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BrainChip Holdings Ltd
(formerly Aziana Limited)
Annual Report
2015
Corporate Directory
Board of Directors
Eric (Mick) Bolto (Non-Executive Chairman)
Peter van der Made (Executive Director)
Neil Rinaldi (Non-Executive Director)
Adam Osseiran (Non-Executive Director)
Company Secretary
Nerida Schmidt
Registered Office
Level 2, 6 Thelma Street West Perth WA 6005 Australia
Telephone: +61 8 9444 2555
Facsimile: +61 8 9444 1600
Postal Address
PO Box 278 West Perth WA 6872 Australia
Website
http://www.brainchipinc.com
Auditors
Ernst & Young
Ernst & Young Building, 11 Mounts Bay Road, Perth WA 6000
Telephone: +61 8 9429 2222 Facsimile: +61 8 9429 2436
Share Registry
Computershare Investor Services Pty Ltd (from 4 April 2016)
Level 11, 172 St George’s Terrace, PERTH WA 6000
Telephone: +61 8 9323 2000 Facsimile: +61 8 9323 2033
Securities Exchange
Australian Securities Exchange Limited
Exchange Plaza, 2 The Esplanade, Perth WA 6000
Codes: BRN, BRNAA, BRNAB, BRNAC, BRNAD, BRNAE,
BRNAF, BRNAG, BRNAH, BRNAI
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Contents
Chairman’s Address
Review of Operations
Directors’ Report
Auditor’s Independence Declaration
Consolidated Statement of Comprehensive Income for the Year ended 31 December 2015
Consolidated Statement of Financial Position as at 31 December 2015
Consolidated Statement of Cash Flows for the Year ended 31 December 2015
Consolidated Statement of Changes in Equity for the Year ended 31 December 2015
Notes to the Consolidated Financial Statements for the Year ended 31 December 2015
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Director’s Declaration
Independent Audit Report
Security Holder Information as at 29 February 2016
Summary of Mining Tenements
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3
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Chairman’s Address
Since the last Annual Report to shareholders, what is now BrainChip Holdings Ltd has been transformed from
a mining company in a difficult market environment, to a company which has ground-breaking new technology
in the field of neural computing, which has a massive market potential.
All of the pre-requisites for re-listing were satisfied by September 2015, including the raising a total of $4M for
ongoing capital requirements in technology development. The Company was fortunate to have the support of
existing and new shareholders in this fundraising.
The timing of the transformation could not have been more perfect.
The current CEO had spent many years developing and gaining patent protection for the Spiking Neuron
Adaptive Processor (“SNAP”) technology which is now owned by the Company and is its foundation stone.
Development work continues in refining and finding new applications for SNAP, and because of this extensive
development phase, the technology is now ready for commercialisation. Also, the appetite for what is popularly
known as Artificial Intelligence has exploded, and is the focus of worldwide attention.
When the merger was negotiated, all parties were aware of the challenges which would face an early stage
company with disruptive technology engaged in a business area where there was so much at stake. Hence
the milestones upon which further share performance rights would be issued to the original BrainChip
stakeholders were designed to challenge the team and demonstrate to the world what the SNAP technology
could do (Milestones 1 & 2), and in Milestone 3 provide potential users and licensees with the opportunity to
test the application of the technology to their needs. These milestones have now been achieved ahead of
time.
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The highlight features of the BrainChip SNAP technology include:
Learns autonomously
Blazingly fast
Highly energy efficient
Small physical footprint
Verified technology
Huge market potential
We are now looking to achieve Milestone 4, our first licence agreement which will be a major step forward, but
this will be only the first of many future licences and collaboration agreements, bringing revenue and a powerful
market bargaining position.
Significant potential customers have been waiting for the validation provided by the early Milestones, and
access to SNAP via the client / server interface API so that their current neural networks can achieve their
potential without the severe limitations imposed by the existing software based solutions. The advantages and
scope available to SNAP are mentioned in the Review of Operations and have been well detailed in a number
of ASX releases.
We are now in the marketing and commercialisation phase, with the approach and business model described
in the Review of Operations, but the depth and variety of potential applications provide their own challenges.
We have a small but growing team of industry experts, who must now work with each potential licensee to
understand their needs, and collaborate on solutions.
The team will grow as the opportunities multiply, but we must prioritise and remain focussed on both the key
industry sectors and key clients or applications where we can achieve early results, and make the most
difference. At the same time, we must think strategically; there will be some clients or collaboration partners
which will take longer to assess or come up with solutions, but who are so important to our future that they
can’t be ignored.
There are useful business models for us to follow and learn from, particularly with companies in the semi-
conductor chip and processor markets, where we become the enabler, the friend not the enemy. But we are
also to a certain extent out on our own, and this is an exciting feeling.
BrainChip has announced its intention to appoint a new CEO to replace the interim CEO and founder Peter
van der Made, to allow Peter the time and focus to deliver more outstanding technical and commercial
achievements. The Company will also engage in further fundraising, allowing for recruitment of further world
class team members, and capital investment as required. The intellectual property will be developed and
protected, along with marketing and scientific collaborations to support the commercialisation process.
BrainChip Holdings Ltd
2015 Annual Report
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Chairman’s Address
Each of these building blocks are vital in achieving the Company’s vision of becoming a truly innovative enabler
of Artificial Intelligence in making the world a safer and better place for all of us.
Finally, I would like to acknowledge the dedication and contribution of the management and scientific team
lead by Peter van der Made and Anil Mankar, the corporate secretarial and accounting support so ably provided
by Nerida Schmidt and Michelle Afflick, other consultants and of course the directors, all working together to
achieve our vision for BrainChip.
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Yours faithfully
Eric (Mick) Bolto
Chairman
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BrainChip Holdings Ltd
2015 Annual Report
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Review of Operations
Mining assets and strategy
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The Annual Report for 2014 contained a review of the mining projects and assets held by the Company. This
included a reference to the sale of two Madagascan “non-core license packages” for a total consideration of
US$690,000, payable when the transfer of the individual licenses was registered by the Madagascan
authorities. The first of these transfers has been processed and the sum of US$134,364 received. It is
anticipated that the balance of US$559,100 will be received during the course of the 2016 calendar year.
The Chairman’s Address stated that exploration activities in bauxite and other projects in Madagascar had
ceased and the Company was focused on a strategy of seeking “suitable partners” for these assets. The
Annual General Meeting of the Company held on 27th May 2015 passed a resolution approving a transaction
in respect of the “Main Undertaking – Sale of Manatenina Bauxite Project”, but as reported 6th August 2015
this prospective sale did not proceed. The Group continues negotiations for the disposal of the mining
interests.
BrainChip acquisition and operation
Heads of Agreement
On 18th March 2015, the Company announced in a release to the ASX that it had entered into a conditional
Heads of Agreement to acquire 100% of BrainChip Inc., a US based entity with “world leading patented
technology” in the field of neural computing and autonomous learning. The release set out and described:
The Spiking Neuron Adaptive Processor (SNAP) technology, its advantages and
applications.
The basic terms of the acquisition, including issues of shares in the Company in exchange
for transfer of 100% of the shares in BrainChip Inc., the issue of options in exchange for the
cancellation of BrainChip Inc. warrants and the issue of four tranches of performance rights
based on achievement of specified Milestones.
The conditions to be satisfied including completion of due diligence, and exercise by the
Company of its option to proceed.
The management and scientific development team which would come across.
The elements of the business model, with revenue to be derived from license fees, recovery
of non-recurring engineering costs, and ongoing royalties from sale and use of the products
derived.
The funding and other ASX requirements for what would be a “reverse takeover”.
A draft timetable for achievement of these requirements leading to a relisting of the
Company as BrainChip Holdings Ltd.
The pre-requisites for issue of the performance rights were:
Milestone 1: “Proof of technology” by a simulated race car demonstration in software.
Milestone 2: Implementation of the race car demonstration in hardware “...to visually illustrate
the capability and scalability of BrainChip’s SNAP technology...”.
Milestone 3: Release of software specification and Register Transfer Level (“RTL”) design
solution for customer interface.
Milestone 4: First license agreement.
Option exercise after satisfaction of conditions
On 8th May 2015, the Company announced completion of due diligence and exercise of its option, and on 19th
May 2015 that underwriting support had been received for a proposed capital raising (being a condition
precedent within the acquisition terms).
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2015 Annual Report
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Review of Operations
Milestone 1
On 13th May 2015 it was announced that Milestone 1 had been successfully completed ahead of schedule.
The release stated:
“In this demonstration the BrainChip team has applied its SNAP technology into a race car to demonstrate
how the SNAP technology enables neurons to learn rapidly and much faster than has previously been
achieved by alternative solutions. It also proves that a process can be learned and controlled using spiking
neuron based learning, the same method that is used in the human brain”.
The release described the two different processes of traditional “sigmoid neurons” compared to the BrainChip
spiking neurons, how these are configured and the results demonstrating a “Proof of Concept”.
Completion of the BrainChip acquisition and relisting
At a General Meeting of the Company held on 30th July 2015, the shareholders approved a number of
resolutions to implement the binding terms sheet entered into in respect of the BrainChip acquisition. These
resolutions and their effect were described in detail in the Explanatory Statement accompanying the Notice of
Meeting, and included the following matters:
Issue of shares, options and performance rights in respect of the acquisition.
Issues of shares for a fundraising.
Change to nature and scale of activities.
Appointment of directors.
Change of Company name.
On 4th August 2015, the Company announced the retirement of Mr Peter Wall as Chairman and the
appointment of Mr Eric (Mick) Bolto in his place, noting that he “...brings strategy, governance and commercial
experience…as the Company heads towards completion of the acquisition of BrainChip”.
On 18th August 2015 the Company released a prospectus to raise the sum of A$3,150,000 and convert other
interim loan funding as required by the acquisition terms, and on 3rd September 2015 the Company announced
that the required sum had been raised and as a consequence all of the non-regulatory hurdles had been met.
In that regard, the Company also announced that the ASX had granted conditional approval to relisting and
reinstatement of official quotation, and it was working to satisfy all of the conditions. These conditions were
met and the Company relisted under its new name BrainChip Holdings Ltd (ASX code BRN) on 22nd September
2015.
Management changes
Post completion of the acquisition, Mr Robert Mitro submitted his resignation as CEO and director of the
Company due to health reasons. In a release dated 5th October 2015, the Company acknowledged his
contribution and noted that founder and Chief Technical Officer, Mr Peter van der Made would assume the
role of interim CEO, while the Company undertakes a search for a permanent US based CEO. At that time,
the Senior Vice-President of Engineering Mr Anil Mankar was appointed Chief Operating Officer.
Messrs van der Made and Mankar now lead a team of four specialist and highly qualified engineers/scientists
working out of the Company’s technical base in Alisa Viejo, California. This team will grow to meet the
customer and technical development needs.
Establishment of Scientific Advisory Board
On 27th October 2015, the Company announced the establishment of an Advisory Board to provide “additional
strategic direction of a scientific nature”. The first appointees, both relevantly qualified and distinguished
professors at UCSD and UCI respectively, were:
Dr. Nicholas Spitzer described as a “world renowned Neuroscientist with a career spanning
over 40 years”; and
Dr. Jeffrey Krichmar whose “research interests include neuro-robotics, embodied cognition,
biologically plausible models of learning and memory, and the effect of neural architecture
on neural function.”
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Review of Operations
The Scientific Advisory Board was later strengthened by the appointment of Dr. Gert Cauwenberghs.
Dr. Cauwenberghs is a professor of Bio-Engineering and Neurobiology at the University of California at San
Diego. Dr. Cauwenberghs pioneered the design of analog, highly energy efficient, massive parallel microchips
that simulate the behavior of biological neurons.
Milestone 2
The next major step forward was the announcement on 30th October 2015 that the Company had achieved
Milestone 2, a hardware-only Spiking Neural Network, demonstrated as in Milestone 1 with a race car learning
how to navigate a track.
The ASX release articulated the highlights in the following terms:
“Extremely fast processing power confirmed.
SNAP autonomously learned to avoid the edges of the track in 0.89 seconds, whilst
executing 3,571, 430 neural update cycles.
Achieved a neural update rate of 0.25 of 1 microsecond.
Scalability now achieved.
Demonstrates the disruptive features and benefits of SNAP.
BrainChip now in a position to demonstrate SNAP to potential development partners with the
view to securing licensing and royalty based contracts so that SNAP can be fully
commercialised.”
BrainChip's SNAP
Speed Increase
21,578
x
7,193x
30x 89x266x799x2,…
25,000
20,000
15,000
10,000
5,000
0
Patent protection
The original (and first ever) digital neuromorphic chip patent for the SNAP technology was filed (for USA and
Australia) on 21 September 2008 and granted in 21 August 2012. During 2015 four additional patent
applications were lodged and are now pending.
As noted in an ASX release dated 8th February 2016:
“Protecting Intellectual Property is a central part of BrainChip’s business plan, and the Company will continue
to expand its core technology patents.”
This strategy is anticipated to result in 5-10 additional patent filings in calendar 2016.
Autonomous Feature Extraction and Unsupervised Visual Learning
In addition to the accomplishment of milestones, the Company has been working on technology developments
which will be a platform for commercialization. The first of these announced on 18th February 2016, was the
Autonomous Feature Extraction (“AFE”) system, which uses the SNAP neural processor to process and learn
real world digital information, which can be used on a range of input patterns and shapes. The information
can be submitted in real-time or from recorded media.
BrainChip Holdings Ltd
2015 Annual Report
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Review of Operations
SNAP based Spiking
Neural Network
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Input from the DVS camera Structure of the SNAP hardware Client Computer receiving input from SNAP
As a first major advancement from the AFE system, the Company subsequently announced its Autonomous
Visual Feature Extraction (“AVFE”) system, which is demonstrated by input from a Dynamic Vision Sensor
(DVS) which is an artificial retina.
The importance of the AVFE development is indicated in the release:
SNAP technology is capable of processing 100 million visual input events per second.
Learns and identifies patterns in the image stream within seconds (Unsupervised Feature
Learning) in real time. This is a major advantage over ‘Deep Learning’.
Potential applications include security cameras, collision avoidance systems in road
vehicles and Unmanned Aerial Vehicles (UAVs), anomaly detection and medical imaging.
AVFE is now commercially available.
Discussions with potential licensees for AVFE are progressing.”
The AVFE system has been implemented in a Field Programmable Gate Array (“FPGA”). This type of
FPGAs are widely used in the industry to evaluate new chip designs. The interface to this chip enables
scientists and engineers from the Company to collaborate with similar teams from potential customers and
partners to design solutions and the chips to deliver those solutions. The customer can use the FPGA to test
and qualify the application, then contract with manufacturers and OEMs to produce the necessary products.
