Audio Pixels Holdings Limited ACN 094 384 273 www.audiopixels.com.au www.audiopixels.com.au ANNUAL REPORT 2019 CORPORATE DIRECTORY Directors Fred Bart (Chairman) Ian Dennis Cheryl Bart AO Company secretary Ian Dennis Registered off ice Suite 3, Level 12 75 Elizabeth Street SYDNEY NSW 2000 Australia Israel off ice 3 Pekris Street Rehovot ISRAEL 76702 Telephone: +61 2 9233 3915 Facsimile: +61 2 9232 3411 Email: iandennis@audiopixels.com.au Telephone: + 972 73 232 4444 + 972 73 232 4455 Facsimile: danny@audiopixels.com Email: Bankers St George Bank 200 Barangaroo Avenue Barangaroo SYDNEY NSW 2000 Australia Website www.audiopixels.com.au Auditor Deloitte Touche Tohmatsu Chartered Accountants Brindabella Circuit Brindabella Business Park Canberra Airport ACT 2609 Australia share Registry Computershare Investor Services Pty Limited Level 3 60 Carrington Street Sydney NSW 2000 GPO Box 7045 Sydney NSW 1115 Australia Telephone: 1300 855 080 or Facsimile: +61 3 9415 5000 outside Australia 1300 137 341 4997 Designed and Produced by RDA Creative www.rda.com.au Contents 2 9 10 Directors’ Report Auditor’s Independence Declaration Independent Audit Report 14 Directors’ Declaration 15 Consolidated Statement of Profit or Loss and Other Comprehensive Income 17 Consolidated Statement of Financial Position 18 Consolidated Statement of Changes in Equity 19 Consolidated Statement of Cash Flows 20 Notes To and Forming Part of the Financial Statements 53 ASX Additional Information 54 Twenty Largest Ordinary Shareholders 1 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 DIReCtoR’s RePoRt The Directors of Audio Pixels Holdings Limited submit herewith the financial report of the company for the financial year ended 31 December 2019. In order to comply with the provisions of the Corporations Act 2001, the directors report as follows: The names and particulars of the directors of the company during or since the end of the financial year are: name Fred Bart Ian Dennis Cheryl Bart AO Particulars Chairman and Chief Executive Officer. A director since 5 September 2000. He has been Chairman and Managing Director of numerous private companies since 1980, specialising in manufacturing, property and marketable securities. Mr Bart is also a director of Immunovative Therapies Limited, an Israeli company involved in the manufacture of cancer vaccines for the treatment of most forms of cancer. He is a member of the Audit Committee and a member of the Nomination and Remuneration Committee. Non‑executive director and Company Secretary. Ian is a chartered accountant with experience as director and secretary in various public listed and unlisted technology companies. He has been involved in the investment banking industry and stockbroking industry for the past thirty years. Prior to that, Ian was with KPMG, Chartered Accountants in Sydney. Appointed to the Board on 5 September 2000. He is a member of the Audit Committee and Nomination and Remuneration Committee. Non‑executive director. Appointed to the Board on 26 November 2001. Cheryl Bart is a lawyer and company director. She is Chairman of Powering Australian Renewables and Ted X Sydney. Cheryl is a non‑executive director of SG Fleet Australia Limited, ME Bank, and the Invictus Games. She is a fellow of the Australian Institute of Company Directors, Patron of SportsConnect and a member of Chief Executive Women. She is a member of the Audit Committee and a member of the Nominations and Remuneration Committee. Directorships of Other Listed Companies Directorships of other listed companies held by directors in the 3 years immediately before the end of the financial year are as follows: name Fred Bart Ian Dennis Cheryl Bart Company Electro Optic Systems Holdings Limited Weebit Nano Limited Electro Optic Systems Holdings Limited SG Fleet Australia Limited Principal Activities Period of directorship Since May 2000 Since March 2018 Since May 2000 Since February 2014 The principal activity of the Company is an investment in Audio Pixels Limited of Israel. Audio Pixels Limited is engaged in the development of digital speakers. Results The net loss for the financial year ended to 31 December 2019 was $6,231,930 (31 December 2018 ‑ $4,519,721). Dividends The directors recommend that no dividend be paid and no amount has been paid or declared by way of dividend since the end of the previous financial year and up to the date of this report. 2 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 DIReCtoR’s RePoRt Review of Operations Achievements during the reporting period were technical in nature, focused on advancing the company’s proven prototype technologies into a mass‑produced product. The primary accomplishment of the period has been fabrication of devices that reliably contend with the operational instabilities associated with electrostatically driven actuators and overcoming challenges related to processing the back side of the wafer. Achievement of this critical milestone enabled, for the first time, accurate assessment and optimization of the acoustic output of our MEMS transducer. As has been covered in past reports, electrostatic actuators suffer from operational instability, sometimes called charge‑trapping. Achieving control over the instabilities of charge trapping is considered by the industry to be perhaps the’ primary challenge in the development of micro‑actuators, certainly in higher voltages and longer travel actuators such as ours. In practice, charge trapping related effects cause stiction, adhesion, slow release, arching and other concerns which not only lead to device failure but also place significantly greater constraints on fabrication processes and tolerances. The company in close collaboration with its fabrication partner(s) has expended considerable time, effort, and resources overcoming this gating item to the advancement of our technology. The company devised and simultaneously implemented a number of approaches to manage the adverse effects of electrostatic actuation ‑ some of which worked better than others. One particular approach however proved overtime to be far superior as it reliably and repeatably overcame the associated challenges. Another challenge had to do with our need to process the back sides of the wafers. This requires placing the wafers, face down on the chucks of several different machines. The delicate structures on the face of the wafers were often damaged by the handling robots or scratched by microscopic particles left on the chucks. The (conductive) silicon fragments, broken off the structures, sometimes cause shorts if they fell into the pixels, rendering the chips inoperable. The company and its vendors tried numerous “standard” solutions, protecting the delicate structures, using a variety of different coatings. In some cases, the damage penetrated through the coating and in others, the coating proved to be difficult to remove. The company invented a new protection scheme (patents for which are being drafted), which proved to be highly effective, leaving the delicate structures pristine and not requiring complex coating removal steps. The number of damages resulting from back‑side processing dropped from thousands to 3 or less per wafer. Having at long last devices that were short‑free and proven to reliably actuate with the required electromechanical precision enabled the company to shift focus to the acoustic output of the device. Acoustic characterization revealed that while the devices produced sound throughout the spectrum (including the playing of speech and music), the performance deviated from expectations. The company designed and built extremely sophisticated measurement equipment and methods in order to trace the origins of the problem and discovered the presence of disruptive waves. These unexpected disruptive waves were ultimately traced to subtle deviation from manufacturing tolerances that were only detectable when we overcame the adverse effects of the electrostatic actuation. In response to this finding, the company devised and introduced relatively minor design changes to the structure that both return the spec to compliance and diminishing the sensitivity to manufacturing tolerance. These changes were introduced into the MEMS manufacturing process with deliveries of fully functional devices expected in March 2020. As we anticipate substantive and dramatic improvement to the acoustic output of the devices, our current plan is focused on having demonstratable technology on or about the end of March. In preparation, demonstration boards and systems are being designed and built by the company. During the period the company has also advanced other critical aspects of the technology, such as completing development of the metal module for the MEMS chip. Deposition of “metals” on the MEMS chip is required for connection (wire bonding) in the assembly and packaging process. In conjunction the company began runs with its packaging partner in attempt to insure smooth and efficient assembly and packaging of the upcoming chip deliveries. The company also expanded its testing abilities and capacity. The company is building several additional testing stations. Some of these stations would be placed at the vendors’ facility, allowing them to quickly assess the quality of the produced wafers, while the material is still in the clean room (once a wafer left the fab’s clean room, it is practically impossible to bring it back in due to risk of cross contamination). Management continues to remain intimately engaged with its future customers, routinely conducting confidential communications as to the progress, potential, applications and demand for its impending products. Management has also been intensifying discussions with our fabrication partners, reviewing and planning the actions required to transition from development to mass‑production. Further information concerning the operations and financial condition of the entity can be found in the financial report and in releases made to the Australian Stock Exchange (ASX) during the year. 3 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 DIReCtoR’s RePoRt Changes in State of Affairs Directors’ Interests and Benefits There was no significant change in the state of affairs of the company or the consolidated entity other than that referred to in the financial statements or notes thereto. The relevant interest of each director in the share capital of the Company as notified by the directors to the Australian Stock Exchange in accordance with Section 205G(1) of the Corporations Act as at the date of this report are: name Fred Bart Ian Dennis Cheryl Bart ordinary shares 5,819,122 320,167 1,282,777 During the year, a superannuation fund for the benefit of Fred Bart and Cheryl Bart purchased 38,482 ordinary shares on market at a cost of $493,382. Remuneration Report (Audited) Since the end of the previous financial year no director of the Company has received or become entitled to receive any benefit (other than a benefit included in the aggregate amount of remuneration received or due and receivable by directors as shown in the financial statements) because of a contract made by the Company or related corporation with the director or with a firm of which the director is a member, or with a company in which the director has a substantial financial interest. There are no employment contracts for any of the directors. This report outlines the remuneration arrangements in place for Directors and key management personnel of the Company. The Directors are responsible for remuneration policies and packages applicable to the Board members of the Company. The entire Board makes up the Nomination and Remuneration Committee. The Board remuneration policy is to ensure the remuneration package properly reflects the person’s duties and responsibilities. There are currently no performance based incentives to directors or executives based on the performance of the Company. There are no employment contracts in place with any Director of the Company. There are standard employment contracts for the executives of including at will employment and a notice period of three months for termination. Significant Events After Balance Date There has not been any matter or circumstance that has arisen since the end of the financial year which is not otherwise dealt with in this report or in the financial statements, that has significantly affected or may significantly affect the operations of the company or the consolidated entity, the results of those operations or the state of affairs of the company or the consolidated entity in subsequent financial years. Future Developments The consolidated entity will continue to focus on the development of its digital speaker technology. Environmental Regulations In the opinion of the directors the company and the consolidated entity is in compliance with all applicable environmental legislation and regulations. Indemnification and Insurance of Officers and Auditors During the financial year, the company paid a premium in respect of a contract insuring the Directors and Officers of the Company and any related body corporate against a liability incurred as such a Director or Officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the coverage provided and the amount of the premium. The Company has agreed to indemnify the current Directors, Company Secretary and Executive Officers against all liabilities to other persons that may arise from their position as Directors or Officers of the Company and its controlled entities, except where to do so would be prohibited by law. The agreement stipulates that the Company will meet the full amount of any such liabilities, including costs and expenses. The Company has not, during or since the financial year indemnified or agreed to indemnify an auditor of the company or of any related body corporate against any liability incurred as such an auditor. 