Audio Pixels : Half Year Accounts

Half-Year Report of Audio Pixels Holdings Limited for the Half-Year Ended 30 June 2017

ACN 094 384 273

This Half-Year Report is provided to the Australian Stock Exchange (ASX) under ASX Listing Rule 4.2A.3.

Current Reporting Period: Half year ended 30 June 2017 Previous Corresponding Period: Half year ended 30 June 2016

Results for Announcement to the Market

Revenue and Net Profit/(Loss)
Percentage Change %	Amount
Revenue from ordinary activities	down	3%	To $43,123
(Loss) from ordinary activities after tax attributable to members	down	N/A	To ($4,285,046)
Net (loss) attributable to members	down	N/A	To ($4,285,046)
Dividends (Distributions)
Amount per security	Franked amount per security
Final dividend	Nil¢	Nil¢
Interim dividend	Nil¢	Nil¢
Record date for determining entitlements to the dividend: final dividend interim dividend		N/A N/A

Brief Explanation of Revenue, Net Profit/(Loss) and Dividends (Distributions)

Refer to Directors' Report.

Directors' Report

The directors of Audio Pixels Holdings Limited submit herewith the financial report for the half-year ended 30 June 2017. In order to comply with the provisions of the Corporations Act 2001, the directors report as follows:

The names of the directors of the company during or since the end of the half year are: Mr Fred Bart (Chairman)

Mr Ian Dennis

Ms Cheryl Bart AO

PRINCIPAL ACTIVITIES

During the reporting period there were no significant changes in the nature of the Company's principal activities which were predominately focused on the refinement of the fabrication processes required to mass produce a commercial version of the company's proven groundbreaking MEMS based digital loudspeaker.

Audio Pixels is a world leader in the digital transformation of sound reproduction; combining the emergence of a multibillion-dollar MEMS device industry together with the multibillion-dollar loudspeaker market that has over the course of a century become an indispensable fixture of daily life throughout a myriad of industries and applications.

REVIEW OF OPERATIONS

The Company's primary efforts remained focused on commercializing its groundbreaking MEMS based digital sound wave transducer platform into an industry compliant microchip that will propel audio loudspeakers, systems and ultrasonic sensors from its century old analog origins into the advanced digital era of today.

Managing the scope, complexity and magnitude of such an undertaking necessitates careful planning. The Company sought to mitigate the technological and fabrication risks by establishing a four-phase program whereby each phase was independently planned (funded) and executed to address specific functional and fabrication challenges. Each phase was designed to resolve particular challenges while collectively contributing to an end result of a mass-manufacturable commercially viable product. The Company is currently in the latter stages of the fourth and final phase of this program. Throughout this fourth phase management has dedicated enormous efforts and resources toward achieving a reliable and repeatable mass manufacturing process that will meet the uncompromising demands of the consumer electronics, computing, communications, automotive, healthcare, security industries.

A particular focus of the Company during this reporting period has been on the refinement and optimization of the MEMS fabrication process (fabrication of the MEMS transducer responsible for generating the sound waves).

Exhaustive testing and analysis conducted on wafers produced during the earlier stages of fourth phase of the development program exposed an important need to further refine the electro-mechanical "points of contact" that among other purposes serves to suppress contact effects that could play a critical role in the sound quality and reliability of the device.

Directors' Report

Overall there is limited industry knowledge as to the intricacies that surface morphology plays in such micro-contacts, in particular under the working conditions of our structures. Therefore, the Company together with its vendor launched a comprehensive investigation into the underlying sciences with the goal of identifying and formulating suitable materials and application techniques that would be needed to attain the specific requirements of the contacting surfaces. The Company, aided by its vendor and a number of global experts utilized highly advanced measurement techniques and third party multimillion dollar test equipment to evaluate and model results run by our vendor.

Ultimately this comprehensive investigation led to several compositions and process techniques that demonstrated the ability to achieve the desired outcome. This information was then "plugged into" the existing wafer fabrication flow for process implementation.

The company credits its MEMS vendors' unyielding commitment to achieve the Company's mass production requirements in keeping the impact of this rather massive undertaking to a bare minimum. During the coming weeks (from the date of this report) and throughout the balance of the current financial quarter, the Company will receive large quantities of wafer batches each containing modifications described above to the process flow. The company is fully organized for rapid test and measurement of these wafers in order to identify the batch or batches of wafers that best comply with the functional requirements of the device. The sanctioned wafers will help to solidify the production process as well to advance the Company's standing objectives of achieving demonstrable product capabilities.

In parallel, throughout the reporting period the company continued to advance performance verification of the combined ASIC and MEMS and the refinement of the chip assembly and packaging process. Management has begun to expand its engineering workforce to better cope with the escalating quantities of wafers and to be better prepared for the commencement of the demonstration phase. During the reporting period a highly skilled engineer was added to the team to provide experienced focused leadership of the measurement and characterization capabilities of the Company.

Management continues to remain intimately involved with the marketplace. Beyond continual direct confidential customer conversations, a number of market trends continue to evolve that further validate the underlying rational behind Audio Pixels; that consumers and industry alike are craving for solutions that improve their sound experience. Most noticeably perhaps is the acceleration in investment and adoption of higher resolution audio formats, platforms and offerings. Renowned device manufacturers including Sony, Samsung, LG and HTC to name but a few have added high-resolution audio (HRA) capabilities to their devices. All three major Music labels (Universal Music Group, Sony Music and the Warner Music Group), the Recording Industry Association of America (RIAA) and the Digital Entertainment Group (DEG), announced their support for studio-quality hi-res audio music streaming. This prompted the major music providers such as Pandora, Rhapsody/Napster and HD Tracks to launch high-resolution music streaming services, with Spotify rumoured to be not far behind (Apple's commitment to High Resolution remains unclear). Of course the catch behind all this activity is that ultimately one needs hardware that is capable of reproducing the detail that is contained in the high resolution audio files. With no known direct competitive threat on the horizon Audio Pixels appears to have endless opportunities to fulfill this market demand.

Intellectual Property

The company continues to expand it intellectual property portfolio, now standing at 35 applications with 98 patents granted in various global jurisdictions. Additionally during the reporting period several patents have either been submitted for application or are in the process of being authored including relevant to the technological advancements described above.