The business model for the Company remains the same: upfront license fees, Non-recurring Engineering
(NRE) integration fees and ongoing royalties, without the capital expense or risk of creating and marketing the
products themselves. The company intends to build an extensive network of partners in the Artificial
Intelligence industry to market its products.
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BrainChip Holdings Ltd
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Review of Operations
Milestone 3
The Company announced on 15th March 2016 that the requirements of Milestone 3 had been met by the
release of its Client/Server Interface Tool, which creates a live environment for developers to remotely access
BrainChip’s SNAP technology and assess their requirements, and create end user applications in real time.
In achieving Milestone 3 BrainChip went to the next stage and produced a demonstrable version to illustrate
the capability of the Client / Server Interface Tool. The Company has released a video demonstration of the
system in operation which can be viewed at: http://ir.brainchipinc.com/
The Client / Server Interface will enable the Company and its marketing/collaboration partners, such as Applied
Brain Research with which an alliance was recently announced, to directly interface with multiple potential
clients and licensees.
Marketing, Fundraising and Management
The Company will focus over the coming year on achieving the commercial aims of its business plan, and to
that end there will be a continued and concentrated emphasis on marketing. This effort will be focused on
existing and new contacts, potential customers with an immediate need, an understanding of how SNAP can
meet those needs, and the resources to act quickly. Besides clear advantages in faster processing, lower
power consumption and a smaller footprint, which make it possible to embed the technology, BrainChip SNAP
has a huge advantage over ‘Deep Learning’ technology in its ability to learn rapidly, within a few seconds and
its ability to extract unknown patterns from data. The Company aims to exploit these advantages to their fullest
extent. At the same time, the Company will act to ensure that is has sufficient funds to achieve the targeted
yet sizeable growth plans, which will include additions to management of a US-based CEO, a full time
marketing team and additions to the engineering team involved in the delivery of resources. The Company will
continue to pursue commercial and technical partnerships with established corporations involved in the
Artificial Intelligence marketplace to strengthen its commercial position.
Yours faithfully
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Peter van der Made
Chief Technical Officer and acting Chief Executive Officer
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BrainChip Holdings Ltd
2015 Annual Report
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Directors’ Report
The Directors submit their report of the consolidated entity, being BrainChip Holdings Ltd (previously Aziana
Limited) (“BrainChip Holdings” or “the Company”) and its controlled entities (the “Group”), for the year ended
31 December 2015.
DIRECTORS
The names and details of the Company’s Directors in office during the financial period and until the date of this
report are as follows.
Eric (Mick) Bolto
Peter van der Made – Executive Director (appointed 10 September 2015)
Neil Rinaldi
– Non-Executive Chairman (appointed 3 August 2015)
Adam Osseiran
Robert Mitro
Peter Wall
Peter Cook
– Non-Executive Director (appointed 12 June 2013 as CEO; Non-Executive Director
from 10 September 2015)
– Non-Executive Director (appointed 10 September 2015)
– Executive Director (appointed 10 September 2015; resigned 3 October 2015)
– Non-Executive Chairman (appointed 30 September 2014, resigned 3 August 2015)
– Non-Executive Director (appointed 30 May 2011, resigned 10 September 2015)
The names and details of the Company’s Secretaries in office during the financial period and until the date of
this report are as follows.
Nerida Schmidt - appointed 14 December 2015
Sonia Joksimovic - appointed 30 September 2015, resigned 14 December 2015
Scott Balloch – resigned 30 September 2015
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
On 10 September 2015 BrainChip Holdings completed the legal acquisition of BrainChip Inc., a company
incorporated in Delaware, USA with operations in California, USA (“Acquisition”). Under Australian Accounting
Standards, BrainChip Inc. was deemed to be the accounting acquirer in this transaction. The Acquisition has
been accounted for as a share based payment by which BrainChip Inc. acquired the net assets and listing
status of BrainChip Holdings.
Accordingly, the consolidated financial statements of the Group have been prepared as a continuation of the
business and operations of BrainChip Inc. As the deemed acquirer BrainChip Inc. has accounted for the, in
substance, acquisition of BrainChip Holdings from 10 September 2015. The comparative information for the
12 months ended 31 December 2014 is that of BrainChip Inc. as presented in its last set of financial statements.
The financial results of the Group are presented in US dollars, unless otherwise referenced.
PRINCIPAL ACTIVITIES
The principal activity of the Group is the development of neural computing technology with a primary focus on
the further development of its Spiking Neuron Adaptive Processor (“SNAP”) technology and licensing the
SNAP technology designs with potential technology partners.
EMPLOYEES
The Consolidated Entity employed 6 employees at 31 December 2015 (2014: 3).
BrainChip Holdings Ltd
2015 Annual Report
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Directors’ Report
DIVIDENDS
No dividends have been paid or declared by the Company during the financial period or up to the date of this
report.
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REVIEW OF OPERATIONS
Operating Results
The Group made a net loss after income tax for the year of US$27,360,115 (2014: US$357,967).
The loss from ordinary activities and attributable to members increased due to:
1) A one off non-cash listing expense on acquisition of BrainChip Holdings of US$23,611,942 being the
difference between the deemed consideration paid (US$26,709,755) on acquisition less the net assets
acquired (US$3,097,813).
2) The increased development and operational activities of BrainChip Group and the completion of the
acquisition of BrainChip Holdings has resulted in an increase in salaries (employees increased from 3 to
6), increased consultancy and other associated expenses.
3) Options and performance rights issued to directors, employees and consultants since the Acquisition have
4)
been valued at US$1,939,902.
Increased revenues are the result of royalty income earned from oil and gas interests in Louisiana, USA,
increased interest income from increased cash on deposit and a foreign exchange gain of US$36,980 due
to fluctuations in the Australian dollar and the Malagasy Ariary.
At the end of the financial year the Group had consolidated net assets of US$1,736,570 (2014: net liabilities
US$337,855), including cash reserves of US$1,393,869 (2014: US$31,633).
Cash of US$2,627,240 was acquired by the Group upon the completion of the Acquisition transaction, and
funding completed prior to the Acquisition resulted in further cash injections of US$628,082 via the issue of
convertible notes and loans from shareholders.
Overall there has been an increase in the amount of cash spent in operating activities to US$1,886,504 (2014:
US$304,150) as noted in the Statement of Consolidated Cash Flows, which reflects the work completed in
achieving various milestones to date and general corporate administration.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS
It is expected that the Group will further development of its SNAP technology and licensing of the SNAP
technology designs with potential technology partners. At the same time the Group will look to divest itself of
its exploration assets within Madagascar.
Further information regarding likely developments are described in more detail in the Review of Operations
above.
BrainChip Holdings Ltd
2015 Annual Report
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Directors’ Report
SHARE ISSUES
The following share issues of the Company were completed during the financial year:
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5,475,700 shares issued throughout the year on conversion of options (see below);
13,161,644 shares issued in consideration for the conversion of the Metals X Limited A$250,000
convertible loan plus interest of A$13,233 on 24 August 2015;
20,063,695 shares issued at an issue price of A$0.157 per Share to raise A$3,150,000 on 10
September 2015;
5,414,014 shares issued for conversion of the funds drawn down by the Company under the D’Yquem
Advance and BrainChip Inc. under the Tripartite Advance issued to D’Yquem and various unrelated
lenders pursuant to the D’Yquem Converting Loan Agreement and the Tripartite Converting Loan
Agreements on 10 September 2015;
353,605,500 shares issued to the BrainChip Inc. shareholders pursuant to the Acquisition Agreement
as part consideration for the acquisition by the Company of 100% of the issued capital of BrainChip
Inc. on 10 September 2015; and
69,000,000 shares issued throughout the year on conversion of performance rights. 36,000,000 on
conversion of Class A Performance Rights on attainment of Milestone 1 on 10 September 2015,
33,000,000 on conversion of Class B Performance Rights on attainment of Milestone 2 as announced
on 20 November 2015.
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SHARE OPTIONS
As at the date of this report, there were 29,550,000 unissued ordinary shares under option.
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There are no participating rights or entitlements inherent in the options and option holders are not entitled to
participate in new issues of capital or bonus issues offered or made to shareholders during the currency of
the options.
The following options were issued during and since the end of the financial year:
6,250,000 unlisted options exercisable at A$0.157 per share before 10 September 2019 issued to a
BrainChip Inc. shareholder as part consideration for the Acquisition by the Company of 100% of the
issued capital of BrainChip Inc. on 10 September 2015;
11,000,000 unlisted options exercisable at A$0.225 per share before 30 November 2018 issued
pursuant to the Company’s Directors’ and Officers’ Option Plan as approved by shareholders on 4
December 2015 to Directors on 11 December 2015;
250,000 unlisted options exercisable at A$0.36 per share before 21 December 2020 issued
pursuant to the Company’s Long Term Incentive Plan as approved by shareholders on 30 July 2015
to employees on 21 December 2015;
10,550,000 unlisted options exercisable at A$0.24 per share before 21 December 2020 issued
pursuant to the Company’s Long Term Incentive Plan as approved by shareholders on 30 July 2015
to employees and consultants on 21 December 2015; and
1,500,000 unlisted options exercisable at A$0.23 per share before 1 February 2021 issued pursuant
to the Company’s Long Term Incentive Plan as approved by shareholders on 30 July 2015 to
employees on 1 February 2016.
The following options were converted to shares in BrainChip Holdings during the financial year and prior to
the Acquisition:
5,175,700 exercisable at A$0.059 per share before 30 June 2015; and
300,000 exercisable at A$0.26 per share before 15 May 2015.
The following options of BrainChip Holdings were cancelled or lapsed during the financial year and prior to
the Acquisition:
65,000 exercisable at A$0.59 per share lapsed on 30 June 2015;
250,000 exercisable at A$0.26 per share lapsed on 15 May 2015; and
675,000 exercisable at A$0.26 per share before 15 May 2015 were cancelled on 1 April 2015.
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Directors’ Report
PERFORMANCE RIGHTS
As at the date of this report, there were 122,500,000 Performance Rights on issue (31 December 2014: Nil).
The following Performance Rights were issued during and since the end of the financial year:
46,500,000 A Class Performance Rights issued pursuant to the Company’s Performance Rights Plan
as approved by shareholders on 30 July 2015 to the BrainChip Inc. Shareholders pursuant to the
Acquisition Agreement as part consideration for the acquisition by the Company of 100% of the issued
capital of BrainChip Inc. on 10 September 2015;
3,000,000 A Class Performance Rights issued pursuant to the Company’s Performance Rights Plan
as approved by shareholders on 30 July 2015 to employees on 10 September 2015;
46,500,000 B Class Performance Rights issued pursuant to the Company’s Performance Rights Plan
as approved by shareholders on 30 July 2015 to the BrainChip Inc. Shareholders pursuant to the
Acquisition Agreement as part consideration for the acquisition by the Company of 100% of the issued
capital of BrainChip Inc. on 10 September 2015;
46,500,000 C Class Performance Rights issued pursuant to the Company’s Performance Rights Plan
as approved by shareholders on 30 July 2015 to the BrainChip Inc. Shareholders pursuant to the
Acquisition Agreement as part consideration for the acquisition by the Company of 100% of the issued
capital of BrainChip Inc. on 10 September 2015;
2,500,000 C Class Performance Rights issued pursuant to the Company’s Performance Rights Plan
as approved by shareholders on 30 July 2015 to employees on 21 December 2015 and 1 February
2016; and
46,500,000 D Class Performance Rights issued pursuant to the Company’s Performance Rights Plan
as approved by shareholders on 30 July 2015 to the BrainChip Inc. Shareholders pursuant to the
Acquisition Agreement as part consideration for the acquisition by the Company of 100% of the issued
capital of BrainChip Inc. on 10 September 2015.
The following Performance Rights were converted during the financial year:
36,000,000 on conversion of Class A Performance Rights on attainment of Milestone 1 on 10
September 2015; and
33,000,000 on conversion of Class B Performance Rights on attainment of Milestone 2 as announced
on 20 November 2015.
SIGNIFICANT EVENTS AFTER THE BALANCE DATE
On 1 February 2016, the Company announced it had signed a strategic joint development and marketing
agreement with Applied Brain Research (ABR), a provider of an integrated technology software platform
focused on building unified Artificial Intelligence (AI) systems.
On 18 February 2016, in a major advancement to its existing and patented SNAP technology, the Company
announced that its research and development team had completed development of a unique Autonomous
Feature Extraction (“AFE”) system. Utilizing the hyper-speed SNAP neural processor, the AFE system is able
to process and learn complex and overlapping real-world digital features, and has been used on a range of
input patterns and shapes.
On 23 February 2016, the Company announced that it had achieved a further significant advancement of its
artificial intelligence technology with completion of the development of an Autonomous Visual Feature
Extraction system (AVFE), an advancement of the AFE system. The AVFE system was developed and
interfaced with a Dynamic Vision Sensor (DVS) which is an artificial retina.
On 15 March 2016, the Company announced the achievement of Milestone 3 by achieving the development
and release of a Client / Server Interface Tool to its autonomously learning SNAP technology, ahead of
schedule and within budget.
BrainChip Holdings Ltd
2015 Annual Report
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Directors’ Report
ENVIRONMENTAL REGULATION AND PERFORMANCE
The Group’s operations are subject to various environmental regulations in respect of its exploration activities.
The Group aims to ensure that an appropriate standard of environmental care is achieved, and in doing so,
that it is aware of and is in compliance with all environmental legislation. The Directors have complied with
these regulations and are not aware of any breaches of the legislation during the financial year which are
material in nature.
CORPORATE GOVERNANCE
The directors of the Group support and adhere to the principles of corporate governance, recognising the need
for the highest standard of corporate behaviour and accountability. Please refer to the Corporate Governance
Statement dated 31 March 2016 released to ASX and posted on the Company website.
INFORMATION ON DIRECTORS
Names, qualifications, experience and special responsibilities
Eric (Mick) Bolto, LLB BA FAICD – Non-Executive Chairman (Appointed 3 August 2015)
Mr Bolto served as a partner at Mallesons for twenty years where he worked in mergers and acquisitions. He
was instrumental in the structuring of and subsequent execution of numerous large-scale transactions in
Asia, Australia, Europe and North America. Following his time at Mallesons, Mr Bolto worked in private
equity for a long period where he acquired extensive experience in creating strategy and business planning
for small to medium enterprises in order to ensure the delivery of viable business results. Mr Bolto also
serves on the Company’s Audit Committee.
Mr Bolto has held no other public company directorships in the past three years.
