Good day, everyone. Welcome to Advanced Photonix's 2014 Fourth Quarter and Year End Earnings Conference Call. Today's conference is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Jeff Anderson, Advanced Photonix's CFO. Please go ahead, sir.

Thank you, Laura. 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 of 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 fuller 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 this teleconference represents management's expectations and beliefs as at the date hereof. The continued availability of this teleconference on the Internet, or 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 presentation of non-GAAP financial measures, as defined in the SEC's Regulation G. Reconciliations of the non-GAAP financial measures to the company's GAAP-based financial statements are included in the company's fourth quarter and year-end earnings press release dated June 30, 2014, and are available on our website at www.advancedphotonix.com. On today's call, I will briefly review our few financial highlights from the fourth quarter and year…

Thank you, Jeff. Good afternoon, everyone. Thank you for joining us on the call today. We made significant progress in fiscal 2014 toward the two goals that we believe will drive shareholder value, revenue growth and positive adjusted EBITDA. Revenue grew 23% for the year compared to last year driven by 55% organic growth in our high-speed optical receiver product platform, including a 91% growth in our transmission products primarily with our 100-gig coherent receiver product offerings and growth through acquisition in our Optosolutions silicon product platform. Unfortunately our revenue growth in these two product platforms was offset by a 47% revenue decline in our Terahertz product platform compared to last year, which caused us to miss our 35% revenue growth target. Revenue from products introduced in the last two years accounted for more than 27% of revenue in fiscal 2014. Our adjusted EBITDA was negative $846,000 for the year compared to a negative $2.2 million last year, an improvement of $1.4 million, short of our goal of positive adjusted EBITDA for the year. We plan for FY'14 to be revenue-neutral in our Terahertz product platform and a year of transition marked by rapid product sales growth offset by shrinking contract revenue. Rapid revenue growth was delayed in our Terahertz product platform due to our longer than anticipated training and sales cycle with our value-added reseller account. Operationally, we had significant accomplishments in each of our product platforms last year that resulted in revenue growth and improved performance and positions us well for continued organic revenue growth and adjusted EBITDA profitability in fiscal 2015. We had major 2014 initiatives in cost reduction across all three product platforms. New product development and our high-speed optical receiver and Terahertz product platforms and market development in our Terahertz product platform, cost reductions included…

Thank you, Rob. Good afternoon, everyone, and thank you for joining us on the call today. Last year was a year of transition and growth. As already mentioned by Jeff and Rob, we grew revenues by over 20%. We did believe that we could have been higher, but delays in the integration of Advanced Photonix Canada combined with our slowdown in military deliveries and a push out to the government contract awards for Terahertz slowed growth in the second half. Pursuant to our press release of last Friday, we did receive the first of two major Terahertz development contracts discussed during our mid-quarter update. The first was from the Navy, which we proposed to build and test a prototype non-contact, time domain Terahertz non-destructive evaluation scanning system to acquire sub service, beneath summary acoustic hull coatings. The system will enable the rapid detection of hull defects such as corrosion and gouges beneath submarine hull coating as well as hull coating material and adhesion defects. We remain in discussion on the second SBIR Phase 2 contract for $1.5 million for the F-35 program. We are expecting to receive this award during our second quarter fiscal 2015. To maintain our leading market position in Terahertz, we have reduced our manufacturing costs for T-Gauge products by more than 25% thus allowing us to lower our price points opening more product sales opportunities. We are continuing to work on new product developments to further lower the cost of Terahertz solution, thereby allowing us to accelerate market adoption, compete more effectively against older technologies, expand our addressable markets and encourage additions to our value-added reseller channel. We now are seeing a strong build up and potential T-Gauge orders in both, the industrial and the research market. We are expecting to more than double the number…

Thank you, sir. (Operator Instructions) Our first question comes from Dave Kang of B. Riley.

