Audio Pixels : Half Yearly Report and Accounts

Half-Year Report of Audio Pixels Holdings Limited for the Half-Year Ended 30 June 2016

ACN 094 384 273

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

Current Reporting Period: Half year ended 30 June 20 16 Previous Corresponding Period : Half year ended 30 June 20 1 5

AUDIO PIXELS HOLDINGS LIMITED

Results for Announcement to the Market

Revenue and Net Profit/(Loss)

Percentage

Change Amount

%

Reven ue from ordinary acti vities (Loss) from ordinary activities	after	tax	up down	425% NIA	To $44,534 To ($4,724,282)
attributa ble to members
Net (loss) attributable to members	down	NIA	To ($4,724,282)

Dividends (Distributions)

Amount per

Franked amount per

security security

F ina l dividend Interim dividend

Record date for determi n ing enti tlements to the dividend:

N il ¢ N il ¢

N il¢ N il¢

• fi nal dividend N/A

• interim dividend N/A

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

  Refer to Directors' Report.

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  AUDIO PIXELS HOLDINGS LIMITED Directors' Report

  The directors of A udio Pixels Hol dings Limited submit herewith the fi nancial report for the half-year ended 30 June 2016. I n order to comply with the provisions of the Corporations Act 2001 , the directors report as fol lows:

  The names of the di rectors of the company duri ng or since the end of the half year are: M r Fred Bart (Chairman)

  Mr Ian Dennis

  Ms Cheryl Bart AO

  Review of Operations

  During the report i ng period there were no significant changes i n the nature of the company's pri nci pal activities which were focused on the refinement of technology and fabrication process req uired to mass produce a commercial version of the company's proven groundbreaking MEMS based digital loudspeaker.

  A udio Pixels is a world leader in the digital transformation of sound reproduction ; combining the emergence of a multi bill ion-dollar MEMS device i nd ustry together with the mu ltibi llion-dollar loudspeaker market that has over the course of a century become an i ndispensable fixture of dai ly l ife throughout a myriad of industries and appl ications.

  The Company's pr imary efforts are to commercialize its groundbreaki ng MEMS based digita l sound wave transducer platform into an i nd ustry compliant m icrochi p that will propel audio loudspeakers, systems and u ltrasonic sensors from its century old analog origins into the advanced digita l era of today.

  The ongoing commercial ization efforts have been dedicated to evolving the company's proven playing digital loudspeaker prototype technologies into a small robust semiconductor loudspeaker ch ip t hat is ideally suited for a very wide range of OEM and consumer applications. The m ission undertaken by the company is analogous to the transition undergone by the display i ndustry from analog based cathode ray tube (CRT) technologies into the modern digital l i ght emitting diodes (LED) based displays of today. The common thread between both transitions is that they are no less significant in terms of scale, volume and compl exity. The d isti nction however is that whil e a wide range of multinational conglomerates all contributed to the advancement of display technologies, Audio Pixels alone has l ed the charge toward making di gital sound reconstruction a reality.

  Managing the scope, complexity and magnitude of such an undertaking necessitates careful planni ng. The compa ny sought to m itigate the technologica l and fabrication ri sks by establishing a four-phase progra m whereby each phase was independently planned (funded) and executed to address specific functional and fabrication challenges. Each phase was designed to resolve part icular challenges while collectively contributing to an end result of a mass-manufact urable commercially viable prod uct. The fourth and final phase of this program , which is currently entering its latter stages, is somewhat different as it serves as the final "integration phase"; a development phase that fuses all the functional and manufact uri ng achievements of each pr i or phase into a working device produced using mass manufact uri ng methods.

