Good day, everyone, and welcome to the Advanced Photonix 2013 Fourth Quarter and Year End Earnings Conference Call. Today's conference is being recorded. This time, for opening remarks and introductions, I would like to turn the conference call over to Mr. Ethan Heck from Torrey Capital. Please go ahead, sir.

Thank you, Jamie. Before we get started, I want to remind listeners that this conference call will contain forward-looking statements, which involve known and unknown risks and uncertainties about the company's business and the economy, and other factors that may cause actual results to differ materially from our expected achievements and anticipated results, including unforeseen technological obstacles, which may prevent or slow the development and/or manufacture of new products; problems with the integration of acquired companies and technology and possible inability to achieve expected synergies and limited or slower-than-anticipated customer acceptance to new products, which have been and are being developed by the company. Please see our press release of today and our periodic reports filed with the Securities and Exchange Commission for a more complete statement of such risk factors. Given these uncertainties, listeners are cautioned not to place undue reliance on any forward-looking statements contained in this conference call. The forward-looking information given during the teleconference represents management's expectations and belief as of the date hereof. The continued availability of this teleconference on the Internet and through other media does not mean that the company is reaffirming or confirming its continued validity, except as may otherwise be required by law. The company expressly disclaims any obligation to update or alter any of the forward-looking statements made herein as a result of any event, occurrence after the date hereof. This conference call also contains a representation of non-GAAP financial measures as defined in the SEC's Regulation G. Reconciliations of non-GAAP financial measures of the company's GAAP-based financial statements are included in the company's year-end earnings press release dated July 1, 2013, and are available on its website at www.advancedphotonix.com. On today's call, we'll hear first from Jeff Anderson, CFO; next, Robin Risser, Chief Operating Officer; and then Richard Kurtz, CEO of Advanced Photonix. Let's turn the call first over to Jeff. Jeff?

Thank you, Ethan, and thanks to all of you for joining us this afternoon. I'd like to review just briefly a few financial highlights from our fiscal 2013 results and then I'll turn the call over to Rob Risser for an update on business activities. Our total revenues for fiscal 2013 were $23.6 million, a decrease of approximately $5.8 million or 20% from revenues of $29.5 million for fiscal 2012. The one market segment demonstrating growth this last year for us was industrial sensing and non-destructive test. Telecommunication sales were $7.1 million, a decrease of $4.8 million or 40% from fiscal 2012. The decrease in our telecommunications revenue for fiscal 2013 was the result of supply chain disruption at a major 100-gig customer early in the year, delay in ramping our new cost-reduced 100-gig product due to supply issues from a component vendor, and a slowdown in China infrastructure spend. Our telecommunications revenue in the fourth quarter decreased approximately 40% or $943,000 from the prior year fourth quarter, and decreased approximately 28% or $554,000 from the third quarter of the current year. The decline in revenue for the fourth quarter this year relative to last year was primarily due to the completion of 40-gig network build-outs in North America and Europe, which were completed earlier in our fiscal year. We saw a sequential quarterly revenue decline, given a slowdown in government-related telecom programs. Industrial sensing and non-destructive test market revenues were $11.4 million in fiscal 2013, an increase of 6% or $631,000 from the fiscal 2012 revenue, up $10.8 million. Our industrial sensing and non-destructive test revenue in the fourth quarter of the current year increased 47% or $1.2 million from the comparable prior year quarter. These increases are the result of higher terahertz contract and system sales, as well…

Thank you, Jeff, and good afternoon, everyone, and thank you for joining us on the call today. As Jeff reported and as we had indicated in our third quarter conference call, this past year was very challenging and disappointing. Revenue was down $5.8 million or approximately 20% compared to last year. It was a year in which we had challenges in all 3 of our product platforms. Our telecom market revenues from our HSOR product platform decreased 40% or $4.8 million for the year, due to supply chain issues and price pressures and a 100G coherent receiver product offering and a slowdown in the China market. Our Optosolutions product platform was also off last year due to softness in demand in the industrial market, which was offset by increases in revenues for 1 month from our Silonex acquisition and terahertz development contracts. The terahertz product platform grew due to substantial contract revenue. In addition, our terahertz product platform concentrated on application development to support our developing value-added reseller channel and improving product reliability in order to support the demand in process control market requirements of operating 24/7, 365 days of the year. The good news is that our telecom revenue bottomed in the fourth quarter and is growing again as we enter fiscal 2014 as the supply chain issues are resolved. Our Optosolutions product platform strengthened in the fourth quarter, as demand from existing design wins stabilized. Fiscal year '14 will see a full year of the Silonex acquisition revenues, and the terahertz product platform greatly improved reliability of the T-Gauge product offering and is gaining traction with our value-added resellers. Our HSOR supply chain issues resulted from a delay in a joint development with the supplier of a key component designed into our next generation, lower-cost 100G coherent receivers,…