Peter van der Made – Executive Director (Appointed 10 September 2015)
Mr van der Made has been at the forefront of computer innovation for 40 years. He is the inventor of a
computer immune system at vCIS Technology where he served as Chief Technical Officer, and then Chief
Scientist when it was acquired by Internet Security Systems, and subsequently IBM. Previously, he
designed a high resolution, high speed colour Graphics Accelerator chip for IBM PC graphics at
PolyGraphics Systems. He was the founder of PolyGraphics Systems, vCIS Technology, and BrainChip Inc.
Most recently he published a book, Higher Intelligence, which describes the architecture of the brain from a
computer-science perspective.
Mr van der Made has held no other public company directorships in the past three years.
Neil Rinaldi – Non-Executive Director (Appointed 12 June 2013)
Mr Rinaldi is a banking and finance sector professional with considerable financial and commercial
experience gained over more than 15 years. During this time, he has advised companies on mergers and
acquisitions, asset acquisitions and disposals, corporate restructuring and capital raisings. Mr Rinaldi has
spent considerable time working in Europe and now resides in Australia. Prior to entering the minerals and
energy sectors Mr Rinaldi acted as a banking professional for one of Australia’s leading private wealth
managers. Mr Rinaldi held the position as Executive Director and CEO of the Company from his appointment
to 10 September 2015, when he became a Non-Executive Director. Mr Rinaldi also serves on the Company’s
Audit Committee.
Mr Rinaldi has held no other public company directorships in the past three years.
BrainChip Holdings Ltd
2015 Annual Report
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Directors’ Report
INFORMATION ON DIRECTORS (Continued)
Names, qualifications, experience and special responsibilities (continued)
Adam Osseiran, A/Prof – Non-Executive Director (Appointed 10 September 2015)
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Dr Osseiran has been involved with BrainChip since 2012, providing advice and assistance on several aspects
of technology, applications and commercial opportunities. Dr Osseiran is the co-founder of Termite Monitoring
and Protection Solutions Pty Ltd, founded in 2013, to exploit the unique Wireless Smart Probe acoustic termite
detection technology, operating in the US$15B global pest control market. He is also Senior Technical Advisor
to Mulpin (MRL) Ltd which has developed a new patented concept of embedding electronic components within
a multi-layered printed circuit board. Dr Osseiran is the co-founder and director of Innovate Australia,
established to promote and assist Australian innovators and encourage innovation and was the President of
the Inventors Association of Australia from 2013-2014. Dr Osseiran holds a Ph.D. in microelectronics from the
National Polytechnic Institute of Grenoble, France and a M.Sc. and B.Sc. from the University of Joseph Fourier
in Grenoble. Dr Osseiran is currently Associate Professor of Electrical Engineering at Edith Cowan University
in Perth, Western Australia. Dr Osseiran also serves as the Chairman of the Company’s Audit Committee.
Dr Osseiran has held no other public company directorships in the past three years.
Robert Mitro – Executive Director (Appointed 10 September 2015; resigned 3 October 2015)
Mr Mitro has been a private investor and has served on the boards of directors of Vovida Networks which
was acquired by Cisco Systems in 2000; co-founder and director of vCIS Technology which was acquired by
Internet Security Systems in 2002; and co-founder and director Telverse Communications which was
acquired by Level 3 Communications in 2003: and Chairman and CEO of STEP Labs which was acquired by
Dolby Labs in 2009; and President and CEO of Rosum which was acquired by True Position in 2010.
Mr Mitro has held no other public company directorships in the past three years.
Peter Wall – Non-Executive Chairman (Appointed 30 September 2014, resigned 3 August 2015)
Mr Wall is a corporate lawyer and has been a Partner at Steinepreis Paganin (Perth based corporate law
firm) since July 2005. Mr Wall graduated from the University of Western Australia in 1998 with a Bachelor of
Laws and Bachelor of Commerce (Finance). He has also completed a Masters of Applied Finance and
Investment with FINSIA. Mr Wall has a wide range of experience in all forms of commercial and corporate
law, with a particular focus on resources (hard rock and oil/gas), equity capital markets and mergers and
acquisitions. He also has significant experience in dealing in cross border transactions.
During the past three years Mr Wall has served as a director of the following public listed companies:
Global Metals Exploration (current)
Galicia Energy Corporation Ltd (current);
Minbos Resources Limited (current);
Discovery Resources Limited (resigned 8 November 2013) and
NSL Consolidated Limited (resigned 20 December 2012).
Peter Cook – Non-Executive Director (Appointed 30 May 2011, Resigned 10 September 2015)
Mr Cook is a Geologist BSc (Applied Geology) and Mineral Economist MSc (Min. Econ), MAusIMM with over
30 years of experience in the fields of exploration, project, operational and corporate management of mining
companies.
During the past three years he has served as a director of the following public listed companies:
Metals X Limited (current);
Westgold Resources Limited (current);
Pacific Niugini Limited (current); and
Kingsrose Mining Limited (resigned 21 August 2012).
BrainChip Holdings Ltd
2015 Annual Report
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Directors’ Report
COMPANY SECRETARY
Nerida Schmidt - Company Secretary (appointed 14 December 2015)
Ms Schmidt holds a Bachelor of Commerce from the University of Western Australia, is a Certified Practising
Accountant and a Fellow of Finsia. She is also a Chartered Secretary and holds a Graduate Diploma in
Company Secretarial Practice. Ms Schmidt has 25 years’ professional experience as the company secretary
of a number of ASX and AIM listed companies in a variety of industries. She has also consulted to a number
of listed and unlisted entities providing corporate, company secretarial and financial services. Prior to these
roles, Ms Schmidt was a manager in the Corporate division of the full service stockbroking firm Paterson Ord
Minnett and a member of the taxation and corporate recovery divisions of public accounting firm Arthur
Andersen.
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INTERESTS IN THE SHARES, OPTIONS AND PERFORMANCE RIGHTS OF THE COMPANY
As at the date of this report, the interests of the Directors in the shares, options and performance rights of
BrainChip Holdings were:
Director
E Bolto
P Van der Made
N Rinaldi
A Osseiran
Total
Fully Paid
Ordinary Shares
Options over
Ordinary Shares
Performance
Rights
-
5,000,000 (1)
-
126,805,508
7,803,335
7,538,500
-
54,000,000 (2)
4,000,000 (1)
2,000,000 (1)
-
1,800,000 (3)
142,147,343
11,000,000
55,800,000
These options are exercisable at A$0.225 before 30 November 2018.
(2) Mr van der Made holds 13,500,000 Class A Performance Rights, 13,500,000 Class B Performance Rights,
13,500,000 Class C Performance Rights and 13,500,000 Class D Performance Rights. Mr van der Made also
currently holds an interest in 1,800,000 Class B Performance Rights, 300,000 Class C Performance Rights and
1,800,000 Class D Performance Rights that will revert to him if they are not issued to new or existing employees by
30 June 2018 as explained in note 20(e).
(3) Dr Osseiran holds 900,000 Class C Performance Rights and 900,000 Class D Performance Rights.
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2015 Annual Report
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Directors’ Report
DIRECTORS’ MEETINGS
The number of meetings of Directors’ (including meetings of committees of Directors) held during the year and
the number of meetings attended by each Director was as follows:
E Bolto (Appointed 3 August 2015)
P van der Made (Appointed 10 September 2015)
N Rinaldi
A Osseiran (Appointed 10 September 2015)
R Mitro (Appointed 10 September 2015, Resigned 3 October 2015)
P Cook (Resigned 10 September 2015)
P Wall (Resigned 3 August 2015)
Directors’ Meetings
Eligible to
attend
Attended
2
1
5
1
-
4
3
2
1
5
1
-
4
3
Committee Membership
The Company did not utilise an Audit Committee during the year with the full board carrying out the duties that
would ordinarily be carried out by the Audit Committee under the Audit Committee Charter. As at the date of
this report, the Company had reconstituted an Audit Committee of the Board of Directors with the following
members:
This remuneration report for the year ended 31 December 2015 outlines the remuneration arrangements of
the Consolidated Entity in accordance with the requirements of the Corporations Act 2001 (“the Act”) and its
regulations. This information has been audited as required by section 308(3C) of the Act.
A Osseiran (Chairman)
N Rinaldi
E Bolto
REMUNERATION REPORT (Audited)
The remuneration report is presented under the following sections:
Introduction
1.
2. Remuneration governance
3. Non-executive Director remuneration arrangements
4. Executive remuneration arrangements
5. Options granted as part of remuneration
6. Company performance and the link to remuneration
7. Executive contractual arrangements
8. Equity instruments disclosures
9. Other transactions and balances with Key Management Personnel
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Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
1.
Introduction
The remuneration report details the remuneration arrangements for Key Management Personnel (“KMP”) who
are defined as those persons having authority and responsibility for planning, directing and controlling the
major activities of the Consolidated Entity, including any director of the parent entity.
For the purposes of this remuneration report, the term ‘executive’ includes the Executive Directors and Senior
Executives of the Parent and the Consolidated Entity.
Details of KMP of the Consolidated Entity are set out below:
Key Management Personnel
Name
Position
Date of
appointment
Date of
resignation
Directors (1)
E Bolto
P van der Made
N Rinaldi
A Osseiran
R Mitro
P Wall
P Cook
Non-Executive Chairman
Executive Director & acting CEO
Non-Executive Director
Non-Executive Director
Executive Director & CEO
Non-Executive Chairman
Non-Executive Director
3 August 2015
10 September 2015
12 June 2013
10 September 2015
10 September 2015
30 September 2014
-
-
-
-
3 October 2015
3 August 2015
30 May 2011 10 September 2015
Other Key Management Personnel (BrainChip Inc.)
P van der Made
R Mitro
A Mankar
Chief Technical Officer
Chief Executive Officer
Chief Operating Officer
1 December 2014 10 September 2015
1 October 2014 10 September 2015
-
1 October 2014
(1) Date on which this individual was appointed to/resigned from the relevant role of the legal parent entity,
BrainChip Holdings Ltd.
There were no other changes to key management personnel after reporting date and before the date the
financial report was authorised for issue.
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Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
2. Remuneration governance
Remuneration Committee
In the opinion of the Directors the Company is not of sufficient size to warrant the formation of a remuneration
committee. It is the Board of Directors’ responsibility for determining and reviewing compensation
arrangements for the directors and the senior executives.
The Board assesses the appropriateness of the nature and amount of remuneration of non-executive directors
and executives on a periodic basis by reference to relevant employment market conditions with the overall
objective of ensuring maximum stakeholder benefit from the retention of a high performing director and
executive team.
Remuneration approval process
The Board approves the remuneration arrangements of the Executive Directors and executives and all awards
made under the long-term incentive plan. The Board also sets the aggregate remuneration of non-executive
directors which is then subject to shareholder approval.
Remuneration Strategy
The Company’s remuneration strategy is designed to attract, motivate and retain employees and non-
executive directors by identifying and rewarding high performers and recognising the contribution of each
employee to the continued growth and success of the Group.
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To this end, the Company embodies the following principles in its remuneration framework:
retention and motivation of key executives;
attraction of quality management to the Company; and
incentives which allow executives to share the rewards of the success of the Company.
Remuneration Structure
In accordance with best practice corporate governance, the structure of non-executive director and senior
executive remuneration is separate and distinct.
3. Non-executive director remuneration arrangements
Remuneration Policy
The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to
attract and retain directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders.
The Company’s constitution and the ASX listing rules specify that the non-executive director fee pool shall be
determined from time to time by a general meeting. The last determination approved was under the Prospectus
dated 14 September 2011 for an aggregate fee pool of A$250,000 per year.
The board will not seek any increase for the non-executive director pool at the 2015 annual general meeting.
Structure
The remuneration of non-executive directors consists of director’s fees. Non-executives directors are entitled
to participate in any incentive programs. The Directors’ and Officers’ Option Plan (“DOOP”) was approved by
shareholders on 4 December 2015, the terms of which were included in the Prospectus dated 10 December
2015 lodged with the ASX.
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Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
3. Non-executive director remuneration arrangements (continued)
Structure (continued)
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The Non-Executive Chairman receives a base fee of A$80,000 and each other non-executive director receives
a base fee of A$50,000 for being a director of the Group, unless otherwise approved by the Board. There are
no additional fees for serving on any board committees.
Non-executive directors have long been encouraged by the Board to hold shares in the Company. The shares
are purchased by the directors at the prevailing market share price.
4. Executive remuneration arrangements
Remuneration Policy
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The Company aims to reward executives with a level and mix of remuneration commensurate with their position
and responsibilities within the Company. The current remuneration policy adopted is that no element of any
executive package be directly related to the Company’s financial performance. Indeed, there are no elements
of any executive remuneration that are dependent upon the satisfaction of any specific condition.
Remuneration is not linked to the performance of the Company but rather to the ability to attract and retain
executives of the highest calibre. The overall remuneration policy framework however is structured in an
endeavour to advance/create shareholder wealth.
Structure
Remuneration consists of the following key elements:
Fixed remuneration (base salary and superannuation); and
Variable remuneration (share options and performance rights).
Fixed Remuneration
Executive contracts of employment do not include any guaranteed base pay increase. Fixed remuneration is
reviewed annually by the Board. The process consists of a review of the Company, business unit and individual
performance, relevant comparative remuneration internally and externally and, where appropriate, external
advice independent of management. No external advice was provided in the current year.
Variable Remuneration – Long Term Incentive Plan (LTIP), Performance Rights Plan (PRP) and
Directors’ and Officers’ Option Plan (DOOP)
The objectives of the LTIP, PRP and DOOP are to reward executives in a manner that aligns remuneration
with the creation of shareholder wealth. As such, issues under these plans are made to executives who are
able to influence the generation of shareholder wealth and thus have an impact on the Consolidated Entity’s
performance.
Issues to executives are made under the LTIP, PRP and DOOP and are delivered in the form of shares options
and performance rights. The number of options and/or performance rights issued is determined by the policy
set by the Board and is based on each executive’s role and position with the Group.
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2015 Annual Report
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Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
4. Executive remuneration arrangements (continued)
Variable Remuneration – Long Term Incentive Plan (LTIP), Performance Rights Plan (PRP) and
Directors’ and Officers’ Option Plan (DOOP) (continued)
The share options and performance rights will vest over periods as determined by the Board of Directors and
executives are able to exercise the share options or convert the performance rights any time after vesting and
before the options or performance rights lapse. Where a participant ceases employment prior to the vesting
of their share options or performance rights, the share options and/or performance rights are forfeited. Where
a participant ceases employment after the vesting of their share options and/or performance rights under the
LTIP and PRP, the share options and/or performance rights automatically lapse up to three months from
ceasing employment depending on the circumstances of termination or such longer periods as determined by
the Board of Directors. Where a participant ceases employment after the vesting of their share options under
the DOOP, the share options automatically lapse after one month of ceasing employment or such longer
periods as determined by the Board of Directors.
