 2013, down from $6.6 million from the prior year’s second quarter, a 54% decrease and down from $3.6 million in the first quarter of 2013, a 17% decrease as we continue to streamline our business. As noted in previous calls, these lower operating expenses are due in part to the successful transfer of tasks such as test engineering, sales and financial administrative support to our lower cost China facility. We will continue to focus on reduction of our quarterly operating expenses as we enter the second half of the year while targeting product execution, including additional qualifications at the OEMs and patent execution including strengthening our patent portfolios for both our HyperCloud , and NVvault product families. Adjusted EBITDA loss after adding back net interest expense, income taxes, depreciation, stock-based compensation, and net non-operating expense was approximately $2 million for the second quarter of 2013 compared to an adjusted EBITDA loss of $2.9 million for the prior period and flattish consecutively. Net loss in the second quarter was $2.9 million or $0.09 loss per share compared to a net loss in the prior year period of $4 million or $0.14 loss per share. These results include stock-based compensation in the second quarter of $369,000 compared with $482,000 in the prior-year period, and depreciation and amortization expense of $395,000 compared with $535,000 in the prior year’s second quarter period. Second quarter capital expenditures totaled $26,000. We continue to anticipate not spending more than $200,000 in CapEx over the next several quarters. We ended the second quarter with cash and cash equivalents totaling $6.8 million, which was a decrease of approximately $900,000 from the end of the first quarter. During the second quarter, we improved our cash cycle by 15 days or an improvement of 13%, which is mainly the result of decreasing days in inventory and improved DSOs. We anticipate continued improvement in the cash cycle during Q3, and are targeting cash usage from operations within a range of $1 million to $1.5 million. As Chuck noted, in July we entered into a strategic financing relationship with Fortress Investment Group that provides us with access to up to $15 million in liquidity. We drew down $6 million on July 18 and used $2.7 million of it to repay our term loan with Silicon Valley Bank. During the first 18 months of the new Fortress’ debt, such payments will be interest only, which will also significantly help our cash flow during that period of time. In conjunction with the new financing, we amended our loan agreement with Silicon Valley Bank whereby Silicon Valley Bank will continue to provide us with a line of credit collateralized by our accounts receivable and has amended the covenants (inaudible) non-compliance under its previous agreement. The infusion of a capital from Fortress, which has been secured by our IP portfolio, is intended to support the ongoing development of our product and patent portfolios and is a validation of the investments we have made in developing our next-generation technologies and intellectual assets. Concurrent with the close of the Fortress and Silicon Valley Bank transactions in July, we also raised an additional $1 million in equity from an institutional investor. On the IP front, during the quarter, we received great news from the U.S. District Court, which have ruled against SMART Modular and their attempt to bring a preliminary injunction against our flagship product, HyperCloud. The court denied the request because they found that SMART Modular was unlikely to succeed on the merits of their case. In counterclaims, we [contempt] that SMART Modular has mislead the public in several ways, including purposefully withholding material [prior art] (ph) from the USPTO in an effort to get their patent issued. I am now pleased to introduce Noel Whitley, our new Vice President of Intellectual Property. In addition to his background as practicing patent attorney, he has both the Bachelors and Masters Degree in Electrical Engineering and close to a decade of experience at Broadcom Corporation, where he previously served as their VP of Intellectual Property. I will now turn the call over to Noel.

Thanks, Gail, and let me start by saying it’s a pleasure to be part of the Netlist team. Netlist has done an excellent job of developing a patent portfolio covering fundamental technology, underlying current and next-generation server and storage systems for the cloud. Our patent portfolio, which now includes 36 issued U.S. patents and 38 pending applications worldwide, continues to grow and mature. New patents are issuing at a steady rate from the U.S. Patent Office with claims that are being allowed in view of a significant body of prior art that has been identified in the various patent disputes the company is involved in. Over the coming months, we will continue to aggressively expand and enhance the portfolio’s already significant coverage. We are also pleased with the progress that’s been made in the various re-examination proceedings in the patent office related to five of our early issued U.S. patents. We are optimistic that we’ll begin seeing strong patents emerge from these proceedings as early as the first half of next year. Finally, we are carefully evaluating all options for unlocking the value of these assets for the benefit of our shareholders. The Fortress financing is a major step in that process. As Gail noted, it represents a validation of our portfolio and provides us with important financial and strategic resources to execute an aggressive patent monetization strategy. We are working closely with the Fortress team to develop a comprehensive approach towards licensing and enforcement that ensures that we are compensated by those entities using our patent solutions and their products. I’ll now turn it back over to Chuck.