4 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 DIReCtoR’s RePoRt Remuneration Report (Cont.) The key management personnel of Audio Pixels Holdings Limited during the year were: Fred Bart Cheryl Bart Ian Dennis Chairman and Chief Executive Officer Non executive director Non executive director and company secretary Danny Lewin CEO and director of Audio Pixels Limited Yuval Cohen Chief Technical Officer of Audio Pixels Holdings Limited The Directors fees are not dependent on the earnings of the Company and the consequences of the Company’s performance on shareholder wealth. On 24 September 2010, the maximum total directors fees were increased to a total of $250,000 per annum in line with the increased activities of the company. The actual directors fees paid were within the approved limit of $250,000 per annum approved by shareholders at the Annual General Meeting held on 24 September 2010. The table below sets out summary information about the Company’s earnings and movements in shareholder wealth for the last 5 financial years. Year ended 31 December 2019 $ Year ended 31 December 2018 $ Year ended 31 December 2017 $ Year ended 31 December 2016 $ Year ended 31 December 2015 $ Revenue Net (loss) before tax Net (loss) after tax 272,520 (6,231,930) (6,231,930) 86,961 (4,519,721) (4,519,721) 65,624 (5,914,957) (5,914,957) 103,630 (5,054,771) (5,054,771) 25,073 (1,840,940) (1,840,940) Year ended 31 December 2019 $ Year ended 31 December 2018 $ Year ended 31 December 2017 $ Year ended 31 December 2016 $ Year ended 31 December 2015 $ 20.22 15.35 0.00 16.82 20.22 0.00 14.15 16.82 0.00 8.45 14.15 0.00 9.86 8.45 0.00 Share price at start of year/period Share price at end of year/period Dividend Paid The aggregate compensation of the key management personnel of the Company is set out below: Short‑term employee benefits Post employment benefits 31 December 2019 $ 31 December 2018 $ 613,183 92,762 705,945 763,526 99,387 862,913 5 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 DIReCtoR’s RePoRt Remuneration Report (Cont.) The following table sets out each key management personnel’s equity holdings (represented by holdings of fully paid ordinary shares in Audio Pixels Holdings Limited). Balance at 1/1/19 no. Granted as remuneration no. Received on exercise of options no. Mr Fred Bart* Mrs Cheryl Bart* Mr Ian Dennis Mr Danny Lewin Mr Yuval Cohen 5,780,640 1,244,295 320,167 1,430,819 1,430,819 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ net other change no. 38,482 38,482 ‑ 7,800 ‑ Balance at 31/12/19 no. 5,819,122 1,282,777 320,167 1,438,619 1,430,819 * Included in the above shareholdings in respect to both Fred Bart and Cheryl Bart are 782,777 (2018: 744,295) shares in Audio Pixels Holdings Limited held by the Bart Superannuation Fund, in respect to which each has a relevant interest. In the previous year, a convertible note of $1,500,000 was exercised on 7 November 2018 and resulted in the issue of 154,959 ordinary shares to 4F Investments Pty Limited, a company controlled by Fred Bart, at a price of $9.68. Transactions with Related Entities During the year ended 31 December 2019, the Company paid a total of $107,857 (year ended 31 December 2018 ‑ $107,857) to 4F Investments Pty Limited, a company associated with Mr Fred Bart in respect of directors fees and superannuation for Mr Fred Bart and Mrs Cheryl Bart. During the year ended 31 December 2019, the Company paid interest of Nil (year ended 31 December 2018 ‑ $125,918) on convertible notes to 4F Investments Pty Limited, a company associated with Mr Fred Bart. During the year ended 31 December 2019, the Company paid a total of $41,063 (year ended 31 December 2018 ‑ $41,063) to Dennis Corporate Services Pty Limited, a company associated with Mr Ian Dennis in respect of directors fees and superannuation. During the year, the Company paid $30,000 (31 December 2018 ‑ $30,000) to Dennis Corporate Services Pty Limited, a company associated with Mr Ian Dennis in respect of consulting fees for company secretarial and accounting services. On 1 June 2018, the company exercised an option to renew a lease in respect of office premises at Suite 3, Level 12, 75 Elizabeth Street Sydney for a period of forty eight months to 30 March 2022. The Company recharged $30,441 (year ended 31 December 2018 ‑ $28,441) of the rent and other tenancy charges to Electro Optic Systems Holdings Limited, a company of which Fred Bart and Ian Dennis are directors and $30,441 (year ended 31 December 2018 ‑ $28,441) to 4F Investments Pty Limited, a company controlled by Fred Bart. 6 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 DIReCtoR’s RePoRt Remuneration Report (Cont.) The following table sets out the remuneration of each key management personnel of the Company: short term Post employment total December 2019 Fred Bart Cheryl Bart Ian Dennis Danny Lewin Yuval Cohen December 2018 Fred Bart Cheryl Bart Ian Dennis Danny Lewin Yuval Cohen Shay Kaplan Directors fees/ salary $ non‑monetary $ superannuation $ social security $ 61,000 37,500 67,500* 170,962 220,008 556,970 61,000 37,500 67,500* 159,034 220,008 118,528 663,570 ‑ ‑ ‑ 41,828 14,385 56,213 ‑ ‑ ‑ 54,499 21,810 23,647 99,956 5,794 3,563 3,563 ‑ 18,996 31,916 5,794 3,563 3,563 ‑ 18,996 ‑ 31,916 ‑ ‑ ‑ 60,846 ‑ 60,846 ‑ ‑ ‑ 38,627 ‑ 28,844 67,471 $ 66,794 41,063 71,063 273,636 253,389 705,945 66,794 41,063 71,063 252,160 260,814 171,019 862,913 * The amounts disclosed for Ian Dennis include directors fees of $37,500 and consulting fees of $30,000. Audit Committee The Audit Committee was formally constituted on 29 August 2014 with all three directors appointed to the Audit Committee. Ian Dennis was appointed chair of the Audit Committee. Directors’ Meetings During the year the Company held three meetings of directors, two meetings of the Audit Committee and no meetings of the Nomination and Remuneration Committee. The attendances of the directors at meetings of the Board were: Board of directors Audit committee nomination and Remuneration committee Directors Mr Fred Bart Mrs Cheryl Bart Mr Ian Dennis Held Attended Held Attended Held Attended 3 3 3 3 3 3 2 2 2 2 2 2 ‑ ‑ ‑ ‑ ‑ ‑ All current board members are on the Audit Committee and the Nomination and Remuneration Committee. 7 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 DIReCtoR’s RePoRt Non‑audit Services Details of amounts paid or payable to the auditor for non‑audit services provided during the year by the auditor are outlined in Note 4 to the financial statements. The directors are satisfied that the provision of non‑audit services, during the year, by the auditor (or by another person or firm on the auditor’s behalf ) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services disclosed in Note 4 to the financial statements do not compromise the external auditors’ independence for the following reasons: All non‑audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor, and None of the services undermine the general principles relating to auditor independence as set out in Code of Conduct APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision‑making capacity for the company, acting as advocate for the company or jointly sharing economic risks and rewards. Auditor’s Independence Declaration The auditor’s independence declaration is included on page 9. Signed in accordance with a resolution of directors made pursuant to s.298(2) of the Corporations Act 2001. On behalf of the Directors I A Dennis Director Dated at Sydney this 27 day of February 2020 8 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 9 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 10 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 11 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 12 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 4 to 7 13 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 DIReCtoRs’ DeCLARAtIon The directors declare that: (a) in the directors’ opinion, there are reasonable grounds to believe the company will be able to pay its debts as and when they become due and payable; (b) in the directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and give a true and fair view of the financial position and performance of the company and the consolidated entity; (c) the directors have been given the declarations required by s.295A of the Corporations Act 2001; and (d) the attached financial statements are in compliance with International Financial Reporting Standards, as stated in note 1 to the financial statements. Signed in accordance with a resolution of the directors made pursuant to s.295(5) of the Corporations Act 2001. On behalf of the Directors I A Dennis Director Dated at Sydney this 27 day of February 2020. 14 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 ConsoLIDAteD stAteMent oF PRoFIt oR Loss AnD otHeR CoMPReHensIVe InCoMe FoR tHe YeAR enDeD 31 DeCeMBeR 2019 Consolidated Year ended 31 December 2019 $ Consolidated Year ended 31 December 2018 $ note Revenue 2 272,520 86,961 Administrative expenses Amortisation Depreciation Directors fees and superannuation Exchange (losses)/gains Interest expense Fair value movement of derivative liability Gain/(Loss) on amendment of terms of convertible notes Profit/(Loss) on sale of property, plant and equipment Marketing Research and development expenses (Loss) before income tax Income tax benefit (Loss) for the year Other comprehensive income/(loss) Items that may be reclassified subsequently to profit and loss (1,040,527) (84,565) (405,840) (148,920) 15,190 (30,462) ‑ ‑ 411 (1,224) (916,399) (79,159) (70,881) (148,920) 2,723,660 (1,511,514) (940,264) (525,415) (198) (3,983) 2 3 (4,808,513) (3,133,609) (6,231,930) (4,519,721) ‑ ‑ (6,231,930) (4,519,721) Exchange differences arising on translation of foreign operations 17 (190,559) (2,461,611) Other comprehensive income/(loss) for the year, net of tax (190,559) (2,461,611) Total comprehensive (loss) for the year (6,422,489) (6,981,332) Notes to the financial statements are included on pages 20 to 52. 15 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 ConsoLIDAteD stAteMent oF PRoFIt oR Loss AnD otHeR CoMPReHensIVe InCoMe FoR tHe YeAR enDeD 31 DeCeMBeR 2019 Consolidated Year ended 31 December 2019 Consolidated Year ended 31 December 2018 note (6,231,930) (4,519,721) (6,422,489) (6,981,332) (Loss) attributable to: Owners of the company Total comprehensive (loss) attributable to: Owners of the company Earnings per share Basic and diluted (cents per share) 21 (22.02) (16.67) Notes to the financial statements are included on pages 20 to 52. 