Hedging of equity awards
The Company’s Remuneration Committee Charter contains a policy restricting participants of the LTIP, PRP
and/or DOOP from entering into transactions (whether through the use of derivatives or otherwise) which limit
the economic risk of participating in the schemes.
5. Options granted as part of remuneration
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Details of Options over ordinary shares in the Company provided as remuneration to each Key Management
Personnel, of which there are no performance conditions linked, is set out in the table below:
31
December
2015
Directors
Year
Options
awarded
during
the year
(Number)
Grant
Date
First
Exercise
and
Vesting
Date
Fair
value
per
option
^
Total
Fair
Value
Exercise
price
per
option
Expiry
date
Options
vested
during
the year
Options
lapsed
during
the year
(US$)
(US$)
(US$)
(Number)
(Number)
E Bolto
N Rinaldi
2015
5,000,000
4/12/2015 11/12/2015
$0.110
548,068
$0.161
30/11/2018
5,000,000
2015
4,000,000
4/12/2015 11/12/2015
$0.110
438,455
$0.161
30/11/2018
4,000,000
A Osseiran 2015
2,000,000
4/12/2015 11/12/2015
$0.110
219,227
$0.161
30/11/2018
2,000,000
-
-
-
^ For details on valuation of the options, including models and assumptions used, please refer to note 23.
6. Company performance and the link to remuneration
Remuneration is not directly linked to the performance of the Company. Remuneration is set at a level to
attract and retain executives of the highest calibre. The overall remuneration policy framework however is
structured in an endeavour to advance/create shareholder wealth.
The BrainChip Holdings LTIP and DOOP have no direct performance requirements as the options were issued
for past performance and to encourage retention. The granting of options is in substance a performance
incentive which allows executives to share the rewards of the success of the Company.
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2015 Annual Report
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REMUNERATION REPORT (Audited) (Continued)
6. Company performance and the link to remuneration (continued)
The table below shows various commonly used measures of performance for the 2014 to 2015 years of the
consolidated entity:
Closing share price AUD
Closing share price USD
Loss per share (US cents)
Net tangible assets US cents per share
2015
$0.26
$0.189
8.43
0.25
2014
-
-
0.14
(3.77)
* BrainChip Inc. commenced operations in 2014 therefore no prior periods have been reported
7. Executive contractual arrangements
Mr Peter van der Made, Executive Director, is employed under an annual salary employment contract with
BrainChip Inc. Mr van der Made commenced employment with BrainChip Inc. as Chief Technical Officer on 1
December 2014 and was appointed Executive Director of the Company on 10 September 2015. His
employment contract has the following terms:
During the term of his employment Mr van der Made must render his services exclusively to BrainChip
Inc.;
Mr van der Made will receives a base salary of US$200,000 effective 1 October 2015 (US$180,000
prior to this) as compensation for his services (Base Salary). The Base Salary is subject to annual
reviews by the Board. In addition to the Base Salary, Mr van der Made will be entitled to a cash bonus
on such terms and conditions as determined from time to time by the Board (Annual Bonus). The
Annual Bonus may be an amount up to fifty percent (50%) of the base salary in effect at the end of
any fiscal year;
Mr van der Made will be entitled to receive all reasonable expenses incurred in the fulfilment of his
duties. In addition, Mr van der Made and his family will be entitled to receive all benefits under health
and welfare benefit plans, practices, policies and programs provided by BrainChip Inc. to the extent
they are offered to other executives of BrainChip Inc.;
Mr van der Made’s position may be terminated at any time with or without cause or notice by either
himself or BrainChip Inc.; and
Mr van der Made’s is entitled to 12 months’ severance pay upon termination by BrainChip Inc. at any
time without cause. The amount is payable over 12 months from the date of termination.
Mr Robert Mitro was appointed Executive Director of the Company and had an annual salary contract with
BrainChip Inc. Mr Mitro was employed by BrainChip Inc. in the position of Chief Executive Officer on 1 October
2014 and was appointed as Managing Director of the Company between 10 September 2015 and 3 October
2015. His employment contract had the following terms:
During the term of his employment Mr Mitro was to render his services exclusively to BrainChip Inc.;
During the term of his employment Mr Mitro received a base salary of US$200,000 effective 1 October
2015 (US$180,000 prior to this) as compensation for his services (Base Salary). The Base Salary was
subject to annual reviews by the Board. In addition to the Base Salary, Mr Mitro was to be entitled to
a cash bonus on such terms and conditions as determined from time to time by the Board (Annual
Bonus). The Annual Bonus was to be an amount up to fifty percent (50%) of the base salary in effect
at the end of any fiscal year;
BrainChip Holdings Ltd
2015 Annual Report
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Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
7. Executive contractual arrangements (continued)
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Mr Mitro was to be entitled to receive all reasonable expenses incurred in the fulfilment of his duties.
In addition, Mr Mitro was to be entitled to receive all benefits under welfare benefit plans, practices,
policies and programs provided by BrainChip to the extent they were offered to other executives of
BrainChip;
Mr Mitro’s position was able to be terminated at any time with or without cause or notice by either
himself or BrainChip; and
Mr Mitro is entitled to 12 months’ severance pay upon termination by BrainChip Inc. at any time without
cause. The amount was payable over 12 months from the date of termination.
Mr Mitro’s resigned as Executive Director on 3 October 2015 due to health reasons. Accrued annual leave
payable to Mr Mitro was paid in October 2015 and his termination payment based on his base salary plus
benefits is being paid on a monthly basis until 30 September 2016.
Mr Neil Rinaldi, was employed as an Executive Director under an annual salary employment contract from 12
June 2013 until 10 September 2015 when he became a Non-Executive Director.
Under the terms of the Executive Director contract:
Mr Rinaldi received a fixed remuneration of A$150,000 (excluding superannuation) per annum effective
Previous to this Mr Rinaldi received a fixed remuneration being A$250,000 (excluding superannuation) per
from 1 May 2014.
annum.
Mr Rinaldi could resign from his position and thus terminate his contract by giving three months’ written
notice. On resignation any unvested options were to be forfeited.
The Company could terminate the employment agreement by providing three months’ written notice or
providing payment in lieu of notice period. On termination by the Company, any options that had vested
or that would vest during the notice period would be released. Options that had not yet vested would be
forfeited.
The Company could terminate the contract at any time without notice if serious misconduct had occurred.
Where termination with cause occurred the Executive Director was only entitled to that portion of
remuneration that was fixed, and only up to the date of termination. On termination with cause by the
Company, any options that had vested would be released. Options that had not yet vested would be
forfeited.
From 10 September 2015 Mr Rinaldi became a Non-Executive Director and an agreement was reached with
Mr Rinaldi that he would provide services to the Company on a consultancy basis. Under the terms of this
consultancy agreement:
A$50,000 (in addition to directors’ fees) was to be paid over 6 months for non-recurrent, specific
professional and advisory services not within the ordinary role of a Non-Executive Director. At the
expiry of this term, the contract would revert to A$50,000 per annum as a Non-Executive Director.
BrainChip Holdings Ltd
2015 Annual Report
21
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
7. Executive contractual arrangements (continued)
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Mr Anil Mankar is employed by BrainChip Inc. under an annual salary employment contract as Chief Operating
Officer, effective 1 October 2014. Under the terms of the contract:
During the term of his employment Mr Mankar must render his services exclusively to the BrainChip
Inc.;
During the term of his employment Mr Mankar will receive a base salary of US$200,000 effective 1
October 2015 (US$180,000 prior to this) as compensation for his services (Base Salary). The Base
Salary is subject to annual reviews by the Board. In addition to the Base Salary, Mr Mankar will be
entitled to a cash bonus on such terms and conditions as determined from time to time by the Board
(Annual Bonus). The Annual Bonus may be an amount up to fifty percent (50%) of the base salary in
effect at the end of any fiscal year;
Mr Mankar will be entitled to receive all reasonable expenses incurred in the fulfilment of his duties. In
addition, Mr Mankar and his family will be entitled to receive all benefits under health and welfare
benefit plans, practices, policies and programs provided by BrainChip Inc. to the extent they are offered
to other executives of BrainChip Inc.; and
Mr Mankar’s position may be terminated at any time with or without cause or notice by either himself
or BrainChip Inc.
Mr Mankar is entitled to 24 months’ severance pay upon termination by BrainChip Inc. at any time
without cause. The amount is payable over 24 months from the date of termination.
There are no other formalised KMP employment agreements.
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2015 Annual Report
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Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
7.
Executive contractual arrangements (continued)
Remuneration of Directors
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Short Term
(10)
Post-
Employ-
ment
Short
Term
Annual
leave
Share-
based
Payment
Termin-
ation
Total
Salary and
Fees
US$
Super-
annuation
US$
US$
Options
US$
US$
US$
%
Perform-
ance
related
% of
remuner-
ation that
consists of
options
Non-Executive Directors
E Bolto (1)
N Rinaldi (2)
A Osseiran (3)
P Cook (4)
P Wall (5)
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W Hallam (6)
P Laskaris (6)
Executive Directors
P van der Made (7)
R Mitro (8)
N Rinaldi (2)
J Morris (9)
Totals
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
24,750
-
18,804
-
11,492
-
13,082
34,445
21,061
10,826
-
10,631
-
10,615
-
-
-
-
-
-
1,243
3,296
-
-
-
1,030
-
982
-
-
-
-
-
-
-
-
-
-
-
-
-
-
548,068
-
438,455
-
219,227
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
65,512
-
12,456
-
84,626
165,405
-
94,900
-
-
-
-
8,039
15,469
-
-
-
-
11,538
-
21,539
-
-
-
-
-
-
-
-
-
-
-
-
-
216,330
-
-
-
-
45,419
572,818
-
457,259
-
230,719
-
14,325
37,741
21,061
10,826
-
11,661
-
11,597
65,512
-
240,324
-
114,204
180,874
-
140,319
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
251,783
326,822
9,282
20,777
33,077 1,205,750
-
-
216,330
45,419
1,716,222
393,018
96%
-
96%
-
96%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1) Mr Bolto was appointed as Non-Executive Chairman on 3 August 2015.
(2) Mr Rinaldi ceased being an Executive Director on 10 September 2015 and continued as a Non-Executive Director.
(3) Dr Osseiran was appointed as Non-Executive Director on 10 September 2015.
(4) Mr Cook resigned on 10 September 2015.
(5) Mr Wall resigned on 3 August 2015.
(6) Mr Laskaris and Mr Hallam both resigned on 11 April 2014.
(7) Mr van der Made was appointed as Executive Director of BrainChip Holdings on 10 September 2015. He was employed as a
KMP of BrainChip Inc. on 1 December 2014.
(8) Mr Mitro was appointed as Executive Director and CEO on 10 September 2015 and resigned on 3 October 2015. His
termination payment is paid on a monthly basis up to 30 September 2016 and has been accrued at 31 December 2015. Mr
Mitro was employed as a KMP of BrainChip Inc. on 1 October 2014.
(9) Mr Morris resigned on 30 September 2014. Mr Morris resided outside Australia and was employed by a British Virgin Island
registered company.
(10) No bonuses were awarded to any KMP during the year.
BrainChip Holdings Ltd
2015 Annual Report
23
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
7.
Executive contractual arrangements (continued)
Remuneration of Key Management Personnel
Short Term
Post-
Employ-
ment
Short
Term
Annual
leave
Share-
based
Payment
Termin-
ation
Total
Salary and
Fees
US$
Super-
annuation
US$
Options
US$
US$
US$
US$
%
Perform-
ance
related
% of
remuner-
ation that
consists of
options
Other Key Management Personnel
P van der Made (1)
R Mitro (2)
A Mankar (3)
Totals
2015
2014
2015
2014
2015
2014
136,347
15,054
126,143
45,582
201,255
48,992
2015
2014
463,745
109,628
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
136,347
15,054
126,143
45,582
201,255
-
-
-
-
-
48,992
-
463,745
109,628
-
-
-
-
-
-
(1) Mr van der Made was employed as a KMP of BrainChip Inc. on 1 December 2014. He is reported as a KMP until his
appointment as Executive Director on 10 September 2015.
(2) Mr Mitro was employed as a KMP of BrainChip Inc. on 1 October 2014. He is reported as a KMP until his appointment as
Executive Director on 10 September 2015.
(3) Mr Mankar was appointed Chief Operating Officer of BrainChip Inc. on 1 October 2014.
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BrainChip Holdings Ltd
2015 Annual Report
24
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
8. Equity Instruments Disclosure
Value of options awarded, exercised and lapsed during the year
There were options granted during the current year (please refer to note 23). There were no alterations to the
terms and conditions of options awarded as remuneration since their award date.
Shareholdings of Key Management Personnel (including nominees)
Balance held at
1 January 2015
Acquired
Disposed
Exercise of
options
Net change
other
Balance held at
31 December
2015
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s
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l
-
-
7,673,335
Directors – BrainChip Holdings
E Bolto
P van der Made (1)
N Rinaldi
A Osseiran (2)
R Mitro (3)
-
1,560,000
P Cook (4)
-
P Wall
Other Key Management Personnel
A Mankar (5)
-
Total
9,233,335
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
130,000
126,805,508
-
126,805,508
7,803,335
-
-
-
-
7,538,500
7,538,500
-
(1,560,000)
-
-
-
-
-
91,885,000
130,000 224,669,008
91,885,000
234,032,343
(1) Mr van der Made was appointed on 10 September 2015 and received 126,805,508 shares as a shareholder of
BrainChip Inc.
(2) Dr Osseiran was appointed 10 September 2015 and received 5,738,500 shares as a shareholder of BrainChip Inc.
He also received 900,000 Class A Performance Rights and 900,000 Class B Performance Rights as a shareholder
of BrainChip Inc. which were converted to shares in the year ended 31 December 2015.
(3) Mr Mitro was appointed 10 September 2015. At the time of the Acquisition he received 104,202,500 shares as a
shareholder and noteholder of BrainChip Inc. and 9,000,000 Class A Performance Rights as a shareholder of
BrainChip Inc. which were converted to shares prior to his resignation as a Director on 3 October 2015.
(4) Mr Cook resigned on 10 September 2015 and ceased being a KMP.
(5) Mr Mankar received 57,385,000 shares as a shareholder of BrainChip Inc. He also received 17,250,000 Class A
Performance Rights and 17,250,000 Class B Performance Rights as a shareholder of BrainChip Inc. which were
converted to shares in the year ended 31 December 2015.