Okay. Thanks, Noel. Noel’s appointment to the new role of Vice President of Intellectual Property reflects both our belief and the fundamental value of our patent portfolio and a commitment to leverage the portfolio to create additional shareholder value. We expect the efforts directed towards IP to increase now that the portfolio has matured significantly and the markets for products incorporating our IP began to grow. The time was right to bring on Noel to drive these efforts in a comprehensive way. We also look forward to working with Fortress in this regard, and leveraging their team significant experience with patent monetization and contacts within the industry. These new developments on the IP side reflect and validate the investments the Company has made over the last several years in advanced R&D, which resulted in industry-leading products and now a substantial proprietary position protecting these innovations. Recent qualification of the 32GB HyperCloud on HP’s ProLiant DL380p further confirms the value of our technology going forward. 32GB 1333 HCDIMM is the highest performing memory available in these HP servers providing data throughput that is 78% faster than the same density of any other memory technology. By bringing the world’s fastest server memory technology to the word’s top selling server we now provide HP unparallel performance advantages across a variety of applications enabling HP’s customers to maximize returns on their IT investment. Further strengthening our intellectual property position, we recently received a notice of allowance from the USPTO for one of our patent applications covering the core aspects of our distributed data buffer memory architecture. This is an important development because our distributed data buffer architecture is being broadly adopted by the industry as the DDR4 memory standards. This allowance provides further confirmation of the groundbreaking innovations in our products, which are the underlying reasons for their performance advantage. We also recently received the notice of allowance from the USPTO in a patent application claiming key functions in a non-volatile DIMM. The patent application is directed to control transfer of critical information from volatile memory to non-volatile memory in response to events such as power destruction or failure. We have been shipping hybrid DIMM products for over five years as part of our NVvault and EXPRESSvault product lines. Over 300,000 Netlist’s hybrid DIMM products have been used within mission critical servers and storage products and our technology is applied within PCIe form factor are used by leading SSD and hybrid storage vendors. Today, hybrid DIMMs are being adopted as standard DDR4 memory for all servers. We continue to see traction for our EXPRESSvault product line, which is being used by our storage customers increasingly to resolve I/O bottlenecks. The requirement for high performance storage access is becoming more mainstream and we look forward to continued growth in our EXPRESSvault and NVvault products going forward. In summary, we are making progress in transitioning our business model and taking the necessary steps to secure the resources to unlock the value of our assets. We believe that volume usage of 32GB HyperCloud, one of the major server OEMs will begin at the end of this year, and will act as the primary driver for the growth of HyperCloud over the next several years. We expect the business to scale as HyperCloud and NV gain traction in the marketplace. In the near term, we will continue to maintain a disciplined approach to managing our expenses, with the goal of prioritizing cash for continuing investment in future generations of our product technologies and enhancement of our patent portfolio. Thank you all very much for listening today and we are now ready for questions. Operator?

At this time, we are ready to begin the question-and-answer session. (Operator Instructions) Our first question comes from Mark Kelleher from Dougherty & Company. Please go ahead with your question. Mark D. Kelleher – Dougherty & Company LLC: Great. Thanks for taking the questions. The last comment you made there on the timing of some of your OEMs ramping beginning of next year, does that mean that the qualification at HP, which you just secured is going to take four, five, six months to ramp, is that the expectation there?

Mark, I think I said starting end of this year, we’ll see the volumes on HyperCloud at HP start to ramp this year. Also, the 32GB HyperCloud has been qualified at IBM. So 32GB as a density is starting to emerge in volume. So, we believe that over the next several months, we’ll start to see initial orders and volumes begin to ship on 32GB HyperCloud. Mark D. Kelleher – Dougherty & Company LLC: Okay. I noticed the inventory tick down a little bit. Is that kind of a tell that you don’t need to build inventory into the September quarter?

