Material Business Risks

Since its founding management has openly and frequently delineated its assessment of the ongoing and emerging risks, challenges and concerns that might influence the company success and opportunities. In fact, as a truly pioneering company engaged in transforming century old technological conventions; continual analysis of risks and failures have been baked into the company’s DNA as the guiding principle of operation.   

1. Technological Viability

AKP is engaged in revolutionizing an incumbent technology that has been an important and prevalent technological staple, used extensively by mankind, since its advent by Alexander Graham Bell roughly 150 years ago. The industry at large has unsuccessfully spent many, many billions of dollars over decades searching for ways to advance sound reproduction to the modern era. It is rather widely acknowledged, that AKP’s radical approach is the best chance the industry has to succeed in its ambition to evolve sound reproduction into the digital era, for example in the same manner that the LCD has completely replaced the CRT and digital memory has replaced magnetic media for data storage.

However, this effort requires the expansion and advent of many technological disciplines, some of which were either unknown or not fully understood. Achieving sufficient understanding as to the intersection of varying physical regimes prevalent in micro-mechanical structures was simply impossible before structures of this scale could be physically fabricated and characterized.  This achievement alone required very deep understanding of the capabilities and limitations of available microfabrication tools and techniques. 

AKP has and continues to be engaged in a truly massive and comprehensive research and development effort to bring our technology to fruition. As such and until completion of the technology, its products, and their production methods, fulfillment of the technological vision and promise will by its very nature maintain certain levels of uncertainties and risks. Throughout and to the best of reason, management has tried to share its assessment at common sense intervals of the remaining risks, challenges and concerns, based on technical progress actualities, competitive concerns, and in consideration of confidentiality and intellectual property considerations.

2. Cyber Security

Like every company in the world AKP’s systems, data, and networks are subject and vulnerable to malicious attacks, including computer viruses, spyware, ransomware, and hosts of other emerging security concerns. The company has spent and continues to spend considerable resources to prevent unauthorized accesses, data loss, and cyber malicious attacks, using the best of breed cyber security systems.  As a company poised to disrupt a multibillion-dollar industry management must also assume that the company is, or it will become a heightened target for IP theft and disruption is therefore applying every reasonable means possible to protect its intellectual property.

3. Intellectual Property

As a pioneer, the company has managed to amass an impressive technology portfolio covering over 200 patents (and counting) in over a dozen patent families. Nonetheless financial and human constraints limit our ability to:

a. Legally protect every aspect of the technology.

b. Limit the jurisdictions in which we are able file and maintain patent protection

The company is extremely diligent that all developments are originated within the company using licensed and authorized tools. However, the very nature of multidisciplinary development entangling a multitude of technologies and tools might expose the company to claims of IP infringement by various third parties.

Since its founding the company has used Israel’s leading IP firm to advise and guide our IP strategies. To the best of its ability and available resources the company has developed methods, procedures and strategies to ensure originality and or legal license as well as to protect its IP worldwide. The company also put in place routine procedures to investigate and react if needed to possible infringement or unauthorized replication of its technologies.

Furthermore, our IP portfolio includes considerable knowhow. Inherent to the model of a fabless company is the necessity to sharing of such knowhow with third party partners, vendors and service providers. Given our inability to control or monitor third parties Management routinely is extremely cautious when divulging certain critical aspects and knowhow of our technology.  The sharing of critical information when required is done in a manner that tries to minimize the risk of IP leakage, which at time can come at the expense of elongating timelines.

4. Development Timeline / Time To Market

There are a number of factors that have, and will continue, to influence the pace of progress (beyond the technological uncertainties associate with research and development as stated above), namely:

  • Fabrication – MEMS fabrication differs greatly when compared to “traditional” integrated circuitry, despite the fact that they many of the same tools, techniques and facilities; mainly in that there are no rigid design rules and highly standardized batch processing techniques in MEMS. By its very nature MEMS designs vary in their electromechanical and operational requirements, requiring fabrication processes flow to be tailored to the specific materials, dimensions, tolerances, etc. This “one design-one process”, necessitates an iterative, trial-and-error approach, whereby designs are fabricated, results are characterized, and then either the fabrication process flow, and or the design or both are modified, refined, or optimized accordingly in order to achieve the end results – often a cycle that needs to be repeated a number of times.

