Form Factors Will Change Dramatically. This Can Become This

Audio Pixels Holdings Ltd (AKP)
11 Dec 2015

Issued shares25.707 million
8% conv notes2 only, face value $3m, convertible at lower of $9.68 or the 55 day share price prior to conversion, expiring 2 June 2016
Share price$9.00
Mkt cap$231m

Information provided
From its laboratory in Israel, Audio Pixels has developed digital technology for reproducing sound using micro-electromechanical structures (MEMS), enabling the production of a new generation of tiny speakers (microchips) that far exceed the performance of conventional speakers.

Form factors will change dramatically. This can become this

The company is part-way through a four stage development program, which has taken some years and some tens of millions of dollars. The third phase, being the production, testing and demonstration of the first speaker prototype microchips, was essentially completed earlier in March 2015 with outstanding results. However some optimisation work is continuing. At the AGM on 28 May 2015 the company stated it was focussed on commencing the fourth phase, which will comprise commercial manufacture of the microchips and providing them to leading companies in the consumer electronic industries (presumably Apple, Samsung, Sony, etc.) for them to research the use of the speakers in their devices. That should lead to rapid commercialisation, hopefully. But whether the fourth phase has commenced has not actually been disclosed.

The management of Audio Pixels is based in Israel. However, the three directors, all of them non-executives, reside in Australia. They are Fred Bart (the chairman and a well-known business identity with a mixed track record mainly in the textile industry), Cheryl Bart (his wife and a high-achieving lawyer with a number of high-powered board seats) and Ian Dennis (an accountant and company secretary). All have skin in the game.

The Fred Bart group owns 5.4m or 21.2% of the shares under the names of Fred Bart, Cheryl Bart and Landed Investments (NZ) Ltd. The group is the only substantial shareholder listed in the annual report. The Fred Bart group also owns one of the convertible notes (face value $1.5m). The owner of the other convertible note has not been disclosed but is unrelated to the company.

Ian and Caroline Dennis have 570,000 or 2.2% of the shares.

Israeli investment house Meitav Dash holds some 5.0m or 19.5% of the shares on behalf of other persons, none of whom are listed as substantial shareholders. Presumably these would include the employees. Another significant but not substantial shareholder with 769,000 or 3.0% of the shares is Link Traders (Aust) Pty Ltd associated with Laurence Freedman, who like a number of other shareholders is an acquaintance of Bart's.

In the September Quarter 2015 the company spent $840,000 and finished with a cash position of $2.4m.

My thoughts
The company’s cash position will not last through 2016 but that shouldn’t be an issue. A small capital raising should be easily achievable given the market cap.

At the AGM held on 28 May 2015 it was suggested that Phase 4 should take less time than the 9 months required for Phase 3. But has phase 4 commenced? The last comment made by the company, in May, was that it was focussed on commencing the fourth phase. Not quite the same thing as having started. Very confusing.

If all goes well the speakers will take the world by storm and the value of Audio Pixels will be some billions of dollars. Here's hoping. But it will be some months or maybe a year or more before the company records any sales