16 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 ConsoLIDAteD stAteMent oF FInAnCIAL PosItIon As At 31 DeCeMBeR 2019 CURRENT ASSETS Cash and cash equivalents Trade and other receivables TOTAL CURRENT ASSETS NON CURRENT ASSETS Goodwill Intangible asset Right of use asset Property, plant and equipment Trade and other receivables TOTAL NON CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Lease liabilities Provisions TOTAL CURRENT LIABILITIES NON‑CURRENT LIABILITIES Lease liabilities TOTAL NON CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS/(LIABILITIES) EQUITY Issued capital Reserves Accumulated losses Equity attributable to owners of the company TOTAL EQUITY Consolidated December 2019 $ Consolidated December 2018 $ note 5 6 7 8 9 10 6 11 13 14 13 15 17 18 5,823,291 142,314 5,965,605 11,019,092 173,565 11,192,657 2,334,763 402,110 575,153 469,517 5,960 3,787,503 9,753,108 1,648,566 337,014 262,784 2,248,364 271,208 271,208 2,326,483 483,848 ‑ 329,858 5,525 3,145,714 14,338,371 987,849 ‑ 203,960 1,191,809 ‑ ‑ 2,519,572 1,191,809 7,233,536 13,146,562 66,217,433 66,217,433 (24,724,836) (25,043,740) (34,259,061) (28,027,131) 7,233,536 7,233,536 13,146,562 13,146,562 Notes to the financial statements are included on pages 20 to 52. 17 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 ConsoLIDAteD stAteMent oF CHAnGes In eQUItY FoR tHe YeAR enDeD 31 DeCeMBeR 2019 December 2019 ‑ Consolidated Balance at 1 January 2019 Other comprehensive income for the year (Loss) for the year Recognition of share based payments Balance at 31 December 2019 December 2018 ‑ Consolidated Balance at 1 January 2018 Other comprehensive income for the year (Loss) for the year Issue of shares for cash Issue of shares on conversion of convertible notes equity settled option Reserve $ Issued Capital $ exchange translation reserve $ Minority Acquisition Reserve $ Convertible note equity Reserve $ Accumulated Losses $ total $ 66,217,433 4,532,439 (4,037,487) (25,538,692) ‑ ‑ ‑ ‑ ‑ 509,463 (190,559) ‑ ‑ ‑ ‑ ‑ 66,217,433 5,041,902 (4,228,046) (25,538,692) ‑ ‑ ‑ ‑ ‑ (28,027,131) 13,146,562 ‑ (190,559) (6,231,930) (6,231,930) ‑ 509,463 (34,259,061) 7,223,536 equity settled option Reserve $ Issued Capital $ exchange translation reserve $ Minority Acquisition Reserve $ Convertible note equity Reserve $ Accumulated Losses $ total $ 45,228,931 4,512,898 (1,575,876) (25,538,692) 666,893 (23,507,410) (213,256) ‑ ‑ 9,500,003 10,773,402 ‑ ‑ ‑ ‑ ‑ (2,461,611) ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ (715,097) ‑ ‑ (2,461,611) (4,519,721) (4,519,721) ‑ ‑ ‑ ‑ 9,500,003 10,773,402 ‑ 19,541 48,204 ‑ 48,204 ‑ ‑ 19,541 ‑ 66,217,433 4,532,439 (4,037,487) (25,538,692) ‑ (28,027,131) 13,146,562 Notes to the financial statements are included on pages 20 to 52. Transfer from reserve 715,097 Recognition of share based payments Equity reserve on issue of convertible notes Balance at 31 December 2018 18 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 ConsoLIDAteD stAteMent oF CAsH FLoWs FoR tHe YeAR enDeD 31 DeCeMBeR 2019 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest paid Interest received Consolidated Year ended 31 December 2019 $ Consolidated Year ended 31 December 2018 $ notes 121,763 ‑ (4,917,915) (4,148,731) (30,462) 150,757 (530,959) 86,961 Net cash (used by) operating activities 19 (4,675,857) (4,592,729) Cash flows from investing activities Payment for property, plant and equipment Proceeds from sale of property, plant and equipment Net cash (used by) from investing activities Cash flows from financing activities Proceeds from share placement Convertible note Repayment of lease liabilities Net cash (used by)/provided by financing activities (223,556) 244 (223,312) ‑ ‑ (286,890) (286,890) (46,043) 316 (45,727) 9,500,003 3,500,000 ‑ 13,000,003 15 Net increase/(decrease) in cash and cash equivalents held Cash and cash equivalents at the beginning of the financial year (5,186,059) 11,019,092 8,361,547 2,700,577 Effects of exchange rate fluctuations on the balances of cash held in foreign currencies (9,742) (43,032) Cash and cash equivalents at the end of the financial year 5 5,823,291 11,019,092 Notes to the financial statements are included on pages 20 to 52. 19 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 1. Summary of Significant Accounting Policies 1(a) statement of compliance The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and complies with other requirements of the law. Accounting Standards include Australian equivalents to International Financial Reporting Standards (“AASBS”). Compliance with AASBS ensures that the financial statements and notes comply with International Financial Reporting Standards (“IFRS”). For the purposes of preparing the consolidated financial statements, the Company is a for profit entity. The date of initial application of AASB 16 for the consolidated entity was 1 January 2019. The consolidated entity has applied AASB 16 using the modified retrospective approach with the cumulative effect of initially applying the Standard recognised at the date of initial application in Accumulated Losses. Impact on Lessee Accounting Former operating leases AASB 16 changes how the consolidated entity accounts for leases previously classified as operating leases under AASB 117, which were off‑balance‑sheet. Applying AASB 16, for all leases (except as noted below), the consolidated entity: The financial statements were authorised for issue by the Directors on 27 February 2020. a) recognises right‑of‑use assets and lease liabilities in the consolidated statement of financial position, initially measured at the present value of future lease payments; b) recognises depreciation of right‑of‑use assets and interest on lease liabilities in the consolidated statement of profit or loss; and c) separates the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within operating activities) in the consolidated statement of cash flows. Lease incentives (e.g. free rent period) are recognised as part of the measurement of the right‑of‑use assets and lease liabilities whereas under AASB 117 they resulted in the recognition of a lease incentive liability, amortised as a reduction of rental expense on a straight‑line basis. Under AASB 16, right‑of‑use assets are tested for impairment in accordance with AASB 136 Impairment of Assets. This replaces the previous requirement to recognise a provision for onerous lease contracts. For short‑term leases (lease term of 12 months or less) and leases of low‑value assets, the consolidated entity has opted to recognise a lease expense on a straight‑line basis as permitted by AASB 16. This expense is presented within other expenses in the consolidated statement of profit or loss as applicable. 1(b) Basis of preparation The financial report has been prepared on the basis of historical cost. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are expressed in Australian dollars. 1(c) Adoption of new and revised standards New and amended IFRS Standards that are effective for the current year Impact of initial application of AAsB 16 Leases In the current year, the consolidated entity has applied AASB 16 Leases that is effective for annual periods that begin on or after 1 January 2019. AASB 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to the lessee accounting by removing the distinction between operating and finance leases and requiring the recognition of a right‑of‑use asset and a lease liability at the lease commencement for all leases, except for short‑term leases and leases of low value assets. In contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged. Details of these new requirements and the impact of the adoption of AASB 16 on the consolidated entity’s financial statements are described below. 20 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 Impact of other standards In the current year, the consolidated entity has applied a number of amendments to AASB Standards and Interpretations issued by the IASB that are effective for an annual period that begins on or after 1 January 2019. Their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements. AASB 2017‑6 Amendments to Australian Accounting Standards ‑ Prepayment Features with Negative Compensation AASB 2017‑7 Amendments to Australian Accounting Standards ‑ Long‑term Interests in Associates and Joint Ventures AASB 2018‑1 Amendments to Australian Accounting Standards ‑ Annual Improvements 2015‑2017 Cycle AASB 2018‑2 Amendments to Australian Accounting Standards ‑ Plan Amendment, Curtailment or Settlement AASB 2018‑3 Amendments to Australian Accounting Standards ‑ Reduced Disclosure Requirements Interpretation 23 Uncertainty over Income Tax Treatments and AASB 2017‑4 Amendments to Australian Accounting Standards ‑ Uncertainty over Income Tax Treatments 1. Summary of Significant Accounting Policies (Cont.) Impact on Lessor Accounting AASB 16 does not change substantially how a lessor accounts for leases. Under AASB 16, a lessor continues to classify leases as either finance leases or operating leases and account for those two types of leases differently. However, AASB 16 has changed and expanded the disclosures required, in particular regarding how a lessor manages the risks arising from its residual interest in the leased assets. Under AASB 16, an intermediate lessor accounts for the head lease and the sublease as two separate contracts. The intermediate lessor is required to classify the sublease as a finance or operating lease by reference to the right‑of‑use asset arising from the head lease (and not by reference to the underlying asset as was the case under AASB 117). Financial impact of initial application of AAsB 16 The initial application of AASB 16 resulted in:‑ i. The creation of a right‑of‑use asset of $895,297 and a lease liability of $895,297 as at 1 January 2019. ii. A difference of $470,416 between the operating lease commitments disclosed in applying AASB 117 in the 31 December 2018 annual report, discounted using the weighted average rate in (iii) below and the lease liability in (i) above. This difference is primarily attributable to the inclusion of certain leases as part of the opening adjustment that were previously not disclosed as operating lease commitments. iii. When measuring lease liabilities, the consolidated entity discounted lease payments using the rate implicit in the lease. Where this could not be determined, the consolidated entity’s incremental borrowing rate was used. The weighted average rate applied is 5%. 21 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 1. Summary of Significant Accounting Policies (Cont.) New and revised Australian Accounting Standards and Interpretations on issue but not yet effective At the date of authorisation of the financial statements, the consolidated entity has not applied the following new and revised Australian Accounting Standards, Interpretations and amendments that have been issued but are not yet effective: standard/amendment AASB 2014‑10 Amendments to Australian Accounting Standards ‑ Sale or Contribution of Assets between an Investor and its Associate or Joint Venture [AASB 10 & AASB 128], AASB 2015‑10 Amendments to Australian Accounting Standards ‑ Effective Date of Amendments to AASB 10 and AASB 128 and AASB 2017‑5 Amendments to Australian Accounting Standards ‑ Effective Date of Amendments to AASB 10 and AASB 128 and Editorial Corrections effective for annual reporting periods beginning on or after 1 January 2022 (Editorial corrections in AASB 2017‑5 applied from 1 January 2018) AASB 2018‑6 Amendments to Australian Accounting Standards ‑ Definition of a Business 1 January 2020 AASB 2018‑7 Amendments to Australian Accounting Standards ‑ Definition of Material 1 January 2020 AASB 2019‑1 Amendments to Australian Accounting Standards ‑ References to the Conceptual Framework AASB 2019‑3 Amendments to Australian Accounting Standards ‑ Interest Rate Benchmark Reform AASB 2019‑5 Amendments to Australian Accounting Standards ‑ Disclosure of the Effect of New IFRS Standards Not Yet Issued in Australia 1 January 2020 1 January 2020 1 January 2020 The Directors do expect these new and revised standards issued but not effective to have a material effect on the financial statements. 