Thank you, Rob, and good afternoon, everyone, and thank you for joining us on our call today. 2013 was a disappointing year with regard to shareholder value and revenue growth, but it does encompass some positive accomplishments from a strategic aspect that positions us for the expected rebound in the coming year. We entered last year with a weak telecommunication revenue, given the slowdown in orders from our customers due to their own supply chain issues and a reduction of China Telecom spending. At mid-point of the year, we still believe that we could accomplish both the qualification of the new supplier and close on Advanced Photonix Canada transaction, leading us to think that the second half would be much stronger than the first half. However, both of these actions were delayed for various reasons. Consequently, there was a full year decline of $4.8 million in HSOR revenues, minimal revenues coming from the Canadian transaction and 0 revenues in homeland security market. This resulted in our revenues declining by $5.8 million for the year. Our adjusted EBITDA declined from a positive $257,000 in fiscal 2012 to a negative $2.2 million in 2013. Working with the Board of Directors, we put in motion expense reduction plans to help offset the revenue shortfalls. Starting at the top: the Board of Directors changed their compensation plan to reduce and defer their annual compensation; the C-level management team took a 20% salary reduction; employees gave up the 401(k) match; and we reduced our workforce by 26% from the peak in fiscal 2012. These actions reduced expenses by approximately $2 million. Our employees are the most dedicated employees I've ever worked with. They have a vested interest in making API a success and they have continually given their all for the company. Examples include taking…

[Operator Instructions] Our first question comes from David Kang from B. Riley.

First question is Silonex acquisition. How much should we expect out of Silonex for fiscal '14?

As we've said, we think there will be over $4 million in revenue for the year, David.

And what kind of margins? Are they kind of comparable to yours or...

Well, they operate on a fabless model so it's -- their margins maybe aren't the same as our fully integrated model. But it's still fairly good growth and attractive fall-through.

So we should expect them to be accretive for the year, right?

You should, yes.

Okay. And then, can you just talk about the pricing pressure in HSOR? What's going on in China? I mean, hearing that some of your peers are indicating that China is starting to kind of percolate. And especially, what do you see out of China Mobile? It seems like there's a lot of interest in their activities.

Yes, so the pricing pressures, you go through the annual negotiations for pricing and they usually become effective in the first quarter of the calendar year. So we've been through that. Of course, that will come back again in January of next year, our fourth quarter of our new fiscal year. So it's typical pricing pressures. I think they've abated a little bit relative to the steep curve in the 100-gig that occurred a couple of years ago, when you went from really, the first initial system deployment to first -- to the start of volume deployment.

But was it within that 10% to 15% annual decline?

Yes, it's within that range. And...

So would you say it's at the high end or low end?

No, I'd say it's in the middle.

Mid? Okay.

Yes. And we have seen China, at least our footprint in China, come back. It was delayed last year by a year. And for us, that has come back, and you start seeing shipments that are going on in our first quarter here. So that's a reasonable ramp in business, driven by some of that, as well as some of the North American buildout of AT&T.

And what was the actual HSOR revenue in fourth quarter? And what should we expect first quarter?

It was what the telecom revenue show for the quarter, David, so it's $1.4 million.

Right. And then first quarter, now that -- I mean, it's over basically, but then what should we expect for first quarter? Are -- should we expect first quarter to be sequentially higher?

Substantially, yes.

Substantially. Substantially higher. Yes.

Our next question comes from Randy Knutsen [ph] from -- who is a retail investor.

Let me start out by asking you about your reduced compensation plan. Is that continuing on in the future? Where are you in terms of that as the -- are you going to ramp back up pay even though we're not making a profit yet?

Yes, we've -- right now, the -- we've amended the employment agreements to carry us through July. And so you'll understand a little bit when you see our first quarter and second quarter numbers of what we've done there.

I'm sorry, I'm not following what you mean. Your -- can you elaborate on that?

Our pay reduction is continuing through July, right now, as planned.

So if it continues through July, which is today, and then it -- we're going to redo...

End of the month, end of the month.

Okay. And tell me about Torrey Hills. What do we pay them? Were they part of the reduction plan or...

Absolutely.

And what compensation do they received from API?

I don't want to get into compensation for my Investor Relations firm right now, but they took a substantial pay cut also.

