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OCZ -The Master of SSD (Shady, Suspect,Deceitful)

Over the last six months, investors have learned a painful and expensive lesson from the following story. Asmall Chinese company comes public through an RTO (reverse take-over) or a backdoor listing on theOTC Bulletin Board. The story blossoms alongside a rising stock price, riding a new hot theme or even alegitimate end market. Ignoring red flags from management's past, sellside analysts and investors choose tobelieve the Cinderella tale. The tale itself is always hard to verify, but the detailed insight the CEO sharescreates complacency and a willingness to look past obvious risks and financial irregularities. Based on theCEO's story, a cult-like following ensues, and the company is able to raise large sums of capital. Thecompany puts up huge revenue numbers quarter-after-quarter, yet the profitability and cash flows neverseem to materialize. And then one day, investors realize that numbers never reconciled and hugeaccounting inconsistencies existed the whole time. They also realize important facts were never disclosedand the product wasn't what management claimed. Ultimately, investors suffer large losses as the finalchapter. OCZ Technology (OCZ) may just be the American version of the story above.OCZ has parlayed investor and market excitement for solid state drives (SSDs) into an amazing story. Froma low of $1.79 last summer, OCZ's stock has steadily climbed more than 350% on a feel good tale told byits CEO. But there is a much darker and sinister side that has been well hidden. It is our opinion that OCZhas misrepresented its SSD growth and has financial irregularities that are nearly impossible to reconcile.We believe that some form of a restatement may be required and that the auditorstick and tie review hassome substantial inconsistencies. As such, we have sent our findings to the Securities and ExchangeCommission asking for clarification onthe multiple sets of numbers that we have uncovered.We believeOCZ's Board has the fiduciary responsibility to form a special committee to examine these discrepancies.But the misrepresentations are not confined to the financials. A scathing lawsuit and industry reviewssuggest OCZ has misrepresented product specs and performance. Additionally, a recently completedsecondary failed to disclose the CEO's criminal record, major underwriter conflicts (until the finalprospectus), and contained financial results that were different from past filings. And if that is not enough,there are other confusing pieces to the story such as Fusion-io, STEC, and Smart Modular disclosing thatthey do not see OCZ in competitive situations. Amazingly, we believe most of the interest in OCZ isnothing more than a wise guy backdoor play on the hot Fusion-io deal that should backfire as the OCZissues get exposed.As investors begin to recognize that the CEO has told the world that OCZ is trying to get qualified at EMCand IBM (so much for selective disclosure), the last catalyst will have played itself out versus elevatedexpectations. Although the sellside will likely remain complicit, we believe buyside investors that expect$400 million of revenue, and more importantly $0.75 of earnings in fiscal 2012, will be disappointed. Withbuyside estimates at unobtainable levels and promotional qual announcements fully priced in, we think thestock will finally be valued on fundamentals. If OCZ trades in-line with the comp group, agenerousassumption given OCZ's limited asset value, differentiation, and minimal profitability, a reasonable pricetarget would be between $2.58 and $4.98 per share.

This report will highlight:1)Huge losses for AIM investors and a previous profitless revenue ramp.

OCZ listed its stock on theAIM before moving to a U.S. listing. OCZ management rode a profitless revenue ramp and told a verysimilar story then to raise money from investors. They proceeded to miss estimates by 40% and delist theirshares less than three years after the original listing. OCZ's stock declined 95% from its peak.

2)BCInet -an unusual transaction.

OCZ claims to have sold its Neural Impulse Actuator line to acompany that was incorporated, at most, just seven days before the sale took place. Public filings showOCZ shares the same address as the purported buyer, a company called BCInet.

3) Accounting Irregularities, SSD growth overstatement, and irreconcilable financials.

Based ondiscrepancies in OCZ's SEC filings, we believe the company has misrepresented its SSD revenue andgrowth rates. The SSD revenues from past financials do not reconcile with an important segment table they

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have been providing since January. Based on comments in the MD&A from the 10Q, it appearsmanagement has overstated the year-over-year SSD growth rate by over 200%.