Yes. Good afternoon. Thank you. The first question is regarding the gross margins situation in fiscal fourth quarter. Was this just simply a product mix issue or is there something else that to lower gross margin and then just if you can comment about the gross margins recovery going forward. Is Terahertz coming back? Is that sufficient to get back to mid-30% to maybe even high 30% range by maybe second half this fiscal year?

Dave, this is Jeff Anderson here. To answer your questions, was mix driven in the quarter as well as Rob mentioned, we have our annual contract negotiation, so our HSOR products in the March quarter essentially had their reductions in sell price, so that's typically where we have the most difficulty on the gross margin is in that March quarter because of that price drop. Back to your question about how we look going forward, I would say that you have us forecasted pretty consistent with how we view ourselves going forward and that we do expect to rebound back into the mid-30 range as we go forward here and then higher during the year as volume benefits us.

Got it. Then just housekeeping item, what was the CapEx number and what's the budget for this fiscal year?

We have been running about $100,000 a quarter, Dave, and I think that's still a good estimate going forward.

Got it. Then regarding the HSOR expansion, where are you in terms of second shift. I mean, have they been qualified or what's the latest?

Dave, this is Rob. Yes. We are continuing to ramp up. We have an almost fully functioning second shift and believe that we will hit our capacity expansion target as we knew it a month ago in July. However, you know, it's a moving target on the demand side, so we are seeing potential that we will still be behind the curve.

Okay.

…Capacity.

Sure. Then just a couple of more, regarding 100-G margins, any on to more all the margins any difference between you and ZTE. There certainly has been a lot of concerned about the Chinese margins being fairly challenging. Any comment on difference AOU and ZTE.

Well, what I would say is while the products are slightly different products. They are both, 100-gig, but they are slightly different products. Overall, they are very similar margin, so we haven't seen what I think some others in the industry maybe at some more legacy products…

Right. I mean, the margin, but the price adjustment that occurred in the fiscal fourth quarter. Anything out of ordinary? I mean, was it still 10% to 15% range or.

That said. That's whole price curve is starting to level off. If you remember, three years ago when we first started the margins tended to look more like Comtest margins, because it was - and that was small. Then you got some pretty big price reductions. Of course we had corresponding cost reductions and curve like all these curses in the telecom space to move down into the normal pace.

Got it. Then need many to for competitive landscape changes with you U2T going to Finisar.

Well, I would say that we have seen some indications that we could benefit from some of that, but there aren't any, but you can look through the rearview mirror.

I was thinking more like, is Finisar and see any of our policy to more like are used in the start of the loan you know above unity using authoring their weight around and making sure price pressure but we haven't seen that yet.

No. I haven't seen that. No.

Okay. Lastly, for you Jeff, so you talked about a couple of major tradeshows that's why OpEx was a little bit up, so how much can we expect that to come down for out quarters starting with June.

I think, I got it forecasted pretty correctly. I mean, you are going to see this kind of normal spend rate going forward here in Q4 offsets on one side into the other, so it's going to net be about the same.

Got it. Then I guess the shares will be around 37 million by maybe not June but by September quarter fully diluted will be around $37 million.

That's correct because of 6.2 million shares that we recently placed with B. Riley.

Got it. Thank you.

All right. Thank you.

Our next question comes from Randy [Knudson].

Good afternoon.

Afternoon, Randy.

Well, let me ask you first about you mentioned in Terahertz. You mentioned pharmaceutical for the first time since about 2008 that I have heard pharmaceutical mentioned with API. Was that intended to be neutroceutical.

Yes. It should have been more neutroceutical than pharmaceutical. It's antibiotic.

Okay, but we are then in at least in some very end of the pharmaceutical market and I assume -

Yes.

Anybody else contacting you in that industry?

Not at the present time. Again, we have a VAR in Japan that's leading the charge over there for us. They are the ones have been mostly engaged. Our focus obviously has been with the industrial market and the replacement of nuclear gauge is out there because we believe that that's the path to volume today.

What are you noticing in Terahertz in terms of these areas that we've moved into such as the roofing industry? Are the competitors starting to look at us as well? I mean is it the fact that one party in the industry is purchasing the product leading to other ones.