And you're satisfied with what they're doing? Because I don't seem to see any news ever being released anywhere.

They have nothing to do with PR. They have to do with IR.

Yes. And so in terms of IR, I guess that's supposed to be related to your...

Well, that includes making trips to investor conferences and the like. We've been busy the first quarter doing the cost reduction, doing the blocking and tackling, and meeting the goals and objectives of our growth right now. So as a result, we haven't been doing too much traveling and doing promotion. Because again, we had such a bad last year, we thought it a better effort to put forth and managing business and then once we've gotten back on the growth path, then we can go out and tell our story again.

And I'm still not clear what precisely the Board of Directors does for you guys to justify compensation in the magnitude they're receiving.

Well, they took a wage salary reduction also, okay, that was the first thing. They're helping us direct the focus on a strategic planning basis, prioritizing our objectives, okay? And again, that comes through from the top all the way down. So they're very instrumental in providing that guidance for that kind of planning, cost reduction, market, and justifying what markets we're going after and the like. So they're very integrated into our entire planning process.

Thinking about VaRs, are there new VaRs? You've mentioned that...

Not since the ones in December that we've completed with Thermo Fisher, the Japanese one and ACT. We are looking at other ones at the same time.

Okay. No mention at all about TSA or In-Q-Tel in terms of trying to get...

No, we really haven't that much engagement. Once we've given them their prototypes, which kind of gone into the government black hole, I'll say, a little bit. It has to go through their approval process and the like. So we really haven't heard too much back from them since that time. And again, for us, it's a bonus almost because we're so focused on the industrial market where we really believe that you can justify an ROI to an industrial manufacturer as opposed to be an event-driven government expenditure program.

Any breakthroughs at all with Terahertz in the automobile -- automotive industry or...

Yes, I mean, we're looking at a couple. We're looking at a particular automotive application, I just don't want to talk about it yet until we've gotten the success. We've got some trials going on this month. So hopefully, the next time we talk in August, we may be able to talk a little bit more about that.

Do you ever foresee a time when we're going to get revenues of HSOR in the $25 million range a year? Is that something you think is doable for API or is that speculative?

I think that -- right now, I think we can start returning to the growth prospect because we have so many supply chain issues; customer had supply chain issues, we had supply chain issues, that I think that once we get back on the growth path and we start introducing some -- the APD-ROSA and things like that, there's a good opportunity for us to start growing even faster. Now, at the same time, you have to be selective of what markets you're going after for the development purposes because again, everybody has an opinion on the level of R&D revenues we have. And so we have to be -- and again, the Board supports where we're going to be putting our money, and making sure that we're getting a good return on investment. Rob, do you have anything else to say?

No, I think the markets are growing fast enough to do that. Our long range plan supports that, of getting to revenues at that level or beyond. But we won't -- we will not be at half that revenue this coming fiscal year. We're going to be -- more likely we're -- in FY '12, while substantial revenue growth -- we're just getting back to where we were in fiscal 2012.

And I guess I'm concerned about the amount of capital we have on hand. It sounds like we don't have a pretty bang up here this year. We're really in some deep water.

Well, again, it gets back to -- we've got -- we're giving guidance on our projections for revenue growth. And we believe that for the year, we'll be adjusted EBITDA positive.

Okay. The last question. I noticed that there is this preliminary -- I don't know if the proxy is out yet or not, I saw a link. I haven't gotten anything, but I read on the message boards that there's apparently some proxy coming out with contemplating, increasing, as I'm reading, the compensation for the Board of Directors. What are the shareholders going to get out of that?

That has nothing to do with compensation for the shareholders -- for the Board, I mean. I'm sorry. There's nothing...

It's not suggesting that the board is going to get some additional increase in their compensation?

No. We have a normal shareholder vote on our Board of Directors. We have an approval for a new equity plan that we can give shares and options to employees and we have the BDO. There's like 6 proposals on the proxy.

Correct, yes. And one, of course, is the one that considered amending the bylaws to allow the shareholders to nominate director candidates. And I just want to say publicly, I'm fully in support of that because you mentioned your loyal staff, which you have. You have wonderful technical staff, and those guys should be commended and applauded. But you've had a lot of really loyal shareholders for -- I've been with this company for a decade, and we're seeing stock prices at 10 -- worse than they were 10 years ago. What are you going to do to try to give the shareholders some reason to stay with you?

I think that the focus being on, like you have always indicated, let's get profitable.

Yes, yes. I agree with that.