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Options holdings of Key Management Personnel (including nominees)
Balance at
beginning of
period 1 January
2015
Granted as
remuneration
Exercised
Balance at
end of period
31 December
2015
Vested and
not
exercisable
Vested and
exercisable
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Directors – BrainChip Holdings
-
E Bolto
-
P van der Made
130,000
N Rinaldi
-
A Osseiran
R Mitro (1)
-
-
P Cook
-
P Wall
Other Key Management Personnel
A Mankar
-
Total
130,000
5,000,000
-
4,000,000
2,000,000
-
-
-
-
-
(130,000)
-
-
-
-
5,000,000
-
4,000,000
2,000,000
-
-
-
-
11,000,000
-
(130,000)
-
11,000,000
-
-
-
-
-
-
-
-
-
5,000,000
-
4,000,000
2,000,000
-
-
-
-
11,000,000
(1) Mr Mitro was issued 6,250,000 vested options on 10 September 2015 as a shareholder of BrainChip Inc. He ceased
to be a KMP on 3 October 2015.
BrainChip Holdings Ltd
2015 Annual Report
25
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
8. Equity Instruments Disclosure (continued)
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Performance Rights held by Key Management Personnel (including nominees)
The table below discloses the number of Performance Rights held by KMPs that were granted and vested during
the year. All of the Performance Rights were issued as part of the Acquisition and not as remuneration. No
performance rights lapsed during the year and no Performance Rights were issued during the prior year.
Balance at
beginning of
period 1
January 2015
Acquired
Exercised(²)
Other
Balance at
end of period
31 December
2015
Not vested
and not
exercisable
Vested and
exercisable
-
Directors – BrainChip Holdings
E Bolto
P van der
Made (1)
N Rinaldi
A Osseiran
R Mitro (3)
P Cook
P Wall
Other Key Management Personnel
A Mankar
Total
-
-
-
-
-
-
61,200,000
-
3,600,000
40,800,000
-
-
-
69,000,000
- 174,600,000
-
-
-
-
-
-
-
-
(1,800,000)
(9,000,000)
-
-
(7,200,000)
-
-
(31,800,000)
-
-
54,000,000
-
1,800,000
-
-
-
(34,500,000)
(45,300,000)
-
(39,000,000)
34,500,000
90,300,000
- 54,000,000
-
-
1,800,000
-
-
-
-
-
-
-
- 34,500,000
- 90,300,000
(1) Mr van der Made was entitled to receive 61,200,000 Performance Rights as a shareholder of BrainChip Inc. however he
allocated 7,200,000 Performance Rights to a pool available for distribution to current and future employees and therefore
received only 54,000,000 Performance Rights. The Performance Rights will revert to him if they are not issued by 30 June
2018 as explained in note 20(e).
(2) Class A Performance Rights and Class B Performance Rights were exercised and converted to shares in the year ended
31 December 2015.
(3) Mr Mitro was entitled to receive 40,800,000 Performance Rights as a shareholder of BrainChip Inc. however he allocated
4,800,000 Performance Rights to a pool available for distribution to current and future employees and therefore received
only 36,000,000 Performance Rights. The Performance Rights will revert to him if they are not issued by 30 June 2018 as
explained in note 20(e). Mr Mitro ceased to be a Director on 3 October 2015.
Performance rights do not carry any voting or dividend rights and can only be exercised once the vesting
conditions have been met, until their expiry date.
For details on the vesting conditions of each class of Performance Rights please refer to note 20(e).
9. Other transactions and balances with Key Management Personnel
Director fees were payable to Dr Osseiran as at 31 December 2015 totalled US$11,492.
During the year ended 31 December 2015, the following related party transactions occurred between Mr Robert
Mitro and BrainChip Inc.:
On 3 January 2014 Mr Mitro advanced US$100 to BrainChip Inc. This amount was repaid on 2
December 2015;
Convertible notes were issued to Mr Mitro in exchange for cash in the amounts of US$50,000 on 3
January 2014, US$50,000 on 13 June 2014, and US$190,000 on 2 January 2015. Interest was payable
on the convertible notes at 4% pa. These notes and accrued interest were extinguished through the
issue of BrainChip Inc. shares on 10 September 2015; and
Accrued unclaimed travel expenses in BrainChip Inc. of US$24,723 as at 31 December 2015.
On 1 January 2014 Mr van der Made received 4,500,000 shares in BrainChip Inc. valued at US$19,562 as
reimbursement of development costs incurred and the assignment to BrainChip Inc. of patent “8250011
Autonomous Learning Dynamic Artificial Neural Computing Device and Brain Inspired System” filed with the
United States Patent and Trademark Office. The execution of the assignment of the patent was completed 23
July 2015.
BrainChip Holdings Ltd
2015 Annual Report
26
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Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
9. Other transactions and balances with Key Management Personnel (continued)
Mr Cook is a director of Metals X Limited, which was a director-related entity up to the date of Mr Cook’s
resignation as a Director of BrainChip Holdings (10 September 2015). The following related party transactions
occurred between Metals X Limited and the BrainChip Holdings:
Accounting, secretarial and administrative services were provided to BrainChip Holdings totalling
A$127,747 (2014: A$133,270) up to 10 September 2015; and
BrainChip Holdings entered into a secured convertible loan agreement with Metals X Limited for
A$250,000, interest bearing at 12% and maturing in October 2015, as announced on the ASX 1 April
2015. The loan, plus interest of A$13,233, was extinguished via the conversion to 13,161,644 shares
on 24 August 2015.
End of Audited Remuneration Report.
INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS
During the financial year, the Company paid a premium in respect to a contract of insurance to insure Directors
and officers of the Company and related bodies corporate against those liabilities for which insurance is
permitted under section 199B of the Corporations Act 2001. Disclosure of the nature of the liabilities and the
amount of the premium is prohibited under the conditions of the contract of insurance.
INDEMNIFICATION OF AUDITORS
To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of
the terms of its audit engagement agreement against claims by third parties arising from the audit (for an
unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial
year.
AUDITOR INDEPENDENCE
The Directors’ received the Independence Declaration, as set out on page 28, from Ernst & Young.
NON-AUDIT SERVICES
The following non-audit services were provided by the entity’s auditor, Ernst & Young. The Directors are
satisfied that the provision of non-audit services is compatible with the general standard of independence for
auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service
provided means that auditor independence was not compromised.
Ernst & Young received or are due to receive the following amounts for the provision of non-audit services to
BrainChip Holdings:
Tax compliance services
2015
US$
9,314
2014
US$
23,457
Signed in accordance with a resolution of the Directors.
E Bolto
Chairman
Perth, 31 March 2016
BrainChip Holdings Ltd
2015 Annual Report
27
Auditor’s Independence Declaration
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BrainChip Holdings Ltd
2015 Annual Report
28
Consolidated Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December 2015
Interest revenue
Other income
Administration and other expenses
Share based payment expense
Interest expense
Write off of deferred exploration and evaluation expenditure
Listing fee expense on acquisition of BrainChip
Note
5(a)
5(b)
6
23
14
29(c)
31 December
2015
$US
31 December
2014
$US
6,863
42,560
49,423
4
-
4
(1,749,699)
(1,939,902)
(43,957)
(64,038)
(23,611,942)
(357,971)
-
-
-
-
Loss from continuing operations before income tax
(27,360,115)
(357,967)
Income tax expense
7
-
-
Loss from continuing operations after income tax
(27,360,115)
(357,967)
Loss from discontinued operations after tax
-
-
Net loss for the period
(27,360,115)
(357,967)
Other comprehensive income / (loss)
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations
Other comprehensive loss for the period, net of tax
-
-
-
-
Total comprehensive loss for the period, net of tax
(27,360,115)
(357,967)
Loss per share (US cents per share) from continuing operations
attributable to ordinary equity holders of the Company
Basic loss per share (US cents per share)
Diluted loss per share (US cents per share)
8
8
(8.43)
(8.43)
(0.14)
(0.14)
The above statement of comprehensive income should be read in conjunction with the accompanying notes.
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BrainChip Holdings Ltd
2015 Annual Report
29
Consolidated Statement of Financial Position
As at 31 December 2015
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Other assets
Total current assets
NON-CURRENT ASSETS
Plant and equipment
Exploration and evaluation expenditure
Intangible assets
Other assets
Total non-current assets
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Employee benefits liabilities
Notes payable
Total current liabilities
NON-CURRENT LIABILITIES
Loans from shareholders
Total non-current liabilities
TOTAL LIABILITIES
NET ASSETS / (LIABILITIES)
EQUITY
Contributed equity
Share based payments reserve
Other equity reserve
Accumulated losses
TOTAL EQUITY / (SHAREHOLDERS’ DEFICIT)
Note
31 December
2015
$US
31 December
2014
$US
10
11
12
13
14
15
16
17
18
19
20
21
21
22
1,393,869
571,885
62,555
2,028,309
65,381
-
31,704
6,196
103,281
2,131,590
31,633
-
20,277
51,910
1,649
-
38,961
6,196
46,806
98,716
354,290
40,730
-
395,020
83,688
6,606
346,177
436,471
-
-
100
100
395,020
436,571
1,736,570
(337,855)
27,266,878
1,939,902
247,872
(27,718,082)
1,736,570
20,112
-
-
(357,967)
(337,855)
The above statement of financial position should be read in conjunction with the accompanying notes.
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BrainChip Holdings Ltd
2015 Annual Report
30
Consolidated Statement of Cash Flows
For the year ended 31 December 2015
Note
31 December
2015
US$
31 December
2014
US$
CASH FLOWS USED IN OPERATING ACTIVITIES
Payments to suppliers and employees
Interest received
Interest paid
Other income
Net cash flows used in operating activities
10
CASH FLOWS USED IN INVESTING ACTIVITIES
Payments for property, plant and equipment
Payments for exploration and evaluation
Payments for purchase of patents
Proceeds from sale of mineral licences
Cash acquired on acquisition of BrainChip
Net cash flows used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Receipts from the issue of shares
Loans from BrainChip Holdings prior to Acquisition
Loans from shareholders
Loans from shareholders via convertible notes
Loans from third parties via convertible notes
Loans repaid to shareholders
Net cash flows used in financing activities
29(b)
29(b)
19
18
18
(1,855,708)
6,863
(43,238)
5,579
(1,886,504)
(304,154)
4
-
-
(304,150)
(71,703)
(64,038)
(6,342)
134,364
2,627,240
2,619,521
118
190,210
-
190,000
247,872
(35,961)
592,239
(1,721)
-
(9,323)
-
-
(11,044)
550
-
100
-
346,177
-
346,827
Net decrease in cash and cash equivalents
1,325,256
31,633
Net foreign exchange differences
Cash at the beginning of the financial period
Cash and cash equivalents at the end of the period
36,980
31,633
1,393,869
-
-
31,633
10
The above cash flow statement should be read in conjunction with the accompanying notes.
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BrainChip Holdings Ltd
2015 Annual Report
31
Consolidated Statement of Changes in Equity
For the year ended 31 December 2015
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Contributed
equity
US$
Options
reserve
US$
Other
equity
reserve
US$
At 1 January 2014
Loss for the year
Other comprehensive income
Total comprehensive loss for the
period
Transactions with owners in their
capacity as owners
-
-
-
-
Issue of share capital
At 31 December 2014
20,112
20,112
At 1 January 2015
20,112
Contributed
equity
US$
Options
reserve
US$
Loss for the year
Other comprehensive loss
Total comprehensive loss for the
period
Transactions with owners in their
capacity as owners
Issue of share capital
Shares issued to extinguish Group
convertible notes
Share-based payment
-
-
-
27,246,766
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Other
equity
reserve
US$
Accumulated
losses
US$
Total equity
US$
-
-
(357,967)
-
(357,967)
-
(357,967)
(357,967)
-
20,112
(357,967)
(337,855)
Accumulated
losses
US$
(357,967)
Total equity
US$
(337,855)
(27,360,115)
-
(27,360,115)
-
(27,360,115)
(27,360,115)
-
-
-
27,246,766
247,872
1,939,902
-
-
-
1,939,902
247,872
-
At 31 December 2015
27,266,878
1,939,902
247,872
(27,718,082)
1,736,570
BrainChip Holdings Ltd
2015 Annual Report
32
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
1. CORPORATE INFORMATION
The annual financial report of BrainChip Holdings Ltd (“the Company”) and its controlled entities (“the Consolidated
Entity” or “the Group”) for the year ended 31 December 2015 was authorised for issue in accordance with a resolution
of the Directors on 31 March 2016.
BrainChip Holdings is a for-profit Company limited by shares, incorporated and domiciled in Australia, and whose
shares are publicly traded on the Australian Securities Exchange.
The address of the registered office is Level 2, 6 Thelma Street, West Perth, WA 6005, Australia.
The nature of the operations and principal activities of the Consolidated Entity are described in the Directors’ Report.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of preparation
The financial report is a general purpose financial report, which has been prepared in accordance with the
requirements of the Corporations Act 2001 and Australian Accounting Standards and other authoritative
pronouncements of the Australian Accounting Standards Board. The financial report has been prepared on a
historical cost basis.
The financial report is presented in US dollars, being the functional currency of the Company.
Going concern
This financial report has been prepared on the going concern basis, which contemplates the continuity of normal
business activity and the realisation of assets and settlement of liabilities in the normal course of business.
During the period ended 31 December 2015, the Group incurred a net loss after tax of US$27,360,115 and a cash
outflow from operating activities of US$1,886,504.
At 31 December 2015, the Group had cash and cash equivalents of US$1,393,869 and net assets of US$1,736,570
and a net working capital of US$1,633,289.
The Company has prepared a detailed cash budget showing the need to receive additional funds in order to finance
the Group for the next twelve months. This creates an uncertainty that may cast doubt as to whether the Group will
continue as a going concern and, therefore, whether it will settle its liabilities and commitments in the normal course
of business.
The Directors have considered the funding and operational status of the business in arriving at their assessment of
going concern and believe that the going concern basis of preparation is appropriate, based upon the following:
The ability to further vary cash flows depending upon the achievement of certain milestones within the
business plan;
The ability of the Group to obtain funding through various sources, including debt and equity issues, which
are currently being investigated by management; and
the expected receipt of the sale proceeds from the sale of the Madagascar licences which is dependent
upon the processing of license transfers by the government of Madagascar.
The Directors have reasonable expectations that they will be able to raise additional funding needed for the Group to
continue to execute against its milestones in the medium term. However, cashflows have been adjusted to ensure
that the Company can pay its debts as and when they fall due until medium term funding is secured. This may have
an impact on the ability of the Company to grow as rapidly as it anticipated but should provide a more sustainable
cost base until such funding is obtained.