1(d) Going Concern The financial report has been prepared on the going concern basis which assumes continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business. The consolidated entity incurred a net loss during the year of $6,231,930. Net cash used by operating activities was $4,675,857. As at 31 December 2019, the consolidated entity had cash of $5,823,291 and net current assets of $3,717,241 Development work on the technology is continuing and it is anticipated that the available net working capital will be consumed in the coming 12 months. In the opinion of the directors, the ability of the consolidated entity to continue as a going concern and pay its debts as and when they become due and payable is dependent upon: the ability of the company to secure additional funding from existing or new investors to fund continued development. The directors consider that the company has a number for financing options available to it at this stage of the commercialisation of the product; the successful completion of the development stage of the technology; and the future trading prospects of the consolidated entity including obtaining commercial contracts. If the consolidated entity is unable to achieve successful outcomes in relation to the above matters, significant uncertainty would exist as to the ability of the consolidated entity to continue as a going concern and therefore, it may be required to realise its assets and extinguish its liabilities other than in the normal course of business and at amounts different from those stated in the financial report. No adjustments have been made to the financial report relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should the consolidated entity not continue as a going concern. 22 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 1. Summary of Significant Accounting Policies (Cont.) 1(e) Revenue Recognition Interest revenue is recognised on an accrual basis. Recharged revenue/income is recognised on an accrual basis. 1(f) Financial assets Classification The consolidated entity classifies its financial assets in the following measurement categories: Those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss), and Those to be measured at amortised cost. The classification depends on the consolidated entity’s business model for managing financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income. For investments in debt instruments, this will depend on the business model in which the investment is held. For investments in equity instruments that are not held for trading, this will depend on whether the consolidated entity has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income. The consolidated entity reclassifies debt investments when and only when its business model for managing those assets changes. Measurement At initial recognition, the consolidated entity measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss. Debt instruments Subsequent measurement of debt instruments depends on the consolidated entity’s business model for managing the asset and the cash flow characteristics of the asset. There are two measurement categories into which the consolidated entity classifies its debt instruments: Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. A gain or loss on a debt investment that is subsequently measured at amortised cost and is not part of a hedging relationship is recognised in profit or loss when the asset is derecognised or impaired. Interest income from these financial assets is included in finance income using the effective interest rate method. Fair value through profit or loss (FVPL): Assets that do not meet the criteria for amortised cost or FVOCI are measured at fair value through profit or loss. A gain or loss on a debt investment that is subsequently measured at fair value through profit or loss and is not part of a hedging relationship is recognised in profit or loss and presented net in the statement of profit or loss within other gains/(losses) in the period in which it arises. No such assets are currently held by the consolidated entity. equity instruments The consolidated entity subsequently measures all equity investments at fair value. Where the consolidated entity’s management has elected to present fair value gains and losses on equity investments in other comprehensive income, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognised in profit or loss as other income when the consolidated entity’s right to receive payments is established. Impairment losses (and reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value. Changes in the fair value of financial assets at fair value through profit or loss are recognised in other expenses in the statement of profit or loss as applicable. Impairment The consolidated entity assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, and lease receivables, the consolidated entity applies the simplified approach permitted by AASB 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. 23 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 1. Summary of Significant Accounting Policies (Cont.) 1(g) Financial Liabilities Interest bearing liabilities All loans and borrowings are initially recognised at fair value, being the amount received less attributable transaction costs. After initial recognition, interest bearing liabilities are stated at amortised cost with any difference between cost and redemption value being recognised in the statement of profit or loss over the period of the borrowings on an effective interest basis. trade and other payables Liabilities are recognised for amounts to be paid for goods or services received. Trade payables are settled on terms aligned with the normal commercial terms in the consolidated entity’s countries of operation. Derivative liabilities Derivative liabilities are initially recognised at fair value on issue. After initial recognition, they are subsequently measured at fair value through profit or loss. Classification as debt or equity During the year the Company had on issue convertible notes. The component parts of the convertible notes issued by the consolidated entity are classified separately as borrowings, derivative liability and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. A conversion option that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Company’s own equity instruments is an equity instrument. A conversion option that will be settled by the exchange of a fixed amount of cash or another financial asset for a variable number of the Company’s own equity instruments is a derivative liability instrument. The value of a conversion option classified as a derivative liability instrument is recognised at fair value on issue. The derivative liability is subsequently measured at fair value through profit or loss. The conversion option classified as equity is determined by deducting the amount of liability component from the fair value of the compound instrument as a whole. This is recognised and included in equity and is not subsequently remeasured. This will remain in equity until the conversion option is exercised or at maturity. No gain or loss is recognised in profit or loss upon expiration or conversion. On initial recognition, the face borrowing or liability component is measured at fair value. This is subsequently recognised on an amortised cost basis using the effective interest method until extinguished upon conversion or at the instrument’s maturity date. 1(h) Cash and cash equivalents Cash and cash equivalents comprise cash on hand, cash in banks and investments in money market instruments maturing within less than 3 months at the date of acquisition, net of outstanding bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the Statement of Financial Position. 1(i) employee benefits Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave, and long service leave when it is probable that settlement will be required and they are capable of being measured reliably. Provisions made in respect of short term employee benefits are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Provisions made in respect of long term employee benefits are measured as the present value of the estimated future cash outflows to be made by the consolidated entity in respect of services provided by employees up to the reporting date. Defined contribution plans ‑ Contributions to defined benefit contribution superannuation plans are expensed when incurred. 1(j) Foreign currency Foreign currency transactions All foreign currency transactions during the financial year are brought to account using the exchange rate in effect at the date of the transaction. Foreign currency monetary items at reporting date are translated at the exchange rate existing at reporting date. Non‑monetary assets and liabilities carried at fair value and historic cost that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Exchange differences are recognised in profit and loss in the period they arise. Foreign operations On consolidation, the assets and liabilities of the consolidated entity’s overseas operations are translated at exchange rates prevailing at the reporting date. Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly. Exchange differences arising, if any, are recognised in the foreign currency translation reserve, and recognised in profit and loss on disposal of the foreign operation. 24 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 1. Summary of Significant Accounting Policies (Cont.) 1(k) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except: i. where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or ii. for receivables and payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. Cash flows are included in the Statement of Cash Flows on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. 1(l) Goodwill Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non‑controlling interests in the acquire, and the fair value of the acquirer’s previously held equity interest in the acquire (if any) over the net of the acquisition‑date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the consolidated entity’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration transferred, the amount of any non‑controlling interests in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquire (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of goodwill impairment testing, there was one cash‑generating unit, relating to the digital speakers segment. The cash‑generating unit is tested for impairment annually. If the recoverable amount of the cash‑generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro‑rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. 1(m) Impairment of assets At each reporting date, the entity reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the entity estimates the recoverable amount of the cash‑generating unit to which the asset belongs. If the recoverable amount of an asset (or cash‑generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash‑generating unit) is reduced to its recoverable amount. An impairment loss is recognised in profit or loss immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash‑generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash‑generating unit) in prior years. A reversal of an impairment loss is recognised in profit or loss immediately. 1(n) Income tax Current tax Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by reporting date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable). 25 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 1. Summary of Significant Accounting Policies (Cont.) Deferred tax Deferred tax is recognised on temporary differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those items. In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of business combination) which affects neither taxable income nor accounting profit. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the assets and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the entity expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the company intends to settles its current tax assets and liabilities on a net basis. Current and deferred tax for the period Current and deferred tax is recognised as an expense or income in profit or loss, except when it relates to items credited or debited directly to equity, in which case the deferred tax is also recognised directly in equity, or where it arises from the initial accounting for a business combination, in which case it is taken into account in the determination of goodwill or excess. 1(o) Intangible assets Intangible assets acquired in a business combination Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair value can be measured reliably. Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets acquired separately. The intangible asset acquired is written off on a straight line basis. Expenditure on research activities is recognised as an expense in the period in which it is incurred. 