Okay? So that's the first step. And part of that process was dropping the expenses by $2 million, okay, this past year. And lowering our breakeven point, and now, we're starting to see return of our growth in revenues. So that's going to help. Now, we still have to make a GAAP profit because not a lot of people like to refer to as non-GAAP profit. But that's where a lot of startups have the issue, because they have so many goodwill and intangibles that they're writing off, which are noncash. At the same time, we think we can get there if we follow up with our growth projection in the future years. So I think that the positive EBITDA is the first step, and the second step is to really start generating profit.

Last question. Do you have anything in the works to try to -- it seems to me that just reading the sentiment of the retail community, everybody is pretty upset, and that includes me. So is there anything that we can foresee in terms of management doing something proactive to be -- to get word out to investors and to let us know somebody in the company really cares about the share price? Because, frankly, it's been a real struggle this year, not only for you, but for those of us that have stayed with you.

Well, again, I refer to the fact that management and the employees own a lot of equity that is underwater, like our shareholders. So we are aligned. We want to see the price go up. And I think that, that's where the guidance of the Board helps tremendously in providing the focus needed to get us into managing our expenses much tighter and getting us into those market opportunities that are growing the fastest.

Our next question comes from Charles Knowles [ph] , who is also a private investor.

On the board, I wondered how many candidates the nominating committee discussed this year in 2013.

Over the past several years, we've probably interviewed probably 4, 5, if my memory serves me correctly.

Okay. You don't know if you interviewed any this year?

No. Your recommendation for Dr. Fowason [ph] was the only one that we had considered this year. Again, our focus was on operational aspects of the company.

Okay. I think Randy [ph] may have asked this, but do you -- how much cash and how many shares has the IR firm been paid and will be paid the remainder of the year?

He did ask that, and I specifically declined to address the actual dollar cost. And I've -- they've taken a big haircut from what we were paying them as a monthly retainer. And they don't get any shares at all. So there's no conflict. I mean, it's just -- it's a cash retainer.

And on this paying queue, the money being raised, it would be nice as a shareholder if you would come to the shareholders to see if they would be interested in putting up more money.

That's a good consideration. I -- we've talked about rights offering in the past.

Okay. Is there any overtime on any of the shifts now, the HSOR or the T-Ray or the...

There is some overtime in the test function and on the weekends as things have ramped back up in the HSOR.

Our next question comes from Mike Haymaker [ph] .

Yes, this is going to sound like Groundhog Day to you guys, but I have the same questions that Randy [ph] and some of the other guys had. So after I've been with you a dozen years, it's another dismal year. It seems like every year, something has gone wrong, revenues are down, we're tightening our belt, but it's going to get better. I see the proxy come out, where a lot of, you want to make some, I would say, significant payment increases to the board or -- and stock and things like that, and we've got an unproven new supplier in China. The guidance you're giving, it sounds good, but we've heard good guidance before, it's never come through. I guess my question for you guys is why is this the right time to do anything rather than focus on getting the company back on track? So why are we worried about keeping the board so entrenched? Why are we not looking at other board members? Why are we looking at voting new equity and new compensation? And it just doesn't seem like the right time, and it doesn't seem like the right thing to do.

Okay. So as far as the equity plan goes, the equity plan is to obviously align the interest of employees and management along with the shareholders. So we don't have anything there. We haven't given wage increases to anybody for the past 4 years. So how do you retain people? You retain people by hopefully, giving them stock that's going to -- options that's going to appreciate in value, okay? Right now, they are underwater, just like every other shareholder's underwater. So that is the #1 reason that we want to put an equity plan in front of the shareholders. Now if the shareholders don't approve it, that just means I have less ability to retain good employees, okay? And as far as the board goes, there's nothing specific in there that says that the board is getting any type of increase in compensation. So I don't know what that is referring to. As far as us focusing and showing, all you can do is say, wait 'til the first quarter results come out, okay, to see if you can believe what we're saying today. And then look for the second and look for the third. We're trying to bring back the credibility that we once had when we showed consecutive revenue growth for 9 straight quarters.

I don't think anybody, any of your retail investors, would mind giving the employees some of the takebacks. We'd like to see the employees, the good ones, stick around, and we understand that they've been through some tough times. What is very difficult for us to understand is you've had the same board in place for the 12 years, I think, that I've been here. I think when you came on board, Richard, the stock was at $4, and now it's at $0.64. I think that it just feels like we're going to keep doing the same thing with the same board. We're not going to consider new ideas, we're not going to take a new approach and we're going to hope that the market turns around and things go well for a year. From a retail perspective, I think you've heard it from Randy [ph] , you're hearing it from me, you hear it from a lot of people, if you guys communicated with your retailer shareholders, we are at the end of the line, I think, with you guys, with the board. Anyhow, if all we can do is sell our stock, then probably sell us -- we're going to sell our stock and you're going to have even a harder time in the market. So I would think about being shareholder-friendly. I would think about communicating better. I would think about being open to new board numbers, particularly the ones that are recommended by your retail investors that have such a huge stake in your company. So that's all I have to say.

