My Note: As usual I participated in asking questions yesterday relating to Advanced Photonix (API), trailblazing efforts in the commercialization of Terahertz. API remains the only company to have actually placed a THz unit on an operating factory floor, and they have done so in a variety of different industries, and in a number of settings. Rick Kurtz confirmed this on the conference call yesterday. SeekingAlpha, released a summary of the call, and I have included the relevant portions relating to THz. Rick Kurtz, and Rob Risser answered all of my questions, and the reference to Jeff Anderson as the person who answered my questions is incorrect. I have also taken the liberty of clarifying some of my questions which are garbled in the transcript.
Rob Risser: "Our cost reduced in fact for ruggedized Terahertz product, the T-Ray 5000 was introduced during fiscal 2014 along with underwriter laboratory safety certification.
In addition, we made significant progress toward our T-Ray 5000 CE certification during the year. CE certification is targeted at European market penetration and is required by certain European customers. In addition, we gained significant traction through our value-added reseller channel, which now totals four VARs and distributors located in Asia, Europe and North America.
With these VARs, we have successfully penetrated and had factory acceptance of our T-Ray 5000 and the building products, extruded plastics, pipe and research markets. In addition, we have deployed and are awaiting factory acceptance in the military, paper and pharmaceutical markets. We are successfully penetrating the industrial early adopters and have a business model that will allow a price point that is attractive for a more rapid market acceptance by industrial customers.
During the fourth quarter, our sales and marketing expense is typically high since we exhibited two large tradeshows. Photonics West and the Optical Fiber Conference or OFC, both shows were very successful for us this year and confirmed that we targeted the high growth segments of the markets we participate in."
Richard Kurtz: "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 of T-Gauge product sales this coming year."
Here are the questions I asked:
Operator
Our next question comes from Randy [Knudson].
Unidentified Analyst
Good afternoon.
Jeff Anderson - Chief Financial Officer
Afternoon, Randy.
Unidentified Analyst
Well, let me ask you first about you mentioned in Terahertz. You mention pharmaceutical for the first time since about 2008 that I have heard pharmaceutical mentioned with API. Was that intended to be nutraceutical.
Jeff Anderson - Chief Financial Officer
Yes. It should have been nutraceutical more than pharmaceutical. It's an antibiotic.
Unidentified Analyst
Okay, but we are then in at least in some area of the pharmaceutical market and I assume -
Jeff Anderson - Chief Financial Officer
Yes.
Jeff Anderson - Chief Financial Officer
Not at the present time. Again, we have a VAR and 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 gauges because we believe that that's the path to volume today.
Unidentified Analyst
What are you noticing in Terahertz in terms of these areas that we've moved into such as the roofing industry? Are their 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.
Jeff Anderson - Chief Financial Officer
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 to 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 customers in the building product side. We have multiple customers now.
Unidentified Analyst
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 (applications). I mean, they may be selling to (labs) or universities, but I don't see anyone else doing what you are doing in the industrial market. Is that fair or are there others?
Jeff Anderson - Chief Financial Officer
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.
Unidentified Analyst
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, then 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.
Jeff Anderson - Chief Financial Officer
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 [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.
Unidentified Analyst
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.
Jeff Anderson - Chief Financial Officer
We did. We sold our prior version of T-Ray 4000 to Appleton (Appvion), 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.
Unidentified Analyst
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 live 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.
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I would be happy to post news about any other companies actually installing/deploying THz units onto a working factory floor. If your company is making such sales please let me know. Thanks.
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