1(p) Leases Policies applicable from 1 January 2019 (See Note 1(c)) The consolidated entity assesses whether a contract is or contains a lease, at inception of a contract. The consolidated entity recognises a right‑of‑use asset and a corresponding lease liability with respect to all lease agreements in which it is the lessee, except for short‑term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. For these leases, the consolidated entity recognises the lease payments as an operating expense on a straight‑line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the consolidated entity uses its incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise: fixed lease payments (including in‑substance fixed payments), less any lease incentives; variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date; the amount expected to be payable by the lessee under residual value guarantees; the exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease. The lease liability is presented as a separate line in the consolidated statement of financial position. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. 26 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 1. Summary of Significant Accounting Policies (Cont.) The consolidated entity remeasures the lease liability (and makes a corresponding adjustment to the related right‑of‑use asset) whenever: the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate. the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using the initial discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used). a lease contract is modified and the lease The right‑of‑use assets are presented as a separate line in the consolidated statement of financial position. The consolidated entity applies AASB 136 Impairment of Assets to determine whether a right‑of‑use asset is impaired and accounts for any identified impairment loss per the accounting policy disclosed in note 1(m). Variable rents that do not depend on an index or rate are not included in the measurement the lease liability and the right‑of‑use asset. The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs and are included in the line “other expenses” in the statement of profit or loss. As a practical expedient, AASB 16 permits a lessee not to separate non‑lease components, and instead account for any lease and associated non‑lease components as a single arrangement. The consolidated entity has not used this practical expedient. Policies applicable prior to 1 January 2019 modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate. Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. The consolidated entity did not make any such adjustments during the period. The right‑of‑use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses. Whenever the consolidated entity incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under AASB 137. The costs are included in the related right‑of‑use asset, unless those costs are incurred to produce inventories. Right‑of‑use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right‑of‑use asset reflects that the consolidated entity expects to exercise a purchase option, the related right‑of‑use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease. the consolidated entity as lessor Income from operating leases is recognised on a straight‑line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight‑line basis over the lease term. the consolidated entity as lessee Operating lease payments are recognised as an expense on a straight‑line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight‑line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. 27 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 1(s) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives, using the straightline method. The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis. Assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the non‑current asset (or disposal group) is available for immediate sales in the present condition. Management must be committed to the sale, which should be expected to qualify as a completed sale within one year from the date of classification. Non‑current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell. The following estimated useful lives are used in the calculation of depreciation: Computers and related equipment 5 to 15 years Leasehold improvements Office furniture and equipment 3 to 5 years 5 to 15 years Depreciation in relation to right‑of‑use‑assets is outlined in Note 1(p). 1(t) share based payments Equity‑settled share‑based payments are measured at fair value at the date of the grant. Fair value is measured by use of a Black‑Scholes Option Pricing model. The expected life used in the model has been adjusted, based on management best estimates, for the effects of non‑transferability, exercise restrictions and behavioural considerations. The fair value determined at the grant date of the equity‑settled share based payments is expensed on a straight‑line basis over the vesting period, based on the consolidated entity’s estimate of shares that will eventually vest. 1. Summary of Significant Accounting Policies (Cont.) 1(q) Provisions Provisions are recognised when the entity has a present obligation as a result of a past event, the future sacrifice of economic benefits is probable, and the amount of the provision can be measured reliably. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that recovery will be received and the amount of the receivable can be measured reliably. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. 1(r) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company. Control is achieved when the Company: Has power over the investee; Is exposed, or has rights, to variable returns from its involvement with the investee; and Has the ability to use its power to affect its returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary. All intragroup assets and liabilities, equity, expenses and cash flows relating to transactions between members of the consolidated entity are eliminated in full on consolidation. 28 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 1. Summary of Significant Accounting Policies (Cont.) 1(u) Critical accounting judgements In the application of the consolidated entity’s accounting policies, management is required to make judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstance, the results of which form the basis of making these judgements. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Key sources of estimation uncertainty The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year: Intangible asset/Goodwill The directors made a critical judgement in relation to the value of the intangible asset included in Note 8 and the impairment model used in assessing the carrying amount of the goodwill (see Note 7). Deferred tax The directors made a critical judgement in relation to not recognising the deferred tax balances described in Note 3(b). Given the current stage of development, the directors do not currently consider it’s probable that sufficient taxable amounts will be available against which deductible temporary differences can be utilised. Valuation of and conversion of borrowings and derivative liability The directors made a critical judgement in relation to the interest rate applied in valuing the borrowing and the expected share price volatility used to value the derivative liability included in Note 11. Furthermore significant judgements were made in determining the impact of the change in conversion terms for all convertible note on issue. Functional Currency The directors made a critical judgement in relation to the functional currency of Audio Pixels Holdings Limited. The directors consider AUD to be the appropriate functional currency, as financing activities of the entity occur in AUD. Investment in subsidiary and intercompany receivable The directors made a critical judgement in relation to the recoverability of the investment in subsidiary ‑ Audio Pixels Limited and the receivable from this subsidiary. The assessment of the recoverability of these assets is considered concurrently with the recoverability of the intangible asset/goodwill. These assets are discussed in Note 26 as part of current and non‑current assets: Investment in subsidiary ‑$2,957,213 (non‑current assets) Intercompany receivable ‑ $33,958,648 (included in current assets) 29 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 Consolidated Year ended 31 December 2019 $ Consolidated Year ended 31 December 2018 $ 150,757 121,763 272,520 84,565 85,706 320,134 30,462 ‑ ‑ ‑ ‑ 86,961 ‑ 86,961 79,159 70,881 ‑ 1,511,514 147,906 (113,763) 34,143 940,264 1,907,571 1,390,360 509,463 31,916 19,541 31,916 2,448,950 1,441,817 ‑ ‑ ‑ ‑ (6,231,930) (4,519,721) 84,565 509,463 79,159 19,541 ‑ 2,446,233 (5,637,902) (1,974,788) 2. (Loss) from Operations (a) Revenue Interest received ‑ other entities Recharge income Total revenue (b) Expenses Amortisation Depreciation of property, plant and equipment Depreciation of right‑of‑use assets Interest expense Rental payments Rental amounts recharged to sub tenants Net rental expense Fair value movement in derivative liability Employee benefits expense: Salary and other employee benefits Share based payments Superannuation 3. Income Taxes (a) Income tax recognised in profit or loss Tax expense comprises: Deferred tax expense/(income) Total tax expense/(income) The prima facie income tax expense on pre‑tax accounting profit reconciles to the income tax expense in the financial statements as follows: (Loss) from operations Amortisation Share based payments Convertible note adjustments 30 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 3. Income Taxes (Cont.) Income tax expense calculated at 30% Effect of different tax rates of subsidiaries operating in other jurisdictions Deferred tax benefit not brought to account 31 December 2019 $ 31 December 2018 $ (1,691,371) 358,983 1,332,388 ‑ (592,436) 237,099 355,337 ‑ The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law and 23% (2018:25%) under Israeli law. There has been no change in the corporate tax rate when compared with the previous reporting period. (b) Unrecognised deferred tax balances The following deferred tax assets have not been bought to account as assets: Tax losses ‑ revenue Tax losses ‑ capital Temporary differences (c) Franking account balance Adjusted franking account balance (d) Israeli tax Ruling 7,100,657 5,768,269 168,038 66,041 168,038 54,246 7,334,736 5,990,553 86,721 86,721 On July 16th 2012 a Tax Ruling was issued by the Israeli Tax Authorities (ITA) under which the ITA confirmed that the Merger carried out between Audio Pixels Ltd, a private Israeli company (P.C 513853606) and Audio Pixels Holdings Limited, a public Australian company, complied with the conditions stipulated in Section 103T of the Israeli Ordinance. Consequently, the transfer of the rights by the transferring rights holders in exchange for the issuance of shares in the Australian company is not taxable at the date of the Merger pursuant to the provisions of Section 103T of the Israeli Ordinance. 31 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 4. Remuneration of Auditors (i) Auditor of the parent entity Audit or review of the financial statements Taxation service (ii) Network firm of the parent entity auditor Audit or review of the financial statements Taxation service The auditor of Audio Pixels Holdings Limited is Deloitte Touche Tohmatsu. 5. Cash and Cash Equivalents Cash on hand and at bank Weighted average interest rate received on cash 6. Trade and Other Receivables Current GST receivable Prepayments and other debtors Non Current Other debtors Other debtors comprise security deposits with government bodies. 