4) Irregularities in the prospectus, past filings, and a needed restatement.

The prospectus that investorsrelied upon for the recent secondary appears to have contained material financial inaccuracies. Based uponthe financials provided, we are unable to reconcile the Segment attributions with past SEC filings. Theprospectus appears to overstate SSD growth for 2010 by 183%. The 8K (from 1/10/11), the 10K, and therevenue from quarterly results reported in each 10Q do not reconcile. Additionally, it appears SSDrevenues were somehowreallocated to the PSU segment in some financials and the memory segment inothers -with the result being overstated forward revenue growth in SSD. Finally, OCZ's CFO resigned latelast year after only 18 months in that role.

5) Material information was withheld about the CEO's past felonious activity.

OCZ and theunderwriters did not disclose material background information on the CEO's criminal record.While we aresympathetic to mistakes made in the past, we believe the importance of the CEO's credibility is essentialgiven the extreme reliance investors and analysts have placed on his story. A national criminal recordssearch shows the CEO was arrested and/or charged in various Courts for: Grand Theft, Forgery, UnlawfulEntry Motor Vehicle, Theft-1, Drug Violations, and Traffic in Stolen Property.

6) Controversial geographic disclosures suggest all of the growth is from EMEA.

Despite cagyreferences to HP, Yahoo, and other U.S.-based enterprise wins, close to 100% of OCZ's growth has comefrom the Middle East, Africa, and Europe. Based on public disclosures by the CFO, for the numbers toreconcile, SSD business outside of the U.S. is somehow growing nearly 3x faster than U.S. SSD growth.The company's comments about SSD attributions imply North American non-SSD revenues would havefallen between 53% and 92% sequentially, while that same non-SSD business was flattish outside of theU.S. While unrelated, it is worth noting that OCZ has received inquiries from the FBI about product salesinto the Middle East.

7) Claiming to triple capacity out of thin air.

OCZ has publicly stated multiple times that they expandedcapacity by 3x in the third fiscal quarter. We have been unable to find the associated expenses or capitalexpenditures supporting that level of capacity expansion. In fact, PP&E declined by $10,000 from Q1 toQ3, while capex was only $728,000 for the entire first nine months of the fiscal year.

8) Hype aside, OCZ looks uglynext to STEC.

Despite a rocky road ahead for STEC, the side-by-sidecomparisons are alarming for OCZ investors that believe the company has the infrastructure and support toestablish large revenue agreements with OEM's (qualification announcement do not equal revenue). STECemploys 250% more heads in R&D and spends nearly 90% more per such employee. Further, STEC spentmore than 400% more on R&D in 2010 than OCZ spent in the previous four years combined. When takingall of OCZ's options and warrants into consideration, the enterprise value of OCZ is now just $250 millionless than STEC.

9) OCZ's appearsdelusional and does not seem to play in the high-end enterprise SSD sandbox.

Don'ttake our word for it, look at the supposed competition. In public filings, OCZ claims to compete withFusion-io, STEC and Smart Modular. However, none of those three list OCZ as a competitor in their publicfilings. Additionally the "wise guy" investors that have bought OCZ as a backdoor to Fusion-io are likely tobe sorely disappointed if they actually compare the financial profiles and end markets of the twocompanies.

10)Industry reviews accuse OCZ of disingenuous specs and "shady" marketing.

The CEO of DDRdrive and the industry review website Storage Review have accused OCZ of knowingly publishingdisingenuous product specifications. OCZ's decision to deceptively market new products with legacy specsand marketing material led one industry website to warn (talking about the product, not the stock) "At thispoint it is buyer beware until OCZ steps up and reveals some degree of transparency."

11) OCZ is being sued for Negligent Misrepresentation and Deceptive Advertising Practices.

OCZfailed to disclose any of the details behind the lawsuit filed against them in U.S. District Court less thanthree weeks ago. The lawsuit provides great detail into OCZ's decision to change the number of modules,the densities, and the nodes of its flash cells without disclosing such changes to customers. The lawsuitaccuses OCZ of Deceptive Advertising and Negligent Misrepresentation, among six total claims, "OCZ'sadvertisings and marketing representations concerning the storage capacity and performance of theProducts are false, misleading, and deceptive."