Yes. When you first get the first install ones. Then the competitors-type for those building product applications start looking at a lot more seriously more and more opportunities out there within the on the various industrial applications that we have gone after. Our competitors of course are looking and trying to figure out how they get there, because we do have one of the most advanced Terahertz industrial hardening systems in the world, so we do have a large ahead of our competitors we want to keep that. That's the reason our focus is on cost reduction to make the ROI even more attractive and we do have multiple in the building product side. We have multiple customers now.

Okay. I don't see anyone else. I see a lot of talk about Terahertz. You know, I try to keep up with all the stuff that's going on the net, but I don't see anyone affirmatively indicating they are actually doing commercial. I mean, they may be selling to universities, but I don't see anyone else doing what you are doing in the industrial market. Is that fair or are there?

That's absolutely correct. Some people do talk about selling to maybe a pharma, but it will be offline. It won't be on the factory floor. It will be in the lab type of thing, so we are the only ones that have deployed Terahertz on the factory floor real time to control the manufacturing process. We don't really control it. That's our VARs doing that within their software package and their scanning systems that they make.

Yes. I wish there was something you could put out that would affirmatively state that, because you know there's just so much information. As a result, this information that people don't know what the truth of the matter is, so unless you affirmatively tell us that's the situation as you understand that you know nobody knows, so - Let me ask you, are you in contact at all with any of the automotive industry. I know you went to the show in Detroit one-time.

We went to the paint show. We really haven't talked to the OEMs we will call it directly. We are in dialogue with some component manufacturers. We have finished a contract for the F-35 program that is prototype to what we refer to as SPG or single point gauge. We will have hopefully some video next month on it that we can be putting on the website that shows the handheld device with a touch screen on it to measure multiple layers at the same time and there has been some interest in the gas tank manufacturers to manufacture plastic gas tanks that have multiple layers, including a [vapor] layer to ensure they have the proper thickness within corners and on flat surfaces of the blow molded gas tank, so yes we have had some dialogue, but there haven't been the early adopters that we have seen in other applications.

Let me ask you about the paper industry. You mentioned paper, you still haven't completed a contract sale as I understand in paper and I thought that was done a long time ago.

We did. We sold our prior version of T-Ray 4000 to (Inaudible) that was over a year-and-a-half ago. We are still working with them, consulting with them and hopefully we will be able to expand to other people in the paper industry.

Then the big question is relates to the QPL or the qualified provider list, with TSA. Where are we in terms of that? We have not gotten any notice whatsoever on that. You are at the mercy of the government and we are not a large enough company to have the lobbyists in place that can really help us to arrive at that, so we really haven't made any progress. From our perspective it's more of a holding pattern today. We are looking at potentially other options to take that to market and that one include maybe you know a strategic relationship out there, but we are in the evaluation phase of that.

Okay. Just enlighten me I don’t understand what the status is of API candidate. As I understand you have off-shored all word all the silicon-based line and so is there still an API candidate out there?

The entity is there. It's in engineering facility and it's very unique in the fact that the Canadian government really wants to have engineering facilities there, so they provide very high tax credit for that against the salaries and so we have four, five engineers located in our little office up there. They are the ones that are working on a lot of new product development force with this tunable light source's and some other products that we are developing, so it's really an adjunct engineering facility not a manufacturing production facility.

Can you tell us any more about the tunable light source, what that is?

I can, but I am going to save it for the Shareholder Conference.

All right. Well, thank you. That's all I have.

Okay. Thank you, Randy.

(Operator Instructions) We are showing no further questions at this time. I will turn it back to management for any closing remarks.

While I don't have anything other to add other than to thank everybody for taking the time to listen to our report today, I appreciate for our entire team. We appreciate your continued support for our company and we are very focused on growing our revenues and increasing both, our non-GAAP and EBITDA and translating this into GAAP profits, so have a great week and holiday and thanks again.

Thank you again. That does conclude today's conference call. We appreciate your participation. You may now disconnect your lines.