Should the Group not achieve the matters set out above, there is uncertainty whether the Group would continue as
a going concern and therefore whether it would realise its assets and extinguish its liabilities in the normal course of
business and at the amounts stated in the financial report. The financial report does not include adjustments relating
to the recoverability or classification of the recorded asset amounts or to the amounts or classification of liabilities
that might be necessary should the Group not be able to continue as a going concern.
BrainChip Holdings Ltd
2015 Annual Report
33
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(a) Basis of preparation (continued)
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Acquisition of BrainChip
On 10 September 2015 BrainChip Holdings (formerly Aziana Limited) completed the legal acquisition of BrainChip
Inc. Under the Australian Accounting Standards BrainChip Inc. was deemed to be the accounting acquirer in this
transaction. The acquisition has been accounted for as a share based payment by which BrainChip Inc. acquires the
net assets and listing status of BrainChip Holdings.
Accordingly, the 2015 consolidated financial statements of BrainChip Holdings were prepared as a continuation of
the business and operations of BrainChip Inc. As the deemed acquirer BrainChip Inc. has accounted for the
acquisition of BrainChip Holdings from 10 September 2015.
The implications of the acquisition by BrainChip Inc. on the financial statements are as follows:
(i)
Statement of comprehensive income
The 2015 Statement of comprehensive income comprises the total comprehensive income for the 12
months ended 31 December 2015 for BrainChip Inc., and the period from 10 September 2015 until 31
December 2015 for BrainChip Holdings and its controlled entities.
The comparative information as at 31 December 2014 is the Statement of comprehensive income of
BrainChip Inc.
(ii)
Statement of financial position
The 2015 Statement of financial position as at 31 December 2015 represents the combination of
BrainChip Inc. and BrainChip Holdings and its controlled entities.
The comparative information as at 31 December 2014 is the Statement of financial position of BrainChip
Inc.
(iii)
Statement of changes in equity
The 2015 Statement of changes in equity comprises:
o The equity balance of BrainChip Inc. as at the beginning of the financial year (1 January 2015);
o The total comprehensive income for the financial year and transactions with equity holders, being
the 12 months from BrainChip Inc. for the year ended 31 December 2015 and the period from 10
September 2015 until 31 December 2015 for BrainChip Holdings and its controlled entities;
o The equity balance of the combined BrainChip Inc. and BrainChip Holdings, and its controlled
entities, at the end of the financial year, 31 December 2015.
The comparative information as at 31 December 2014 is the Statement of changes in equity of BrainChip
Inc.
(iv)
Statement of cash flows
The 2015 Statement of cash flows comprises:
o The cash balance of BrainChip Inc. at the beginning of the financial year (1 January 2015);
o The transactions for the financial year for the 12 months of BrainChip Inc. for the year ended 31
December 2015 and the period from 10 September 2015 until 31 December 2015 for BrainChip
Holdings and its controlled entities;
o The cash balance of the combined BrainChip Inc. and BrainChip Holdings, and its controlled
entities, at the end of the financial year, 31 December 2015.
The comparative information as at 31 December 2014 is the Statement of cash flows of BrainChip Inc.
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(b) Statement of compliance and conversion to International Financial Reporting Standards
The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards
Board. The financial report also complies with International Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board.
As explained in Note 2(a) above, following the acquisition of BrainChip, the consolidated financial statements
represent the continuation of the business and activities of BrainChip Inc. This financial report is the Consolidated
Entity’s first consolidated financial statements prepared in accordance with Australian Accounting Standards
(“AASB”) and International Financial Reporting Standards (“IFRS”). Accordingly, in preparing the consolidated
financial statements, AASB 1 First-time Adoption of Australian Accounting Standards (“AASB 1”) has been applied.
Prior to the adoption of AASB, the Consolidated Entity’s financial statements were prepared in accordance with IFRS
for Small and Medium Sized Entities (“SMEs”). As these financial statements are the Consolidated Entity’s first annual
financial statements prepared in accordance with AASB, the group considered the transitional exceptions and
exemptions in AASB 1 and has updated its accounting policies in line with the requirements of Australian Accounting
Standards. In this regard, the accounting policy on research and development costs has changed. Under IFRS for
SMEs, research and development costs were recognised as an expense. Under IFRS, research costs are expenses
as incurred; development costs are capitalised and amortised, but only when specific recognition criteria are met.
BrainChip Holdings Ltd
2015 Annual Report
34
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(b) Statement of compliance and conversion to International Financial Reporting Standards
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The new accounting policy for research and development costs is set out in Note 2(m). Due to the current stage of
development of the technology, the adoption of AASB had no material impact on equity of the consolidated entity at
the date of transition to AASB, being 1 January 2014, or at the end of the comparative period, 31 December 2014.
Furthermore, the adoption of AASB had no impact on total comprehensive income for the comparative period ended
31 December 2014.
The following Standards and Interpretations have been issued by the AASB, are relevant to the Group, but are not
yet effective and have not been adopted by the Group for the period ending 31 December 2015. The Group has yet
to fully assess the impact of these Standards and Interpretations when applied in future periods.
Application
date
of
standard*
Application
date
for
Group
January
1
2018
1 January
2018
Reference Title
Summary
AASB 9
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Financial Instruments AASB 9 (December 2014) is a new standard which replaces AASB 139.
This new version supersedes AASB 9 issued in December 2009 (as
amended) and AASB 9 (issued in December 2010) and includes a
model for classification and measurement, a single, forward-looking
‘expected
impairment model and a substantially-reformed
approach to hedge accounting.
loss’
AASB 9 is effective for annual periods beginning on or after 1 January
2018. However, the Standard is available for early adoption. The own
credit changes can be early adopted in isolation without otherwise
changing the accounting for financial instruments.
Classification and measurement
AASB 9 includes requirements for a simpler approach for classification
and measurement of financial assets compared with the requirements
of AASB 139. There are also some changes made in relation to financial
liabilities.
The main changes are described below.
Financial assets
a. Financial assets that are debt instruments will be classified
based on (1) the objective of the entity's business model for
managing the financial assets; (2) the characteristics of the
contractual cash flows.
b. Allows an irrevocable election on initial recognition to present
gains and losses on investments in equity instruments that are
not held for trading in other comprehensive income. Dividends in
respect of these investments that are a return on investment can
be recognised in profit or loss and there is no impairment or
recycling on disposal of the instrument.
c. Financial assets can be designated and measured at fair value
through profit or loss at initial recognition if doing so eliminates or
significantly reduces a measurement or recognition inconsistency
that would arise from measuring assets or liabilities, or
recognising the gains and losses on them, on different bases.
Financial liabilities
Changes introduced by AASB 9 in respect of financial liabilities are
limited to the measurement of liabilities designated at fair value
through profit or loss (FVPL) using the fair value option.
Where the fair value option is used for financial liabilities, the change in
fair value is to be accounted for as follows:
►
The change attributable to changes in credit risk are presented in other
comprehensive income (OCI)
►
The remaining change is presented in profit or loss
AASB 9 also removes the volatility in profit or loss that was caused by
changes in the credit risk of liabilities elected to be measured at fair
value. This change in accounting means that gains or losses
attributable to changes in the entity’s own credit risk would be
recognised in OCI. These amounts recognised in OCI are not recycled
to profit or loss if the liability is ever repurchased at a discount.
BrainChip Holdings Ltd
2015 Annual Report
35
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
Reference Title
Summary
Application
date
of
standard*
Application
date
for
Group
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AASB
2014-4
AASB 15
Clarification
of
Acceptable Methods
of Depreciation and
Amortisation
(Amendments to
AASB 116 and AASB
138)
Revenue
Contracts
Customers
from
with
Impairment
The final version of AASB 9 introduces a new expected-loss impairment
model that will require more timely recognition of expected credit
losses. Specifically, the new Standard requires entities to account for
expected credit losses from when financial instruments are first
recognised and to recognise full lifetime expected losses on a more
timely basis.
Hedge accounting
Amendments to AASB 9 (December 2009 & 2010 editions and AASB
2013-9) issued in December 2013 included the new hedge accounting
requirements, including changes to hedge effectiveness testing,
treatment of hedging costs, risk components that can be hedged and
disclosures.
Consequential amendments were also made to other standards as a
result of AASB 9, introduced by AASB 2009-11 and superseded by
AASB 2010-7, AASB 2010-10 and AASB 2014-1 – Part E.
AASB 2014-7 incorporates the consequential amendments arising from
the issuance of AASB 9 in Dec 2014.
AASB 2014-8 limits the application of the existing versions of AASB 9
(AASB 9 (December 2009) and AASB 9 (December 2010)) from 1
February 2015 and applies to annual reporting periods beginning on
after 1 January 2015.
AASB 116 Property Plant and Equipment and AASB 138 Intangible
Assets both establish the principle for the basis of depreciation and
amortisation as being the expected pattern of consumption of the future
economic benefits of an asset.
The IASB has clarified that the use of revenue-based methods to
calculate the depreciation of an asset is not appropriate because
revenue generated by an activity that includes the use of an asset
generally reflects factors other than the consumption of the economic
benefits embodied in the asset.
The amendment also clarified that revenue is generally presumed to be
an inappropriate basis for measuring the consumption of the economic
benefits embodied in an intangible asset. This presumption, however,
can be rebutted in certain limited circumstances.
AASB 15 Revenue from Contracts with Customers replaces the existing
revenue recognition standards AASB 111 Construction Contracts,
AASB 118 Revenue and related Interpretations (Interpretation 13
Customer Loyalty Programmes, Interpretation 15 Agreements for the
Construction of Real Estate, Interpretation 18 Transfers of Assets from
Customers,
131 Revenue—Barter Transactions
Involving Advertising Services and Interpretation 1042 Subscriber
Acquisition Costs in the Telecommunications Industry). AASB 15
incorporates the requirements of IFRS 15 Revenue from Contracts with
Customers issued by the International Accounting Standards Board
(IASB) and developed jointly with the US Financial Accounting
Standards Board (FASB).
Interpretation
AASB 15 specifies the accounting treatment for revenue arising from
contracts with customers (except for contracts within the scope of other
accounting standards such as leases or financial instruments). The
core principle of AASB 15 is that an entity recognises revenue to depict
the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. An entity recognises revenue
in accordance with that core principle by applying the following steps:
(a) Step 1: Identify the contract(s) with a customer
(b) Step 2: Identify the performance obligations in the contract
(c) Step 3: Determine the transaction price
(d) Step 4: Allocate the transaction price to the performance
obligations in the contract
(e) Step 5: Recognise revenue when (or as) the entity satisfies a
performance obligation
January
1
2016
1 January
2016
January
1
2018
1 January
2018
BrainChip Holdings Ltd
2015 Annual Report
36
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
Reference Title
Summary
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AASB 1057 Application
of
Australian Accounting
Standards
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AASB
2015-1
Amendments to
Australian Accounting
Standards – Annual
Improvements to
Australian Accounting
Standards 2012–2014
Cycle
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AASB
2015-2
Amendments to
Australian Accounting
Standards –
Disclosure Initiative:
Amendments to AASB
101
AASB 2015-8 amended the AASB 15 effective date so it is now effective
for annual reporting periods commencing on or after 1 January 2018.
Early application is permitted.
AASB 2014-5 incorporates the consequential amendments to a number
Australian Accounting Standards (including Interpretations) arising from
the issuance of AASB 15.
This Standard lists the application paragraphs for each other Standard
(and Interpretation), grouped where they are the same. Accordingly,
paragraphs 5 and 22 respectively specify the application paragraphs
for Standards and Interpretations in general. Differing application
paragraphs are set out for individual Standards and Interpretations or
grouped where possible.
The application paragraphs do not affect requirements in other
Standards that specify that certain paragraphs apply only to certain
types of entities.
The subjects of the principal amendments to the Standards are set out
below:
AASB 5 Non-current Assets Held
Operations:
for Sale and Discontinued
• Changes in methods of disposal – where an entity
reclassifies an asset (or disposal group) directly from being
held for distribution to being held for sale (or vice versa), an
entity shall not follow the guidance in paragraphs 27–29 to
account for this change.
AASB 7 Financial Instruments: Disclosures:
• Servicing contracts - clarifies how an entity should apply the
guidance in paragraph 42C of AASB 7 to a servicing
contract to decide whether a servicing contract is
‘continuing involvement’ for the purposes of applying the
disclosure requirements in paragraphs 42E–42H of AASB 7.
• Applicability of the amendments to AASB 7 to condensed
interim financial statements - clarify that the additional
disclosure required by the amendments to AASB 7
Disclosure–Offsetting Financial Assets and Financial
Liabilities is not specifically required for all interim periods.
However, the additional disclosure is required to be given in
condensed interim financial statements that are prepared in
accordance with AASB 134 Interim Financial Reporting
when its inclusion would be required by the requirements of
AASB 134.
AASB 119 Employee Benefits:
• Discount rate: regional market issue - clarifies that the high
quality corporate bonds used to estimate the discount rate
for post-employment benefit obligations should be
denominated in the same currency as the liability. Further it
clarifies that the depth of the market for high quality
corporate bonds should be assessed at the currency level.
AASB 134 Interim Financial Reporting:
• Disclosure of information ‘elsewhere in the interim financial
report’ - amends AASB 134 to clarify the meaning of
disclosure of information ‘elsewhere in the interim financial
report’ and to require the inclusion of a cross-reference from
the interim financial statements to the location of this
information.
The Standard makes amendments to AASB 101 Presentation of
Financial Statements arising from the IASB’s Disclosure Initiative
project. The amendments are designed
further encourage
companies to apply professional judgment in determining what
information to disclose in the financial statements. For example, the
amendments make clear that materiality applies to the whole of
financial statements and that the inclusion of immaterial information can
inhibit the usefulness of financial disclosures. The amendments also
clarify that companies should use professional judgment in determining
where and in what order information is presented in the financial
disclosures.
to
Application
date
of
standard*
Application
date
for
Group
January
1
2016
1 January
2016
January
1
2016
1 January
2016
January
1
2016
1 January
2016
BrainChip Holdings Ltd
2015 Annual Report
37
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
Reference Title
Summary
Application
date
of
standard*
Application
date
for
Group
AASB
2015-3
AASB
2015-9
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AASB 16
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*
Amendments to
Australian Accounting
Standards arising
from the Withdrawal of
AASB 1031 Materiality
Amendments to
Australian Accounting
Standards – Scope
and Application
Paragraphs
[AASB 8, AASB 133 &
AASB 1057]
The Standard completes the AASB’s project to remove Australian
guidance on materiality from Australian Accounting Standards.
1 July 2015 1 January
2016
This Standard inserts scope paragraphs into AASB 8 and AASB 133 in
place of application paragraph text in AASB 1057. This is to correct
inadvertent removal of these paragraphs during editorial changes made
in August 2015. There is no change to the requirements or the
applicability of AASB 8 and AASB 133.