Hi, Mark. This is Gail. No. As we get orders, we will be building up inventory. HP is going to be starting the marketing of the product at the end of next month, this month. And the decline in inventory has been due to really tight inventory management as well as we did have some parts built up for Vault, which we have been able to continue to sell. We will continue to see, I think a nice decrease in the inventory as we take advantage of products that have already been built up. Mark D. Kelleher – Dougherty & Company LLC: Okay. And then just one last question on sort of the other revenue engine, the IP. Is there any timing on when that can get unlocked? Is that this year or is that middle of next year, just ballpark?

Hi, Mark. It’s Noel. I think with any campaign like this, it’s hard to say with any certainty when we might start seeing returns from our monetization campaign. I think we’re hopeful to start seeing some initial returns next year, but it’s really at this point too early to predict with any certainty. Mark D. Kelleher – Dougherty & Company LLC: Okay. Thanks.

Thanks, Mark.

Our next question comes from Rich Kugele from Needham & Company. Please go ahead with your question. David M. Rold – Needham & Company, LLC: Hi, there. David Rold for Rich Kugele. Thank you for taking the question. So, on the OpEx reduction, I know a lot of that was driven by some off-shoring of tasks. Was that at all headcount driven though as well? I think I’m getting at is if we see the sales ramp up at some point, these costs are going to come back. How do we think about the OpEx ramp with all the expected revenues?

Hi, David. Yes, I think that it’s definitely been from headcount shifting over to China. As we ramp up the sales of HyperCloud, we actually have a very good sales force out there that I don’t think that we are going to have to add a lot more heads in the U.S. So, I think you are going to see we’re targeting pretty even OpEx over the next several quarters even with an increase in sales. David M. Rold – Needham & Company, LLC: Okay. And Gail, could you – product breakdown please, the model?

Sure. And so for the second quarter, 20% of our revenue was from Vault. 53% actually came from VLP, and about 5% from the 16-gig HyperCloud. As we look forward to 32-gig, that number should obviously grow. David M. Rold – Needham & Company, LLC: Great. Okay. And you mentioned some expected component cost increases that you may or may not be able to pass on to customers. Is that entirely DRAM or what, if not, what else is it?

Yeah, it’s entirely DRAM. David M. Rold – Needham & Company, LLC: Okay. So on the HyperCloud, where ASPs roughly end -- directionally where do you see those going? Has HP qualification brought this down in all, has price been an impediment to traction there, how should we think of that?

Can you repeat the question, where is HyperCloud? David M. Rold – Needham & Company, LLC: I’m sorry. ASPs on the HyperCloud products, have those been an impediment to traction at all there, have they come down since HP qualification, where do you see kind of the trajectory there?

Yeah. ASPs have been high. If you look at the IBM website for the 32GB HyperCloud, it is in excess of $1,000 in retail, and it is priced higher than the competitive product 32GB LRDIMM, so on the other hand, other server manufacturers such as Dell, has priced their 32GB offering much lower in the $700 range. So, we believe that 32GB ASPs across various different memory technologies will come down, is starting to come down, it will come down more next year. David M. Rold – Needham & Company, LLC: And do you need to price with those guys or are you planning on standing above them or how price competitive you can be with those guys, I guess.?

We are price competitive with LRDIMM and RDIMM at the same density. It is a matter of OEM strategy, how they price these products to their customers. HP, as they release the 32GB HyperCloud over the next 30 days may choose a different pricing strategy, we’ll have to see. We are working with them as well as IBM on co-promotions, marketing campaigns to increase awareness of the HyperCloud product offering to certain vertical customers. So, the combination of ASPs and marketing that’s going to drive demand for HyperCloud, but overall I think the 32GB density pricing will come down and that will help to spur demand. David M. Rold – Needham & Company, LLC: Okay, great. That’s all from me. Thank you.

Thank you, Dave.

And ladies and gentlemen, at this time, I’m showing no additional questions. I would like to turn the conference call back over for any closing remarks.

Thank you for your interest, continuing interest in Netlist and we look forward to reporting back in the next quarter. Thank you.

Ladies and gentlemen, that does conclude today’s conference call. We do thank you for attending, you may now disconnect your telephone lines.