31 December 2019 $ 31 December 2018 $ 40,478 3,990 44,468 19,187 2,132 21,319 38,388 2,993 41,381 18,167 2,019 20,186 5,823,291 11,019,092 1.19% 2.24% 8,948 133,366 142,314 65,347 108,218 173,565 5,960 5,525 32 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 7. Goodwill Being goodwill acquired on the acquisition of Audio Pixels Limited. The goodwill is allocated to the cash generating unit of digital speakers by Audio Pixels Limited of Israel. Balance at 1 January Net foreign currency exchange Balance at 31 December 31 December 2019 $ 31 December 2018 $ 2,334,763 2,326,483 2,326,483 8,280 2,334,763 2,189,025 137,458 2,326,483 The recoverable amount of this cash generating unit is determined based on a fair value less costs of disposal calculation which uses cash flow projections based on financial budgets approved by the directors covering an 11 year period, with a growth rate reflecting the expected future growth in the product market, and a discount rate of 24% per annum. The assumed growth rate is based on the forecast future global MEMS market. Given the nature of the product, the forecast cash flows are managements’ best estimate and reflect the risks inherent in the initial take up of the product. The cash flow projections used in the impairment model extend beyond 5 years as the intangible assets generating the cash flows within relate to new technology and hence reflect a longer operating cycle and time to market. Cash flow projections during the budget period are based on the same expected gross margins and raw materials price inflation during the budget period and factor in a probability of the viability of the product. The fair value less costs of disposal calculation is sensitive to changes in the percentage likelihood of completion. Increases in the percentage likelihood of completion increases the recoverable amount and vice versa. Movements in the value of the goodwill are a result of the retranslation of the goodwill from the functional currency of the cash generating unit to which it is attributed. 8. Intangible Asset Being the independent valuation of In Process Development determined at the acquisition date of 24 September 2010 by Ernst & Young, Israel in their report dated 17 August 2011. Exchange differences on translation Less accumulated amortisation 868,000 204,048 (669,938) 402,110 868,000 201,221 (585,373) 483,848 The intangible asset is allocated to the digital speaker cash‑generating unit when assessed for impairment. Refer to Note 7 for commentary on the cash‑generating unit. 33 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 9. Right of use assets Office premises ‑ at cost Less accumulated depreciation Motor vehicle ‑ at cost Less accumulated depreciation Total net book value of Right of use assets Cost Office premises Balance recorded on transition to AASB 16 Net foreign currency exchange differences Balance as at 31 December Motor vehicle Balance recorded on transition to AASB 16 Additions Disposals Net foreign currency exchange differences Balance as at 31 December 31 December 2019 $ 31 December 2018 $ 895,297 (320,144) 575,153 ‑ ‑ ‑ 575,153 895,287 ‑ 895,287 ‑ 33,676 (33,676) ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ 34 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 31 December 2019 $ 31 December 2018 $ 9. Right of use assets (Cont.) Accumulated depreciation Office premises Balance as at 1 January Net foreign currency exchange differences Depreciation expense Balance at 31 December Motor vehicle Balance as at 1 January Net foreign currency exchange differences Depreciation expense Balance at 31 December ‑ ‑ (320,144) (320,144) ‑ ‑ ‑ ‑ On 1 June 2018, the parent company exercised an option to renew a lease in respect of office premises at Suite 3, Level 12, 75 Elizabeth Street Sydney for a period of forty‑eight months from 31 March 2018 to 30 March 2022. Amounts recognised in profit and loss Depreciation expense on right of use assets Interest expense on lease liabilities The total cash outflow for leases amount to $317,352. 320,134 30,462 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ 35 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 10. Property, Plant and Equipment Computers and related equipment ‑ at cost Less accumulated depreciation Leasehold improvements ‑ at cost Less accumulated depreciation Office furniture and equipment ‑ at cost Less accumulated depreciation 31 December 2019 $ 31 December 2018 $ 507,937 (421,385) 86,552 366,797 (244,875) 121,922 1,315,628 (1,054,585) 261,043 394,491 (374,022) 20,469 360,094 (252,699) 107,395 1,201,446 (999,452) 201,994 Total net book value of Property, Plant and Equipment 469,517 329,858 Cost Computers and related equipment Balance at 1 January Additions Disposals Net foreign currency exchange differences Balance as at 31 December Leasehold improvements Balance at 1 January Additions Net foreign currency exchange differences Balance as at 31 December 394,491 110,938 ‑ 2,508 507,937 360,094 4,415 2,288 366,797 351,372 13,064 (7,157) 37,212 394,491 324,269 1,484 34,341 360,094 36 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 10. Property, Plant and Equipment (Cont.) Office furniture and equipment Balance at 1 January Additions Disposals Net foreign currency exchange differences Balance as at 31 December Accumulated depreciation Computers and related equipment ‑ at cost Balance as at 1 January Net foreign currency exchange differences Disposals Depreciation expense Balance at 31 December Leasehold improvements Balance as at 1 January Net foreign currency exchange differences Depreciation expense Balance at 31 December Office furniture and equipment Balance as at 1 January Net foreign currency exchange differences Disposals Depreciation expense Balance at 31 December 31 December 2019 $ 31 December 2018 $ 1,201,446 108,203 (1,660) 7,639 1,315,628 (374,022) (2,525) ‑ (44,838) (421,385) (252,699) 21,036 (13,212) (244,875) (999,452) (29,112) 1,635 (27,656) (1,054,585) 1,059,881 31,495 (2,175) 112,245 1,201,446 (331,920) (35,861) 7,157 (13,398) (374,022) (216,887) (14,274) (21,538) (252,699) (862,105) (103,037) 1,635 (35,945) (999,452) 37 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 11. Trade and Other Payables Current Trade payables and accruals The payables are non‑interest bearing and have an average credit period of 30 days. 31 December 2019 $ 31 December 2018 $ 1,648,566 987,849 12. Borrowings On 29 December 2017, the Company reached agreement with existing holders of the convertible notes amounting to $3,000,000 to extend the expiry date by 12 months to 31 December 2018. Shareholder approval for the extension of the convertible note held by 4F Investments Pty Limited was obtained at the next Annual General Meeting of the Company held on 7 May 2018. For accounting purposes these extensions were treated as the derecognition of the original convertible notes and the recognition of two new convertible note instruments. The difference in valuation was recognised as a gain or loss in profit and loss. These notes were unsecured, not listed and were convertible to ordinary shares based on the lower of the five day volume weighted average share price of Audio Pixels Holdings Limited on the date of the original agreement ($9.68) or the five day volume weighted average share price of Audio Pixels Holdings Limited immediately prior to conversion. These convertible notes were converted to 309,918 ordinary shares on 7 November 2018, following receipt of agreement to the early conversion from noteholders. On 5 January 2018, The Company announced it had raised $4,500,000 from a new convertible note issue to sophisticated unrelated investors pursuant to agreements dated 29 December 2017. In addition, 4F Investments Pty Limited, a company associated with Mr Fred Bart also agreed to take up a further $500,000 of convertible notes on the same terms and conditions subject to shareholder approval that was obtained at the Annual General Meeting of the Company held on 7 May 2018. These new convertible notes had a term of 12 months to 31 December 2018, were unsecured, not listed and convertible into ordinary shares based on the five day volume weighted average share price of Audio Pixels Holdings Limited on the date of the agreement ($16.71). On 7 November 2018, the Directors agreed with all the holders of the $5m convertible note to exercise their notes earlier at a discounted price of $15.19. Shareholder approval was required for the $500,000 of convertible notes held by 4F Investments Pty Limited and this was received on 21 December 2018. $4.5m of these convertible notes were converted to 296,246 ordinary shares on 7 November 2018 and the remaining $500,000 of convertible notes were converted to 32,916 ordinary shares on 21 December 2018. 38 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 13. Lease liabilities Analysed as: Current Non‑Current Disclosure required by AASB 16 Maturity Analysis Year 1 Year 2 Year 3 Less: unearned interest 31 December 2019 $ 31 December 2018 $ ‑ ‑ ‑ 337,014 271,208 608,222 31 December 2019 $ 337,014 247,933 28,000 (15,431) 608,222 The consolidated entity does not face a significant liquidity risk with regard to its lease liabilities. All lease obligations in Australia are denominated in Australian dollars and the lease in Israel is denominated in Israeli shekels. Disclosure required by AASB 117 Non‑cancellable operating lease payables Not longer than 1 year Longer than 1 year and not longer than 5 years Longer than 5 years 14. Provisions Employee benefits ‑ ‑ ‑ ‑ 140,352 315,792 ‑ 456,144 262,784 203,960 39 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 15. Issued Capital Issued and paid up capital Fully paid Ordinary Shares Balance at the beginning of the financial year Placement for cash at $13.00 per share Conversion of $3m of convertible notes at $9.68 Conversion of $5m of convertible notes at $15.19 Transfer from convertible note equity reserve Balance at the end of the financial year Fully paid Ordinary Shares Balance at the beginning of the financial year Placement for cash at $13.00 per share Conversion of $3m notes at $9.68 Conversion of $5m notes at $15.19 Balance at the end of the financial year 31 December 2019 $ 31 December 2018 $ 66,217,433 45,228,931 ‑ ‑ ‑ ‑ 9,500,003 5,416,932 5,356,470 715,097 66,217,433 66,217,433 number number 28,301,720 26,893,409 ‑ ‑ ‑ 769,231 309,918 329,162 28,301,720 28,301,720 Fully paid ordinary shares carry one vote per share and carry the rights to dividends. Changes in the Corporations Law abolished the authorised capital and par value concept in relation to share capital from 1 July 1998. Therefor the company does not have a limited amount of authorised capital and issued shares do not have a par value. 40 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 16. Employee Share Option Plan The consolidated entity has an ownership‑based compensation scheme for employees (including directors) of the company. In accordance with the provisions of the scheme, as approved by shareholders at a previous annual general meeting, employees with more than three months service with the company may be granted options to purchase ordinary shares at exercise prices determined by the directors based on market prices at the time the issue of options were made. Each share option converts to one ordinary share in Audio Pixels Holdings Limited. No amounts are paid or payable by the recipient on receipt of the options. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of expiry. The number of options granted is determined by the directors and takes into account the company’s and individual achievements against both qualitative and quantitative criteria. On 13 January 2011, shareholders approved the adoption of an Employee Share Option Plan. (a) Unlisted Options issued under the Employee Share Option Plan 2019 2018 Weighted average exercise price $ number 203,000 16.20 ‑ ‑ ‑ 203,000 ‑ ‑ ‑ ‑ 16.20 ‑ number ‑ 203,000 ‑ ‑ 203,000 ‑ Balance at the beginning of the financial year (i) Granted during the year (ii) Exercised during the year (iii) Lapsed during the year (iv) Balance at the end of the financial year (v) Exercisable at end of the year (i) Balance at the beginning of the year 2019 2018 number 203,000 ‑ Grant date expiry date exercise Price 17/12/18 17/12/21* ‑ ‑ 16.20 ‑ Staff options carry no rights to dividends and no voting rights. Weighted average exercise price $ ‑ 16.20 ‑ ‑ 16.20 ‑ Fair value at grant date $1,421,406 ‑ 41 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 16. Employee Share Option Plan (Cont.) (ii) Granted during the year 2019 Staff options 2018 Staff options number Grant date expiry date exercise Price Fair value at grant date ‑ ‑ ‑ ‑ ‑ 203,000 17/12/18 17/12/21* $16.20 $1,421,406 The options issued were priced using the Black‑Scholes Option Pricing model. Where relevant, the expected life used in the model has been adjusted based on management’s best estimate for the effects of non‑transferability, exercise restrictions and behavioural conditions. Expected volatility is based on the historical share price volatility. The following inputs were used in the model for the option grants made on 17 December 2018: Dividend yield Expected volatility (linearly interpolated) Risk free interest rate Expected life of options Grant date share price Exercise price ‑ 65.40% 1.96% 1,095 days * $15.90 $16.20 * These options commence to vest after 17 December 2020 and continuous employment on the basis of one twelfth of the total number each month in the twelve month period to 17 December 2021. (iii) exercised during the year There were no options exercised during the year. (iv) Lapsed during the year No Staff options lapsed during the year. (v) Balance at the end of the financial year 2019 Staff options 2018 Staff options number Grant date expiry date exercise Price Fair value at grant date 203,000 17/12/18 17/12/21* $16.20 $1,421,406 203,000 17/12/18 17/12/21* $16.20 $1,421,406 Staff options carry no rights to dividends and no voting rights. All options granted to staff on 17 December 2018 commence to vest after 17 December 2020 and continuous employment on the basis of one twelfth of the total number each month in the twelve month period to 17 December 2021. The difference between the total market value of the options issued during the financial year, at the date of issue, and the total amount received from the employees (nil) is recognised in the financial statements over the vesting period as disclosed in Note 15 to the financial statements. 