January
1
2016
1 January
2016
Leases
The key features of AASB 16 are as follows:
Lessee accounting
January
1
2019
1 January
2019
• Lessees are required to recognise assets and liabilities for
all leases with a term of more than 12 months, unless the
underlying asset is of low value.
• A lessee measures right-of-use assets similarly to other
non-financial assets and lease liabilities similarly to other
financial liabilities.
• Assets and liabilities arising from a lease are initially
measured on a present value basis. The measurement
includes non-cancellable lease payments (including
inflation-linked payments), and also includes payments to
be made in optional periods if the lessee is reasonably
certain to exercise an option to extend the lease, or not to
exercise an option to terminate the lease.
• AASB 16 contains disclosure requirements for lessees.
Lessor accounting
• AASB 16 substantially carries forward the lessor accounting
requirements in IAS 17. Accordingly, a lessor continues to
classify its leases as operating leases or finance leases,
and to account for those two types of leases differently.
• AASB 16 also requires enhanced disclosures to be provided
by lessors that will improve information disclosed about a
lessor’s risk exposure, particularly to residual value risk.
IFRS 16 supersedes:
(a) IAS 17 Leases;
(b) IFRIC 4 Determining whether an Arrangement contains a Lease;
(c) SIC-15 Operating Leases—Incentives; and
(d) SIC-27 Evaluating the Substance of Transactions Involving the
Legal Form of a Lease.
The new standard will be effective for annual periods beginning on or
after 1 January 2019. Early application is permitted, provided the new
revenue standard, IFRS 15 Revenue from Contracts with Customers,
has been applied, or is applied at the same date as IFRS 16.
Designates the beginning of the applicable annual reporting period unless otherwise stated.
BrainChip Holdings Ltd
2015 Annual Report
38
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Basis of consolidation
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(d) Business Combination
The consolidated financial statements comprise the financial statements of the parent entity and its subsidiaries
('the Consolidated Entity') as at 31 December each year. Control is achieved when the Consolidated Entity is
exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those
returns through its power over the investee. Specifically, the Consolidated Entity controls an investee if and only if
the Consolidated Entity has:
Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the
investee)
Exposure, or rights, to variable returns from its involvement with the investee, and
The ability to use its power over the investee to affect its returns
When the Consolidated Entity has less than a majority of the voting or similar rights of an investee, the Consolidated
Entity considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
The contractual arrangement with the other vote holders of the investee
Rights arising from other contractual arrangements
The Consolidated Entity’s voting rights and potential voting rights
The Consolidated Entity re-assesses 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. Consolidation of a subsidiary begins when the
Consolidated Entity obtains control over the subsidiary and ceases when the Consolidated Entity loses control of the
subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are
included in the statement of comprehensive income from the date the Consolidated Entity gains control until the date
the Consolidated Entity ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the equity holders of the parent
of the Consolidated Entity and to the non-controlling interests, even if this results in the non-controlling interests
having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring
their accounting policies into line with the Consolidated Entity’s accounting policies. All intra-Consolidated Entity
assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the
Consolidated Entity are eliminated in full on consolidation.
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as
the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of
any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure
the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable
net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate
classification and designation in accordance with the contractual terms, economic circumstances and pertinent
conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the
acquiree. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the
acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within
the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with the changes
in fair value recognised in the statement of profit or loss.
Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the
amount recognised for non-controlling interests) and any previous interest held over the net identifiable assets
acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration
transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities
assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the
reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration
transferred, then the gain is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of
impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the
Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets
or liabilities of the acquiree are assigned to those units.
BrainChip Holdings Ltd
2015 Annual Report
39
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(e) Business Combination (continued)
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Where goodwill has been allocated to a cash-generating unit (CGU) and part of the operation within that unit is
disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation
when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the
relative values of the disposed operation and the portion of the cash-generating unit retained.
(f) Foreign currency translation
(i) Functional and presentation currency
The functional currency of each entity within the Consolidated Entity is the currency of the primary economic
environment in which that entity operates. The consolidated financial statements are presented in United States
Dollars which is the parent entity’s functional and presentation currency.
(ii) Transactions and balances
Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling
at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the
rate of exchange at the reporting date.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the
exchange rate as at the date of the initial transaction. All exchange differences arising from the above policies are
recognised in the profit and loss.
(iii) Translations of subsidiary Companies’ functional currency to presentation currency
The results of non-US$ reporting subsidiaries, if any, are translated into United States Dollars (presentation currency).
Income and expenses are translated at the exchange rates at the date of the transactions. Assets and liabilities are
translated at the closing exchange rate for each balance sheet date. Share capital, reserves and accumulated losses
are converted at applicable historical rates.
Exchange variations resulting from the translation are recognised in the foreign currency translation reserve in equity.
On consolidation, exchange differences arising from the translation of monetary items considered to be part of the net
investment in subsidiaries are taken to the foreign currency translation reserve. If a subsidiary were sold, the
proportionate share of the foreign currency translation reserve would be transferred out of equity and recognised in the
statement of comprehensive income.
(g) Operating segments
An operating segment is a component of an entity that engages in business activities from which it may earn revenues
and incur expenses (including revenues and expenses relating to transactions with other components of the same
entity), whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions
about resources to be allocated to the segment and assess its performance and for which discrete financial information
is available. This includes start-up operations which are yet to earn revenues. Management will also consider other
factors in determining operating segments such as the existence of a line manager and the level of segment information
presented to the board of directors.
(h) Cash and cash equivalents
Cash and cash equivalents in the statement of financial position comprise cash at bank and in hand and short-term
deposits that are readily convertible to known amounts of cash and which are subject to an insignificant risk of
changes in value.
For the purposes of the Statement of cash flows, cash and cash equivalents consist of cash and cash equivalents
as defined above, net of outstanding bank overdrafts. Bank overdrafts are included within interest bearing loans
and borrowings in the current liabilities on the statement of financial position.
BrainChip Holdings Ltd
2015 Annual Report
40
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(i) Trade and other receivables
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Trade and other receivables, which generally have 30-60 day terms, are recognised initially at fair value and
subsequently measured at amortised cost using the effective interest rate method, less an allowance for impairment.
Collectability of trade and other receivables is reviewed on an ongoing basis. Individual debts that are known to be
uncollectible are written off when identified. An impairment allowance is recognised when there is objective
evidence that the Consolidated Entity will not be able to collect the receivable. Financial difficulties of the debtor,
default payments or debts more than 60 days overdue are considered objective evidence of impairment. The amount
of the impairment loss is the receivable carrying amount compared to the present value of estimated future cash
flows, discounted at the original effective interest rate.
(j) Property, plant and equipment
Plant and equipment is stated at historical cost less accumulated depreciation.
Capital work-in-progress is stated at cost and comprises all costs directly attributable to bringing the assets under
construction ready to their intended use. Capital work-in-progress is transferred to property, plant and equipment at
cost on completion.
Depreciation is calculated on a straight-line basis over the estimated useful life of the asset which ranges between
3 and 25 years.
Derecognition
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset.
Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the item) is included in the statement of comprehensive income in the period
the item is derecognised.
(k) Exploration and evaluation expenditure
Expenditure on acquisition, exploration and evaluation relating to an area of interest is carried forward at cost where
rights to tenure of the area of interest are current and;
(i) it is expected that expenditure will be recouped through successful development and exploitation of the area of
interest or alternatively by its sale and/or;
(ii) exploration and evaluation activities are continuing in an area of interest but at balance date have not yet reached
a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves.
A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry
forward costs in relation to that area of interest. Where it is probable that no future benefits will be obtained, the
value of the area of interest is written off to the statement of comprehensive income.
Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets
acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible
assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally
generated intangibles, excluding capitalised development costs, are not capitalised and the related expenditure is
reflected in profit or loss in the period in which the expenditure is incurred. The useful lives of intangible assets are
assessed as either finite or indefinite.
Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever
there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method
for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in
the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset
are considered to modify the amortisation period or method, as appropriate, and are treated as changes in
accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the statement
of profit or loss in the expense category that is consistent with the function of the intangible assets.
BrainChip Holdings Ltd
2015 Annual Report
41
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(l)
Intangible assets (continued)
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Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either
individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine
whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made
on a prospective basis.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net
disposal proceeds and the car carrying amount of the asset and are recognised in the statement of profit or loss
when the asset is derecognised.
(m) Research and development costs
Research costs are expensed as incurred. Development expenditures on an individual project are recognised
as an intangible asset when the Group can demonstrate:
The technical feasibility of completing the intangible asset so that the asset will be available for use or sale
Its intention to complete and its ability and intention to use or sell the asset
How the asset will generate future economic benefits
The availability of resources to complete the asset
The ability to measure reliably the expenditure during development
Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any
accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development
is complete and the asset is available for use. It is amortised over the period of expected future benefit. Amortisation
is recorded in cost of sales. During the period of development, the asset is tested for impairment annually.
Patents and licences
The Group made upfront payments to purchase patents and licences. The patents have been granted for a period
of 20 years by the relevant government agency with the option of renewal at the end of this period.
A summary of the policies applied to the Group’s intangible assets is, as follows:
Useful life
Amortisation method
Patents
Finite (20 years)
Amortised on a straight-
line basis over the period
of the patent
Development costs
Finite (20 years)
Amortised on a straight-line basis over
the period of expected future sales from
the related project
Internally generated or
acquired
Acquired
Internally generated
(n) Trade and other payables
Trade payables and other payables are carried at amortised cost and due to their short-term nature they are not
discounted. They represent liabilities for goods and services provided to the Consolidated Entity prior to the end of
the financial year that are unpaid and arise when the Consolidated Entity becomes obliged to make future payments
in respect of the purchase of these goods and services. The amounts are unsecured and usually paid within 30 days
of recognition.
(o) Convertible notes
The component of the convertible notes that exhibits characteristics of a liability is recognised as a liability in the
Statement of Financial Position, net of transaction costs.
On issuance of the convertible notes, the fair value of the liability component is determined using an estimated market
rate for an equivalent non-convertible bond and this amount is carried as a liability on an amortised cost basis until
extinguished on conversion or redemption. The increase in the liability due to the passage of time is recognised as a
finance cost. Interest on the liability component of the instruments is recognised as an expense in the Statement of
Comprehensive Income.
The fair value of any derivative features embedded in the convertible notes, other than the equity component, are
included in the liability component. Subsequent to initial recognition, these derivate features are measured at fair
value with gains and losses recognised in the profit and loss if they are not closely related to the host contract.
BrainChip Holdings Ltd
2015 Annual Report
42
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(p) Provisions
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Provisions are recognised when the Consolidated Entity has a present obligation (legal or constructive) as a result
of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle
the obligation and a reliable estimate can be made of the amount of the obligation.
Provisions are measured at the present value of management’s best estimate of the expenditure required to settle
the present obligation at the reporting date. The discount rate used to determine the present value reflects current
market assessments of the time value of money and the risks specific to the liability. The increase in the provision
resulting from the passage of time is recognised in finance costs.
Issued capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options
are shown in equity as a deduction, net of tax, from the proceeds.
(r) Share-based payment transactions
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The Consolidated Entity provides benefits to employees (including Directors) in the form of share-based payment
transactions, whereby employees render services in exchange for shares or rights over shares (equity-settled
transactions).
The Consolidated Entity has three plans in place that provides these benefits.
(i) The Long Term Incentive Plan (“LTIP”) provides benefits to all employees including Directors. The terms of the
share options are as determined by the Board. Terms of the LTIP were included in the Notice of General Meeting
lodged with the ASX 30 June 2015 and approved by shareholders on 30 July 2015.
(ii) The Performance Rights Plan (“PRP”) provides for the granting of performance rights to senior executives and
other staff members of the Consolidated Entity. The terms of the performance rights are as determined by the
Board. Terms of the PRP were included in the Notice of General Meeting lodged with the ASX on 30 June 2015
and approved by shareholders on 30 July 2015.
(iii) The Directors and Officers Option Plan (“DOOP”) provides for the granting of options to the Board members of
the Consolidated Entity in accordance with guidelines established by the Board of the Company. Terms of the
DOOP were included in the Prospectus dated 10 December 2015 lodged with ASX.
The cost of these equity-settled transactions to employees is measured by reference to the fair value at the date at
which they are granted. The fair value is determined by using a Black & Scholes model. Further details of which
are given in note 23.
In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to
the price of the shares of the Company (market conditions) if applicable.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the
period in which the performance and/or service conditions are fulfilled (the vesting period), ending on the date on
which the relevant employees become fully entitled to the award (the vesting date).
At each subsequent reporting date until vesting, the cumulative charge to the statement of comprehensive income
is the product of (i) the grant date fair value of the award; (ii) the current best estimate of the number of awards that
will vest, taking into account such factors as the likelihood of employee turnover during the vesting period and the
likelihood of non-market performance conditions being met; and (iii) the expired portion of the vesting period.
The charge to the statement of comprehensive income for the period is the cumulative amount as calculated above
less the amounts already charged in previous periods. There is a corresponding credit to equity.
Until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer awards vest
than were originally anticipated to do so. Any award subject to a market condition is considered to vest irrespective
of whether or not the market condition is fulfilled, provided that all other conditions are satisfied.
If a non-vesting condition is within the control of the Consolidated Entity, Company or the employee, the failure to
satisfy the condition is treated as a cancellation. If a non-vesting condition within the control of neither the
Consolidated Entity, Company nor employee is not satisfied during the vesting period, any expense for the award
not previously recognised is recognised over the remaining vesting period, unless the award is forfeited.
BrainChip Holdings Ltd
2015 Annual Report
43
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(r) Share-based payment transactions (continued)
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If the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not
been modified. An additional expense is recognised for any modification that increases the total fair value of the
share-based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of
modification.
If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense
not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled
award, and designated as a replacement award on the date that it is granted, the cancelled and new award are
treated as if they were a modification of the original award, as described in the previous paragraph.
Share-based payments to non-employees are measured at the fair value of goods or services received or the fair
value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably
measured, and are recorded at the date the goods or services are received.
The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of
earnings per share.
(s) Employee benefits
(i) Wages, salaries, annual leave and sick leave
Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave
expected to be settled wholly within 12 months of the reporting date are recognised in respect of employees' services
up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled.
(ii) Long service leave
The liability for long service leave is recognised and measured as the present value of expected future payments to
be made in respect of services provided by employees up to the reporting date using the projected unit credit method.
Consideration is given to expected future wage and salary levels, experience of employee departures, and periods
of service. Expected future payments are discounted using market yields at the reporting date on corporate bonds
with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows.