    Historically converting the company’s MEMS into silicon has taken between 10 and 14 months for each major integration cycle. Such timelines are more or less confirmative with the cycle times throughout the fabless MEMS sector, even though AKP’s designs require extending the electromechanical specifications beyond the conventional norms of associated with MEMS fabrication. The Company originally started its development works with Sony Semiconductor as its primary MEMS fabricator, and after evaluation of a number of additional Fabs ultimately shifted priority to Tower Semiconductor in attempt to reduce production cycle timelines. More recently, the company established a relationship with Earth Mountain a Chinese based entity having highly advanced facilities and expansive resources. After extensive evaluation EarthMountain was deemed capable of delivering faster turnaround with superior results, a collaboration that has recently borne the success that management was hoping to achieve. This collaboration was memorialized in Dec 2021 in a comprehensive manufacturing agreement which is subject to confidentiality clauses, however as has been reported the agreement includes substantial production capacity, which comes at a time that the industry at large is struggling to overcome capacity shortages.
     
  • Fab Prioritization - The business models of silicon foundries are rooted in volume production and therefore the Fabs tend to avoid conducting any kind of development work especially for innovative and nonconforming fabless companies such as AKP. It is understood that even when a fab undertakes development work, such endeavors must play “second fiddle” to production customers, influencing timelines (always for the worse). Exacerbating the situation are the unprecedented global shortages of semiconductor capacity experienced worldwide, instigated by among other reasons, the worlds response to the COVID-19 pandemic. These unprecedented shortages have impacted virtually every industry in particular those that heavily rely on semiconductors such as the automotive and consumer electronic industries, forcing companies such as Apple and Ford, to delay, suspend, or even shutdown various aspects of their production. A popular countermeasure by some industry conglomerates to stockpile inventory and “acquire” long term capacity, has put even further strain on smaller companies, such as AKP.

    Unfortunately, Silicon production cannot be turned on or off with the flick of a switch; any change to production lines can take months; while adding additional capacity can take years and many billions of dollars. Absent of the company owning its own silicon foundry, the reality is that it must endure disruption and unpredictability within its supply chain
5. Global Pandemic

The past three years has seen the world contend with the COVID-19 global pandemic, impacting mankind’s health, and imposing severe restrictions and limitations on work, travel and our lives in general. More recently China, a major supplier of the global electronic supply chain, has implement its most severe restrictions since 2020 trying to contain the spread of the pandemic, which adversely impacted even further the global supply chain. The pandemic’s impact on AKP, in particular to conduct important face-to-face meetings, hands exchange, inspection, and onsite support to our vendors and partners and potential customers, as well as our timelines and ability to demonstrate the technology, have been rather significantly impacted and delayed due to travel restrictions and the lack of timely provision of critical parts and services.  

6. Reliance on third parties for supply and production

By its very nature a fabless company such as ours is wholly dependent on the production and assembly services that are provided by third party suppliers. Management works very closely with its providers, most recently with Earth Mountain and its ASIC foundry as well as a number of other related vendors, to ensure continuity of production and packaging requirements, however, any disruption to their business, for any reason, may materially impact AKP.

7. Key Personnel and competition for human resources as we manage growth

As we near our commercialization objectives we anticipate considerable attention and demand for our revolutionary products technologies. To support this transition and growth, additional resources will be required to be added to the company. Much of the technology industry, in Israel in particular, have been experiencing unprecedented shortages of human capital as the industry enjoys unprecedented sector growth, record-breaking capital available, and the rapid expansion of multinationals worldwide Israel. This current reality has not only made recruiting talent extremely competitive but has induced the “poaching” of our exceptionally talented staff. Management continues to work on ways to enhance our employee incentive programs to better attract, recruit, and retain the talent needed to execute our plans.

8. Finance and Capital

The company requires additional capital to execute and support its plans. The company’s ability to secure capital in a timely manner depends among other factors on its development status, investor interest, as well as the financial state of capital markets.

The Directors have determined that the best result for a capital raise at this stage of the company, is obtainable after the company has the ability to properly demonstrate its technologies to potential investors. In the interim the Company has been funding its operations utilizing unsecured loans from related parties. The directors continue to monitor in real time the status of achieving the demonstration milestone and may choose to take further unsecured loans if the capital raise might be additionally delayed.

9. Currency Fluctuation

As an Australian company our finances and financials are rooted in the Australian dollar, however the overwhelming portion of expenditures and cashflow requirements are conducted in Israeli, Chinese, European and US currencies. Any fluctuation in any of these currencies made have adverse effects on the company’s capital requirements.

10. Goods and Services Costs

Global shortages throughout the semiconductors have spurred a meaningful increase in the costs of obtaining parts. Scarce components and services not only saw a dramatic and continual increase in pricing, but also demand for larger and longer-term commitments in order to secure product and services.

11. Taxation

As an Australian resident company dealing in several foreign jurisdictions, we need to continually assess the taxation position of the whole group and keep abreast of any changes in legislation which may have affect future income. 

 

10 May 2022