42 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 17. Reserves Foreign currency translation Balance at the beginning of the financial year Translation of foreign operations Balance at end of financial year Foreign currency translation 31 December 2019 $ 31 December 2018 $ (4,037,487) (190,599) (4,228,046) (1,575,876) (2,461,611) (4,037,487) Exchange differences relating to the translation of the results and net assets of the consolidated entity’s foreign operations from their functional currencies to the consolidated entity’s presentation currency (i.e. Australian dollars) are recognised directly in other comprehensive income and accumulated in the foreign currency translation reserve. Exchange differences previously accumulated in the foreign currency translation reserve are reclassified to profit and loss on the disposal of the foreign operation. Equity settled option reserve Balance at the beginning of the financial year Add share based payments in respect of options Balance at end of financial year The above equity‑settled option reserve relates to share options granted by the Company. Minority acquisition reserve Balance at the beginning of the financial year Balance at end of financial year The non‑controlling interest reserve comprises amounts related to the acquisition of a non‑controlling interest shareholding in a subsidiary company in a prior period. Convertible Note Equity Reserve Balance at the beginning of the financial year Increase as a result of derivative recognised on the issue of convertible notes treated as equity Transfer to contributed equity on conversion Balance at end of financial year 4,532,439 509,463 5,041,902 4,512,898 19,541 4,532,439 (25,538,692) (25,538,692) (25,538,692) (25,538,692) ‑ ‑ ‑ ‑ 666,893 48,204 (715,097) ‑ Total Reserves (24,724,836) (25,043,740) 43 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 18. Accumulated Losses Balance at the beginning of the financial year (Loss) for the year attributable to owners of the company Balance at the end of the financial year 19. Notes to the Statement of Cash Flows (a) Reconciliation of cash and cash equivalents 31 December 2019 $ 31 December 2018 $ (28,027,131) (23,507,410) (6,231,930) (4,519,721) (34,259,061) (28,027,131) For the purposes of the statement of cash flows, cash includes cash on hand and at call deposits with banks or financial institutions, investments in money market instruments maturing within less than 3 months at the date of acquisition. Cash and cash equivalents at the end of the financial year as shown in the statement of cash flows is reconciled to the related items in the statement of financial position as follows: Cash and cash equivalents 5,823,291 11,019,092 (b) Restricted cash Cash held as security for future lease payments 60,167 54,959 Restricted cash amounts are included in the cash and cash equivalents amounts above. c) Ronciliation of (loss) for the period to net cash flows from operating activities (Loss) after related income tax Amortisation Convertible note adjustments Depreciation Foreign exchange gains (Gain)/Loss on sale of property, plant and equipment Share based payments Changes in assets and liabilities (Increase)/decrease in assets Current trade and other receivables Non‑current trade and other receivables Increase /(decrease) in liabilities Provisions Current trade payables (6,231,930) (4,519,721) 84,565 ‑ 405,840 (193,741) (411) 509,463 31,251 (435) 58,824 660,717 79,159 2,446,233 70,881 (2,635,871) 198 19,541 (127,452) 10,583 (36,359) 100,079 Net cash (used in) operating activities (4,675,857) (4,592,729) 44 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 20. Related Party Transactions (a) Directors The Directors of Audio Pixels Holdings Limited in office during the year were Fred Bart, Ian Dennis and Cheryl Bart. (b) KMP Remuneration The aggregate compensation of the key management personnel of the company is set out below: Short‑term employee benefits Post employment benefits 31 December 2019 $ 31 December 2018 $ 613,183 92,762 705,945 763,526 99,387 862,913 The remuneration above relates to directors fees, consultancy fees and superannuation paid to entities associated with Fred Bart, Cheryl Bart and Ian Dennis and the remuneration of the two senior executives of Audio Pixels Limited in Israel. (c) Transactions with related entities During the year ended 31 December 2019, the Company paid a total of $107,857 (year ended 31 December 2018 ‑ $107,857) to 4F Investments Pty Limited, a company associated with Mr Fred Bart in respect of directors fees and superannuation for Mr Fred Bart and Mrs Cheryl Bart. During the year ended 31 December 2019, the Company paid a total of $41,063 (year ended 31 December 2018 ‑ $41,063) to Dennis Corporate Services Pty Limited, a company associated with Mr Ian Dennis in respect of directors fees and superannuation. During the year ended 31 December 2019, the Company paid interest of $Nil (year ended 31 December 2018 ‑ $125,918) on a convertible note to 4F Investments Pty Limited, a company associated with Mr Fred Bart. During the year, the Company paid $30,000 (31 December 2018 ‑ $30,000) to Dennis Corporate Services Pty Limited, a company associated with Mr Ian Dennis in respect of consulting fees for company secretarial and accounting services. On 1 June 2018, the company exercised an option to renew a lease in respect of office premises at Suite 3, Level 12, 75 Elizabeth Street Sydney for a period of forty eight months to 30 March 2022. The Company recharged $30,441 (year ended 31 December 2018 ‑ $28,441) of the rent and other tenancy charges to Electro Optic Systems Holdings Limited, a company of which Fred Bart and Ian Dennis are directors and $30,441 (year ended 31 December 2018 ‑ $28,441) to 4F Investments Pty Limited, a company controlled by Fred Bart and $60,882 (year ended 31 December 2018 ‑ $56,882) to another tenant who is a shareholder in the company. In the previous year, a convertible note of $1,500,000 was exercised on 7 November 2018 and resulted in the issue of 154,959 ordinary shares to 4F Investments Pty Limited, a company controlled by Fred Bart, at a price of $9.68. 45 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 21. Earnings per Share Basic (loss) per share Diluted (loss) per share (b) (Loss) (a) 31 December 2019 31 December 2018 (22.02) cents (16.67) cents (22.02) cents (16.67) cents (6,231,930) (4,519,721) Weighted average number of Ordinary Shares 28,301,720 27,112,427 (a) (Loss) used in the calculation of basic earnings per share are the same as the net (loss) in the Statement of profit or loss and other comprehensive income. (b) There are potential ordinary shares to be issued in relation to the issue of 203,000 unlisted employee options issued on 17 December 2018 at an exercise price of $16.20. These options expire on 17 December 2023. The unlisted employee options have not been included in dilutive EPS, as they are anti‑dilutive. 22. Segment Information AASB 8 requires operating segments to be identified on the basis of internal reports about components of the consolidated entity that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess performance. The identification of the consolidated entity’s reportable segments has not changed from those disclosed in the previous 2018 report. The consolidated entity operates in Australia and Israel. Products and services within each segment Digital speakers The subsidiary company in Israel is developing a digital speaker and has not reached the stage of generating any revenue from the technology. Segment Revenues Digital speakers Total of all segments Segment Results Digital speakers (Loss) before income tax Income tax gain/(expense) (Loss) for the period 46 272,520 272,520 86,961 86,961 (6,231,930) (6,231,930) ‑ (4,519,721) (4,519,721) ‑ (6,231,930) (4,519,721) Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 22. Segment Information (Cont.) segment Assets and Liabilities Digital speakers Total all segments Unallocated Consolidated Assets Liabilities 31 December 2019 $ 31 December 2018 $ 31 December 2019 $ 31 December 2018 $ 9,753,108 9,753,108 ‑ 14,338,371 14,338,371 ‑ 2,519,572 2,519,572 ‑ 1,191,809 1,191,809 ‑ 9,753,108 14,338,371 2,519,572 1,191,809 Assets used jointly by reportable segments are allocated on the basis of the revenue earned by the individual reportable segments. other segment Information Depreciation and amortisation of segment assets Acquisition of segment assets 31 December 2019 $ 31 December 2018 $ 31 December 2019 $ 31 December 2018 $ 490,405 490,405 ‑ 150,040 150,040 ‑ 223,556 223,556 ‑ 409,405 150,040 223,556 46,403 46,403 ‑ 46,403 Digital speakers Total all segments Unallocated Consolidated Information on Geographical segments Geographical segments 31 December 2019 Australia Israel Total 31 December 2018 Australia Israel Total Revenue from external Customers $ 150,757 ‑ 150,757 86,168 793 86,961 segment Assets $ 8,394,835 1,358,273 9,753,108 13,473,871 864,500 14,338,371 Acquisition of segment Assets $ ‑ 223,556 223,556 ‑ 46,403 46,403 47 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 23. Financial Risk Management Objectives and Policies The consolidated entity’s principal financial instruments held during the year comprise receivables, payables, cash and short term deposits. Due to the small size of the consolidated entity significant risk management decisions are taken by the board of directors. These risks include market risk (including fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Directors do not plan to eliminate risk altogether, rather they plan to identify and respond to risks in a way that creates value for the company and its shareholders. Directors and shareholders appreciate that in order for the consolidated entity to compete and grow, a long term strategy needs to involve risk taking for reward. The consolidated entity does not use derivative financial instruments to hedge these risk exposures. Risk exposures and Responses (a) Interest rate risk The consolidated entity’s exposure to market interest rates relates primarily to the consolidated entity’s cash holdings and short term deposits. At balance date, the consolidated entity had the following mix of financial assets exposed to Australian interest rate risk that are not designated in cash flow hedges: Financial assets Cash and cash equivalents 31 December 2019 $ 31 December 2018 $ 5,823,291 11,019,092 The consolidated entity constantly analyses its interest rate exposure. Within this analysis consideration is given to potential renewals of existing positions, alternative financing and the mix of fixed and variable interest rates. At 31 December 2019, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post tax (loss) and equity would have been affected as follows: Judgements of reasonably possible movements Post tax Profit Higher/(Lower) equity Higher/(Lower) Consolidated entity +1% (100 basis points) ‑0.5% (50 basis points) 31 December 2019 $ 31 December 2018 $ 31 December 2019 $ 31 December 2018 $ 53,135 (26,567) 110,191 (55,095) 53,135 (26,567) 110,191 (55,095) The movements in profits are due to higher/lower interest rates on cash and cash equivalents balances. The cash and cash equivalents balances were lower in December 2019 than in December 2018 and accordingly the sensitivity is lower. 