  An important nuance to the fourth phase is that the integration of a number of i ndependent elements requires precision coord i nation between vendors and activiti es. The real ity of any integration effort is that any i ndividual interva l, more often than not, impacts the overall i ntegration process and progress. Throughout the fourth phase management has and continues to invest enormous efforts trying to navigate the nat ural fluctuations associated with prod ucing a groundbreaking MEMS based technology; the highlights of which are:

  • MEMS - the MEMS transducer (Micro Electro Mechanical Structure responsible for generating the sound waves). Standard semicond uctor convention is often an i nadequate representation of the true behavior of a specific full structured MEMS device. Developing devices of our scale

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    AUDIO PIXELS HOLDINGS LIMITED Directors' Report

    and composition often introduce unexpected variances from the planned and simulated results. Mini mizing uncertainly necessitates close collaboration, frequent and exhaustive evaluation of the design and fabrication process. The risk m itigati ng approach adopted by management was to incorporate countless check poi nts throughout the fabrication process that allow for comprehensive evaluation of actual resu lts, before allowing the fabrication process to continue on the bul k of the deliverable wafers. For example during the reporting period we reported the eval uation results of structures that had completed roughJy two thi rds of the fabrication process. The purpose of th is specific test was to determine rel iabil ity of the device during actual operational mode. This test was conducted on a smal l num ber of lead wafers random ly selected at a fabrication point whereby adjustments coul d sti l l be made to improve performance should it be deemed necessary. I n fact the only reason the results of this test were made publ i c i n April 2016, was its overarchi ng noteworthiness to the MEMS i ndustry as to the best of our knowledge no MEMS device to date has been announced to surpass one tril l ion cycles without i ncurring a single fail ure. This is but a specific example of how our pedantic measurement program is fused i nto the product ion process i n a manner that creates tangible opportunities to mi nimize the natural uncertainties associated with developing a pioneer ing MEMS based device.

    The company conti nues i ts ongoing push to augment its mass prod uction capacity, for example by entering i n J uly of t hi s year i nto an agreement focused on the future prod uction needs of our MEMS devices, with TowerJazz a leading global "pure play" foundry.

    Relevant MEMS related events that transpired after the reporting period

    At the time this report was authored the compa ny received a small number of test wafers from the lead fabrication batch. These wafers consisted of ful ly fabricated MEMS chi ps prior to the final singulation step (the process of i nd ividually separating the devices). The wafers have already begun extensive evaluation using our proprietary wafer probe test ing equipment. Upon verification of the device's electro-mechanical characteristics, the devices will undergo functional evaluation that exam i nes the chi ps performance when combined with our propri etary ASIC driver. The resul ts of both tests wi l l be carefully evaluated prior to authorizing the remai ning wafers of the lead batch to complete the fabrication process, i n order to determine what if any additional optim ization measures should be appl ied to the remaini ng prod uction wafers that have been staggered and held at critical process steps throughout the production process .

  • ASIC Driver - During the reporting period t he company compl eted design of its second­ generation integrated circuit. The proprietary ASIC which will be co-packaged with the MEMS device serves to convert and control device voltages required by the MEMS transducer. The second generation ASIC not only el im i nates a num ber of bugs detected i n the i naugural ASIC design, it additional ly contains a wide variety of functional "intelligence" to enhance performance and ensure high operational i ntegrity throughout the device's l ifecycle. Fabrication of the ASIC prod uced by our design partner 's preferred vendor encountered a sl ight delay due to the necessity to re-spin a layer of the wafers (reappl ication of photolithographic mask(s) to correct a detected defect). Although re-spi nning is a fai rly routine process used when fabricating complex semicond uctors, unfortunately the timing was such that the corrective measures pushed the completion ti mel i ne into the European hol iday period .

Relevant ASIC related events that transpired after the reporting period

Our design partner (ICSense) was able to complete and approve specification compliance unfortunate ly the sl ight delay i n the ASJC's fabrication req uired reschedul i ng of the critical functiona l verification stage to beginni ng of September when the vendor ret urns in full

force from thei r summer hiatus. Fol lowing the functional verification tests the ASIC wil l be integrated i nto our newly designed electronic ci rcuitry , which fundamentally furnishes our propr ietary prober the capability ofrepl icating a fully functional integrated MEMS and ASIC device prior to commencing the final assembly and packagi ng process. Although at

this reporting time management sees no reason to alter its 3rd quarter objectives, given the

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