Our next question comes from Edward Perry [ph] .

I'll be the first to acknowledge your hard work, which you've made a lot of accomplishments from an operational sense. In fact, I ran out of the ability to keep notes on it. So again, thank you for the hard work. Specifically questions, though. There was a time when $32 million was the benchmark revenue number at the top line needed to achieve positive growth at the bottom line. With Silonex in place, I think it should be a little bit larger. What's the magic number now?

Yes, that's a good question. When I walked in the door here back in September of 2011, roughly, on a non-GAAP basis, the company needed $8.5 million worth of revenue to basically break even on a non-GAAP basis. And non-GAAP typically is viewed as kind of the cash P&L, all right? You can also look at adjusted EBITDA. For the last few years, because of the difficulties we've had on the top line, we've reduced our breakeven down to $7.5 million in revenue a quarter. With the Silonex acquisition, that's added cost in. So we will bump up our breakeven, again, point to roughly $8.5 million of revenue a quarter for non-GAAP profits.

Great. So that sounds like by the end of the year, you should anticipate a profit in the Q4 '14?

You know how to do the math.

Okay, great. And then between -- it's just going to be a transition of what we should see a progressive growth towards that event.

Yes, we are seeing a good first quarter here. And as we go forward, you should see the ramp-up for the year as we've guided up more than 35% for the year.

Okay. The 35% is really nice. That's -- I hope you guys can accomplish that as you plan. Now relative to that, the next question I have is you've made achievements in cost reductions that sound to be impressive. Going forward, are those cost reductions part of a plan that's going to be assiduously followed? Because if your costs ballooned, then the revenues won't mean quite as much.

Yes, I think what you'll see here is that we will maintain or actually, reduce our cost out a little bit this coming year relative to fiscal year '13.

Great. Also, comments had been made about lack of communication. Flush PRs would be much appreciated even if it's something like you got a certification or, like for example, the fiber-to-the-home and the new manufacturing arrangements for the Chinese market. That's very significant. I mean, that's quite an accomplishment.

Yes, I -- right. I think that when I say we were applying for UL and CE certification, when those go in and then we receive what is referred to as the pending approval, that's when we will probably start doing press releases on that for Terahertz. We also have some actions going on in other aspects of Terahertz. And of course, HSOR and Optosolutions has some potential for new opportunities in the test to measurement area.

Yes, so the releases along those natures would be much appreciated. Again, I'm really impressed with the FTTH. That's quite an accomplishment. Anything from the Chinese manufacturing trading company and their evaluation of the second-generation SAF-T-CHEK?

No, they -- we just shipped the unit that we had gotten a purchase order last year. And so they've just -- are going to be receiving it. We're actually going to be going over there and installing it the week of the 22nd of July. So they haven't received it, haven't started anything yet.

Okay. It's really early in the game.

Yes, still early.

Now, with regard to the supply chain issue, did -- were you able to resolve with the first supplier or is it -- do you have to go -- did you have to go to a still new supplier?

We developed a new supplier. The first supplier has now subsequently come back to us and we're evaluating what they've done, but there needs to be engineering that they'll have to do in order for their product to work.

Okay, okay, good. And have you -- in that 6 months where you did have the reduced opportunity to supply your customers, did you effectively lose market share to your competitors or...

Well, we lost market share during that timeframe to competitors because our customers wanted to keep shipping. But we have largely gained that market share back. You'll see that in the first quarter, at least, it's ramped up. So we're -- but we did lose market share because they didn't stop shipping their product.

Great. Now the new HSOR announcement, which I believe included the, I think, you called the Rainbow [ph] or something feature, where you can variably tune it...

Variable operating (sic) [optical] attenuator.

Exactly. Is that -- your competitors have that capability?

There's one other supplier that has a design win along with us. So we're sharing that design win. I'm sure others are trying to get there, but as far as we know, there's only one other.

[Operator Instructions] And gentlemen, at this time, I'm showing no additional questions. I would like to turn the conference over for any closing remarks.

Well, I don't have anything to add other than to thank everybody for taking the time to listen to our report today. I appreciate it. And for our entire team, we appreciate your continued support with our company. Have a great week, and thank you again.

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