48 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 23. Financial Risk Management Objectives and Policies (Cont.) (b) Foreign currency risk The consolidated entity has a foreign currency risk since the acquisition of Audio Pixels Limited. Audio Pixels Limited operates in Israel and all transfer of funds to Audio Pixels Limited are denominated in US dollars. The consolidated entity does not hedge its US dollar exposure. The carrying amounts of the consolidated entity’s foreign currency (US$) denominated monetary assets and monetary liabilities at the end of the reporting period are as follows: Cash and cash equivalents Trade and other receivables Trade and other payables Liabilities Assets 31 December 2019 $ 31 December 2018 $ 31 December 2019 $ 31 December 2018 $ ‑ ‑ ‑ ‑ 1,423,733 933,743 510,598 129,106 ‑ 1,518,208 74,268 ‑ All US$ denominated financial instruments were translated to A$ at 31 December 2019 at the exchange rate of 0.7013 (2018: 0.7058). At 31 December 2019 and 31 December 2018, had the Australian Dollar moved, as illustrated in the table below, with all other variables held constant, post tax loss and equity would have been affected as follows: Judgements of reasonably possible movements Post tax Loss Higher/(Lower) equity Higher/(Lower) Consolidated AUD/USD +10% AUD/USD ‑5% 2019 $ 2018 $ 2019 $ 2018 $ 512,526 (296,725) 307,883 (144,973) 512,526 (296,725) 307,883 (144,973) Management believes the balance date risk exposures are representative of risk exposure inherent in financial instruments. (c) Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the consolidated entity. The consolidated entity has adopted a policy of only dealing with creditworthy counterparties which are continuously monitored. The credit risk on liquid funds is limited because the counterparties are major banks with high credit‑ratings assigned by international credit agencies. 49 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 23. Financial Risk Management Objectives and Policies (Cont.) (d) Liquidity risk management The consolidated entity’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due. The consolidated entity’s investments in money market instruments all have a maturity of less than 3 months. Ultimate responsibility for liquidity risk management rests with the board of directors, who have built an appropriate risk management framework for the management of the consolidated entity’s short, medium and long term funding and liquidity requirements. The consolidated entity manages liquidity by maintaining adequate cash reserves by continuously monitoring forecast and actual cash flows and managing maturity profiles of financial assets. The following tables detail the consolidated entity’s remaining contractual maturity for its non‑derivative financial assets and non‑derivative financial liabilities. The tables have been drawn up based on the undiscounted contractual maturities of the financial assets and financial liabilities including interest that will be earned on these assets except where the consolidated entity anticipates that the cash flow will occur in a different period. Weighted average effective interest rate % Less than 1 month $ 1‑3 months $ 3 months to 1 year $ 1‑5 years $ 31 December 2019 Assets Non interest bearing Fixed rate instruments 31 December 2018 Assets Non‑interest bearing Fixed rate instruments 0.00 1.19 0.00 2.24 509,839 2,318,723 ‑ 3,010,544 225,827 2,039,617 ‑ 9,041,050 ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ All financial liabilities are expected to be settled under commercial terms of within 12 months. (e) Commodity price risk The consolidated entity has no exposure to commodity price risk. (f) Other price risks The directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate their fair values. 50 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 24. Financial Instruments Fair value of financial instruments This note provides information about how the consolidated entity determines fair values of various financial assets and financial liabilities. Financial liabilities (a) In the prior financial year, convertible notes with a face value of $3,000,000 included a derivative liability to which a fair value was ascribed. The derivative liability was valued using the Black‑Scholes option pricing model. An input into the Black‑Scholes option pricing model was the expected share price volatility over the remaining term of the options. The expected share price volatility used in the option valuation at reporting date was 50.00% which was based on historical share price volatility. The fair value of the derivative liability was sensitive to changes in share price volatility. Increases in volatility increase the fair value of the derivative liability and vice versa. The fair value hierarchy was Level 3. The convertible note was converted to equity prior to the end of the comparative period. 25. Subsequent Events The Directors are not aware of any significant events since the end of the financial year and up to the date of this report. 26. Parent Entity Disclosures Financial position Assets Current assets Non‑current assets Total assets Liabilities Current liabilities Non‑current liabilities Total liabilities Net assets Equity Issued capital Reserves (Accumulated losses) Total equity Financial performance (Loss) for the period Other comprehensive income 31 December 2019 $ 31 December 2018 $ 5,317,712 37,247,213 42,564,925 39,786,411 2,447,750 42,234,161 260,349 190,264 119,730 ‑ 450,613 42,114,312 119,730 42,114,431 66,217,433 66,217,433 (20,496,789) (21,006,253) (3,606,332) 42,114,312 (3,096,749) 42,114,431 (509,583) (1,053,434) ‑ ‑ (509,583) (1,053,434) 51 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 notes to AnD FoRMInG PARt oF tHe FInAnCIAL stAteMents FoR tHe YeAR enDeD 31 DeCeMBeR 2019 27. Controlled Entity name of entity Parent Entity Audio Pixels Holdings Limited Controlled Entities Audio Pixels Limited Audio Pixels Technologies Pty Limited 28. Commitments Country of Incorporation 31 December 2019 % 31 December 2018 % Australia Israel Australia 100.00 100.00 100.00 100.00 The subsidiary company, Audio Pixels Limited of Israel has entered into various purchase orders and commitments of $794,566 (2018: $286,427) with various strategic partners which will become payable once qualified products are delivered to the company. 29. Additional Company Information Audio Pixels Holdings Limited is a listed public company, incorporated and operating in Australia. Registered office and Principal Place of Business Suite 3, Level 12 75 Elizabeth Street Sydney NSW 2000 Australia Tel: (02) 9233 3915 Fax: (02) 9232 3411 www.audiopixels.com.au The Company has 15 (2018: 10) employees. 52 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 AsX ADDItIonAL InFoRMAtIon Additional information required by the Australian Stock Exchange Listing Rules and not disclosed elsewhere in this report. Home Exchange The Company’s ordinary shares are quoted on the Australian Stock Exchange Limited under the trading symbol “AKP”. The Home Exchange is Sydney. The Company also has a Level 1 American Depositary Receipts (ADR) program and quotation on the OTC market in the United State of America under the code “ADPXY” which is under the NASDAQ International Designation program. Substantial Shareholders At 21 February 2020 the following substantial shareholders were registered: Fred Bart Group Link Traders (Aust) Pty Ltd Voting Rights ordinary shares Percentage of total ordinary shares 5,819,122 1,641,647 20.56% 5.80% At 21 February 2020 there were 2,174 holders of fully paid ordinary shares. Rule 74 of the Company’s Constitution stipulates the voting rights of members as follows: “Subject to any rights or restrictions for the time being attached to any class or classes of shares and to this Constitution: (a) on a show of hands every person present in the capacity of a Member or a proxy, attorney or representative (or in more than one of these capacities) has one vote; and (b) On a poll every person present who is a Member or proxy, attorney or representative has member present has: (i) For each fully paid share that the person holds or represents ‑ one vote; and (ii) For each share other than a fully paid share that the person holds or represents ‑ that proportion of one vote that the amount paid (not credited) on the shares bears to the total amount paid and payable on the share (excluding amounts credited).” Other Information In accordance with Listing Rule 4.10.19, the Company has used the cash and assets in a form readily convertible to cash that it had at the time of admission in a way consistent with its business objectives. Distribution of Shareholdings At 21 February 2020 the distribution of ordinary shareholdings were: Range 1‑1,000 1,001 ‑ 5,000 5,001 ‑ 10,000 10,001 ‑ 100,000 100,001 and over There were 36 ordinary shareholders with less than a marketable parcel. There is no current on‑market buy‑back. ordinary shareholders number of shares 1,223 550 200 163 38 2,174 477,300 1,403,233 1,605,067 4,343,653 20,472,467 28,301,720 53 Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 CORPORATE DIRECTORY tWentY LARGest oRDInARY sHAReHoLDeRs Twenty Largest Ordinary Shareholders Directors At 21 February 2020 the 20 largest ordinary shareholders held 63.53% of the total issued fully paid quoted ordinary shares of 28,301,720. Fred Bart (Chairman) Ian Dennis Cheryl Bart AO Fully Paid ordinary shares Percentage of total shareholder 1. Landed Investments (NZ) Limited Company secretary 2. Altshuler Shacham Trusts Ltd 3. HSBC Custody Nominees (Australia) Limited Ian Dennis 4. Link Traders (Aust) Pty Limited 5. BNP Paribus Nominees Pty Ltd Registered off ice 6. Frederick Bart 7. Bart Superannuation Pty Limited Suite 3, Level 12 75 Elizabeth Street SYDNEY NSW 2000 Australia 8. James John Bart 9. Kam Superannuation Fund Pty Limited Israel off ice 3 Pekris Street Rehovot ISRAEL 76702 10. Jamber Investments Pty Ltd 11. Cheryl Bart Telephone: +61 2 9233 3915 Facsimile: +61 2 9232 3411 Email: 12. Citicorp Nominees Pty Limited iandennis@audiopixels.com.au 13. Decante Pty Limited14. Brent McCarty, Yvonne McCarty and Zeljan Unkovich Website 15. Brigadier Pty Limited www.audiopixels.com.au 16. Nicole Bart 17. Larron Pty Ltd 19. Norlip Pty Ltd < Norbert Lipton S/F A/C> Auditor 18. Arvada Pty Ltd Deloitte Touche Tohmatsu Chartered Accountants 20. Mr Lee K Lau Brindabella Circuit Brindabella Business Park Canberra Airport ACT 2609 Australia Bankers St George Bank 200 Barangaroo Avenue Barangaroo SYDNEY NSW 2000 Australia Telephone: + 972 73 232 4444 + 972 73 232 4455 Facsimile: danny@audiopixels.com Email: 3,565,000 3,069,123 1,675,110 1,627,045 1,445,917 874,325 782,777 716,013 650,000 530,000 500,000 469,768 400,000 304,014 272,600 250,000 225,000 222,700 204,320 197,498 12.60% 10.84% 5.92% 5.75% 5.11% 3.09% 2.77% 2.53% 2.30% 1.87% 1.77% 1.66% 1.41% 1.07% 0.96% 0.88% 0.80% 0.78% 0.72% 0.70% 17,981,210 65.53% share Registry Computershare Investor Services Pty Limited Level 3 60 Carrington Street Sydney NSW 2000 GPO Box 7045 Sydney NSW 1115 Australia Telephone: 1300 855 080 or Facsimile: +61 3 9415 5000 outside Australia 1300 137 341 54 4997 Designed and Produced by RDA Creative www.rda.com.au Annual Report 2019 • Audio Pixels Holdings Limited ACN 094 384 273 Telephone: +61 2 9233 3915 Facsimile: +61 2 9232 3411 Telephone: + 972 73 232 4444 Facsimile: + 972 73 232 4455 Email: iandennis@audiopixels.com.au Email: danny@audiopixels.com CORPORATE DIRECTORY Directors Fred Bart (Chairman) Ian Dennis Cheryl Bart AO Company secretary Ian Dennis Registered off ice Suite 3, Level 12 75 Elizabeth Street SYDNEY NSW 2000 Australia www.audiopixels.com.au Website Auditor Deloitte Touche Tohmatsu Chartered Accountants Brindabella Circuit Brindabella Business Park Canberra Airport ACT 2609 Australia share Registry Level 3 60 Carrington Street Sydney NSW 2000 GPO Box 7045 Sydney NSW 1115 Australia Computershare Investor Services Pty Limited Telephone: 1300 855 080 or +61 3 9415 5000 outside Australia Facsimile: 1300 137 341 Israel off ice 3 Pekris Street Rehovot ISRAEL 76702 Bankers St George Bank 200 Barangaroo Avenue Barangaroo SYDNEY NSW 2000 Australia 4997 Designed and Produced by RDA Creative www.rda.com.au Audio Pixels Holdings Limited ACN 094 384 273 www.audiopixels.com.au www.audiopixels.com.au ANNUAL REPORT 2019