12) The Indilinx acquisition -fuzzy math and a bleak revenue picture.

Despite management's rosycomments aroundIndilinx and future accretion, public SEC filings portray Indilinx as a company that was

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quite challenged. In 2010, Indilinx revenues fell by 69% to just $2 million. Excluding the decline inrevenue from OCZ, their sales still fell 46% compared to 2009. We are unsure how management defines"accretive" and do not think Indilinx can generate the required $1.7 million of EBIT to offset the dilutionfrom the deal.

13) OCZ will not come close to hitting buyside expectations.

We have carefully analyzed buysideexpectations for revenues this year (FY'12) of $400 million and pro forma earnings of $0.77 per share. Webelieve that buyside investors are making a major error extrapolating the contribution margins that areimplied in the fourth quarter from management'stwo press releases. Further, we believe management mayneed to rely on a) selling DRAM inventories at 100% gross margins that had previously been reservedagainst, and b) the possible reversal of an accrual taken for lack of payment to a supplier. We slice thenumbers several different ways and think buyside revenues may be attainable, but the company will comenowhere close to making $0.77 of earnings.

14) The co-founders aggressive selling may be one step ahead of investors.

The spate of insider sellingcould raise some flags. CEO Ryan Petersen sold nearly two million shares a few months ago in privatetransactions and the open market at levels 50% lower than where the stock currently trades. Also, one of OCZ's co-founder's recently sold most of his stockbelow $4.00 (he may have sold 100% of his stock, butwe can not confirm that yet).

15) Why was the Merriman Capital relationship not disclosed in the preliminary prospectus?

Forsome reason the lengthy and intertwined relationship between OCZ and MerrimanCapital did not appear toget disclosed in the preliminary prospectus. Given the depth of the relationships, the Chairman's significantstake in OCZ, and the bullish support from research, we are unsure why the relationship was not initiallydisclosed.

1) Huge losses for AIM investors and a previous profitless revenue ramp

The OCZ story has clearly captured the imagination of investors looking for the next diamond in the rough.We believe that OCZ is following the same playbook it used in 2006 to raise capital in London, only toimplode two years later. OCZ was founded in 2002, and just four years after the company opened its doors,it listed on the Alternative Investment Market in London. CEO Ryan Petersen told a great story at that timeand the revenue ramp got the attention of investors. From 2003 to 2005, OCZ grew its top line from $8.31million to $35.72 million. As has been the case for most of OCZ's history, the strong top line growth nevertranslated to the income line, as a small $398,000 profit in2003 turned into a $133,000 loss by 2005despite revenues climbing by 330%.

In 2006, OCZ convinced investors that a stronger balance sheet would allow it to benefit from betterpurchasing terms. In the AIM prospectus, the company stated their balance sheet had been a hindrance,resulting in the "Company being able only to purchase inventory materials from brokers and distributorswho offer flexible credit terms, rather than direct from semiconductor manufacturers, or other suppliers,who sell at lower prices but do not offer similar credit terms."Investors that were recently cajoled intobelieving a similar story five years later will recognize comparable language from the April 8, 2011prospectus, "In addition to growing revenue by more efficiently fulfilling orders, increased working capitalwill provide the flexibility to source flash memory more efficiently by buying in quantity and directly fromflash manufacturers at more attractive prices rather than relying on resellers, which should allow us toincrease our gross margins."

The day of the AIMlisting, CEO Ryan Petersen boasted that "OCZ has built an extremely highly regardedbrand and has a successful track record of growth in multiple channels and markets, and is recognized as anindustry leaderin a number of growing segments." Like the recent interaction with so many investors in2011, he went on to project great things for OCZ…."Our listing on AIM will raise our international profileand provide us with a significant capital infusion. We willuse the proceeds to augment our rapid rate of expansion in key regions, expand availability of OCZ products in new channels, and bring additional valueto consumers through the continued introduction of innovative new products and solutions whilemaintaining the premium service level associated with the OCZ brand."