(iii) Superannuation
Contributions made by the Consolidated Entity to employee superannuation funds, which are defined contribution
plans, are charged as an expense when incurred.
Income tax
Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets
and liabilities and their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognised for all taxable temporary differences, except:
when the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction
that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor
taxable profit or loss; and
when the taxable temporary differences associated with investments in subsidiaries, associates and interests
in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it
is probable that the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax
assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the
deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised,
except:
when the deferred income tax asset relating to the deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit or loss; and
when the deductible temporary differences associated with investments in subsidiaries, associates and
interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the
temporary differences will reverse in the foreseeable future and taxable profit will be available against which
the temporary differences can be utilised.
BrainChip Holdings Ltd
2015 Annual Report
44
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(t)
Income tax (continued)
The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent
that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income
tax asset to be utilised.
Unrecognised income taxes are reassessed at each reporting date and are recognised to the extent that it has
become probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when
the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted at the reporting date.
Income taxes relating to items recognised directly in equity are recognised in equity and not in the Statement of
comprehensive income.
Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current
tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity
and the same taxation authority.
(u) Other taxes
Revenues, expenses and assets are recognised net of the amount of GST except:
when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in
which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item
as applicable; and
receivables and payables, which are stated with the amount of GST included.
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or
payables in the statement of financial position.
Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows
arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are
classified as operating cash flows.
Commitments and contingencies are disclosed net of amounts of GST recoverable from, or payable to, the taxation
authority.
(v) Earnings per share
Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any
costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average
number of ordinary shares, adjusted for any bonus element.
Diluted earnings per share are calculated as net profit attributable to members of the parent adjusted for:
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cost of servicing equity (other than dividends) and preference share dividends;
the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been
recognised as expenses; and
other non-discriminatory changes in revenues or expenses during the period that would result from the dilution
of potential ordinary shares;
divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any
bonus element.
BrainChip Holdings Ltd
2015 Annual Report
45
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
3. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
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The preparation of the financial statements requires management to make judgements, estimates and assumptions
that affect the reported amounts in the financial statements. Management continually evaluates its judgements and
estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its
judgements and estimates on historical experience and on other various factors it believes to be reasonable under the
circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily
apparent from other sources.
Management has identified the following critical accounting policies for which significant judgements, estimates and
assumptions are made. Actual results may differ from these estimates under different assumptions and conditions and
may materially affect financial results or the financial position reported in future periods.
Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial
statements.
(i) Significant accounting estimates and assumptions
The preparation of the financial statements requires management to make judgements, estimates and assumptions
that affect the reported amounts in the financial statements. Management continually evaluates its judgements and
estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its
judgements and estimates on historical experience and on other various factors it believes to be reasonable under the
circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily
apparent from other sources.
Management has identified the following key estimates and assumptions that have the most significant impact on the
financial statements. Actual results may differ from these estimates under different assumptions and conditions and
may materially affect financial results or the financial position reported in future periods.
Share-based payment transactions
The Consolidated Entity measures the cost of equity-settled transactions with employees by reference to the
fair value of the equity instruments at the date at which they are granted. The fair value is determined by
using a Black & Scholes model, using the assumptions as discussed in note 23. The accounting estimates
and assumptions relating to equity-settled share-based payments would have no impact on the carrying
amounts of assets and liabilities in the next annual reporting period but may impact expenses and equity.
Impairment of non-financial assets other than goodwill
The Group assesses impairment of all non-financial assets other than goodwill at each reporting date by
evaluating the carrying value of the asset and the recoverable amount, which is the higher of fair value less
costs to sell and its value in use. This requires assessment of conditions specific to the Consolidated Entity
and to the particular asset which may lead to an impairment being recognised.
Recoverability of Madagascan receivables
The future recoverability of the receivables balance that relates to the sale of various mineral licenses in
Madagascar is dependent on the transfer of the licenses to the purchasers. The Company has registered
sales contracts with authorities in Madagascar and has received significant deposits with the remaining
balances due upon license transfer by the mines department of Madagascar (Bureau du Cadastre Minier de
Madagascar “BCMM”). The BCMM has only returned to normal operation following democratic elections in
2013 and the appointment of a Prime Minister and cabinet in February 2014. Prior to this the BCMM was not
operational and had not dealt with any mineral licence matters since 2009 following a popular uprising that
forced out the elected government. While the BCMM is currently operational, progress is slow as it deals with
four years of backlog transactions. The Company believes that whilst progress is slow there are currently no
reasons to believe that its transfers will not be processed and the outstanding balances will be received within
the next 12 months.
Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial
statements.
BrainChip Holdings Ltd
2015 Annual Report
46
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
4.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Overview
This note presents information about the Consolidated Entity’s exposure to credit, liquidity and market risks, its
objectives, policies and processes for measuring and managing risk, and the management of capital.
The Consolidated Entity does not use any form of derivatives as it is not at a level of exposure that requires the use
of derivatives to hedge its exposure. Exposure limits are reviewed by management on a continuous basis. The Group
does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.
The Board of Directors has overall responsibility for the establishment and oversight of the risk management
framework. Management monitors and manages the financial risks relating to the operations of the Group through
regular reviews of the risks.
Credit risk
Credit risk is the risk of financial loss to the Consolidated Entity if a customer or counterparty to a financial instrument
fails to meet its contractual obligations, and arises principally from the Group’s cash and cash equivalents and
receivables from customers.
Presently, the Group undertakes technology development activities in the USA. At the reporting date there were no
significant concentrations of credit risk.
Cash and cash equivalents and investment securities
The Group limits its exposure to credit risk by only investing in liquid securities and only with counterparties that have
an acceptable credit rating.
Trade and other receivables
As the Group operates primarily in technology development, it does not have trade receivables. The Group has other
receivables related to the sale of mineral assets in Madagascar, the receipt of which is dependent upon the processing
of license transfers by the Madagascar titles office. There is risk that this receivable may not be recovered however
the Group does not consider this to be likely.
Exposure to credit risk
The carrying amount of the Group’s financial assets represents the maximum credit exposure. The Group’s maximum
exposure to credit risk at the reporting date was:
Cash and cash equivalents
Other receivables
Liquidity risk
Carrying amount
2014
2015
US$
US$
Note
10
11
1,393,869
571,885
31,633
-
Liquidity risk is the risk that the Consolidated Entity will not be able to meet its financial obligations as they fall due.
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, under both normal and stressed conditions, without incurring
unacceptable losses or risking damage to the Consolidated Entity’s reputation.
The Consolidated Entity manages liquidity risk by maintaining adequate cash reserves from funds raised in the market
and by continuously monitoring forecast and actual cash flows. The Consolidated Entity does not have any external
borrowings.
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BrainChip Holdings Ltd
2015 Annual Report
47
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
4.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
Liquidity risk (Continued)
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding
the impact of netting agreements:
Carrying
amount
US$
Contractual
cash flows
US$
6 mths or
less
US$
6-12 mths
1-5 years
5+ years
US$
US$
US$
354,290
354,290
354,290
354,290
354,290
354,290
-
-
83,688
83,688
83,688
83,688
65,522
65,522
18,166
18,166
-
-
-
-
-
-
-
-
31 December 2015
Trade and other payables
31 December 2014
Trade and other payables
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices
will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk
management is to manage and control market risk exposures within acceptable parameters, while optimising the
return.
Foreign currency risk
The Consolidated Entity is exposed to fluctuations in foreign currencies arising from the purchase of goods and
services in currencies other than the transacting entity’s functional currency. As a result of the legal parent and the
Madagascan subsidiaries having cash balances denominated in AUD and Madagascan Ariary (MGA) currencies, the
Consolidated Entity’s statement of financial position can be affected by movements in the USD/MGA and USD/AUD
exchange rates when translating to the USD functional currency.
The Consolidated Entity’s exposure to foreign currency risk at the reporting date was as follows:
Cash
AUD
61,427
61,427
2015
Ariary
Total
AUD
2014
Ariary
Total
4,589
4,589
66,016
66,016
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BrainChip Holdings Ltd
2015 Annual Report
48
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
4.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
Interest rate risk
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The Consolidated Entity is exposed to interest rate risk (primarily on its cash and cash equivalents), which is the risk
that a financial instrument’s value will fluctuate as a result of changes in the market interest rates on interest-bearing
financial instruments. The Consolidated Entity does not use derivatives to mitigate these exposures.
The Consolidated Entity adopts a policy of ensuring that as far as possible it maintains excess cash and cash
equivalents in interest bearing accounts.
Profile
At the reporting date the interest rate profile of the Consolidated Entity’s interest-bearing financial instruments was:
Cash and cash equivalents
Cash at bank and on hand
Short term deposits
Carrying amount
2014
2015
US$
US$
21,888
36,495
58,383
31,633
-
31,633
A change of 100 basis points in interest rates would have increased or decreased the Consolidated Entity’s equity
and post-tax profits by $500 (2014: $Nil). This analysis assumes that all other variables remain constant.
Fair values
Fair values versus carrying amounts
The carrying amounts of financial assets and liabilities approximate fair value. The basis for the assessment of fair
values versus carrying value of financial instruments not carried at fair value is described below.
(i) Other receivables, trade and other payables
Other receivables, trade and other payables are short term in nature. As a result, the fair value of these
instruments is considered to approximate its fair value.
Capital Management
Capital managed by the Board includes contributed equity, which was $27,266,878 at 31 December 2015 (2014:
$20,112). When managing capital, management’s objective is to ensure the entity continues as a going concern as
well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims to
maintain a capital structure that ensures the lowest cost of capital available to the entity. Managed capital is disclosed
on the face of the Statement of financial position and comprises shareholder equity, accumulated losses and
reserves.
Management may adjust the capital structure to take advantage of favourable costs of capital or higher returns on
assets. As the market is constantly changing, management may issue new shares or sell assets to raise cash, change
the amount of dividends to be paid to shareholders (if at all) or return capital to shareholders.
During the financial year ending 31 December 2015, management did not pay a dividend and does not expect to pay
a dividend in the foreseeable future.
The Consolidated Entity encourages employees to be shareholders through the Long Term Incentive Plan.
There were no changes in the Consolidated Entity’s approach to capital management during the year. Risk
management policies and procedures are established with regular monitoring and reporting.
Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
BrainChip Holdings Ltd
2015 Annual Report
49
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
5.
REVENUE
(a) Revenue
Interest received - other corporations
(b) Other income
Other income – oil & gas royalty income
Foreign exchange gain
Total Other income
6.
EXPENSES
Administration and other expenses
Depreciation and amortisation
Amortisation of intangible assets
Depreciation of plant & equipment
Director fees and employee benefits expense
Director fees and executive salaries
Wages and salaries
Total employee benefits
Administration and other expenses
Legal and professional fees
Travel and accommodation expenses
Administration expenses
Total administration and other expenses
2015
US$
2014
US$
6,863
5,580
36,980
42,560
4
-
-
-
1,347
12,808
14,155
613,911
548,314
1,162,225
414,645
84,936
73,738
573,319
2,175
72
2,247
45,582
100,624
146,206
105,487
91,095
12,936
209,518
Total administration and other expenses
1,749,699
357,971
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BrainChip Holdings Ltd
2015 Annual Report
50
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
7.
INCOME TAX
(a) Major components of income tax expense
Consolidated income statement
Current income tax:
Current income tax expense/(benefit)
Tax losses previously not recognised
Deferred tax asset not recognised
Income tax (benefit)/expense reported in the
statement of comprehensive income
(b) Amounts charged or credited directly to equity
Current income tax related to items charged or
credited directly to equity
Deferred income tax related to items charged or
credited directly to equity
Income tax (benefit)/expense reported in equity
(c) A reconciliation between tax expense and the
product of accounting loss before income tax
multiplied by
the Consolidated Entity's
applicable income tax rate is as follows:
Consolidated
2015
US$
2014
US$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Accounting loss before tax
27,360,115
357,967
At statutory income tax rate of 30% (2014: 30%)
(8,208,035)
(107,390)
Non-deductible (income) / expenses
Deductible capital raising items
Effect of lower/(higher) taxation rates of foreign
subsidiaries
Unrecognised tax losses and deferred income tax
7,699,799
(52,477)
-
-
281,700
279,013
(35,797)
143,187
Income tax expense/(benefit) reported in statement
of comprehensive income
Effective income tax rate
(d) Deferred tax relates to the following:
-
0%
-
0%
Accrued expenses
Tax losses
Not recognised
Net deferred tax liability
Deferred tax income/ (expense)
Consolidated Statement
of financial position
Consolidated Statement
of comprehensive
income
2015
2014
2015
2014
20,744
401,456
(422,200)
-
143,187
(143,187)
20,744
258,269
(279,013)
-
-
-
-
-
-
-
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(e) Unrecognised losses
At 31 December 2015, there are unrecognised losses of $5,259,296 for the Consolidated Entity (2014: $143,187).
BrainChip Holdings Ltd
2015 Annual Report
51
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
8.
LOSS PER SHARE
2015
US$
2014
US$
Net loss attributable to ordinary equity holders
(27,360,115)
(357,967)
Net loss attributable to ordinary shareholders for diluted earnings per share
(27,360,115)
(357,967)
Basic and diluted loss per share (US cents per share)
(8.43)
(0.14)
Weighted average number of ordinary shares for basic loss per share
Effect of the dilution of share options and performance rights (1) (2)
Weighted average number of ordinary shares adjusted for the effect of
dilution
324,371,513
-
255,850,219
-
324,371,513
255,850,219
(1) At 31 December 2015, the Company had on issue 28,050,000 (2014: nil) share options that are excluded from
the calculation of diluted loss per share for the current period, because they were anti-dilutive as their inclusion
reduced the loss per share.
(2) At 31 December 2015, the Company had on issue 122,000,000 (2014: nil) performance rights that are excluded
from the calculation of diluted loss per share for the current period, because they were anti-dilutive as their
inclusion reduced the loss per share.
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No dividends have been paid or declared by the Company during the financial period or up to the date of this report.
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10. CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Total
Reconciliation of the net loss after tax to net cash flows from
operations
Loss after tax
Non-cash adjustment to reconcile loss before tax to net cash flows:
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Depreciation
Amortisation
Share based payments
Listing fee expense
Exploration and evaluation expenditure written off
Foreign exchange gain
Interest expense extinguished by the issue of shares
Working capital adjustments:
Increase in prepayments
Increase in other assets
Increase in employee provisions
(Decrease)/Increase in trade and other payables
Net cash used in operating activities
2015
US$
2014
US$
1,393,869
1,393,869
31,633
31,633
(27,360,115 )
(357,967)
12,808
1,347
1,939,902
23,611,942
64,038
(36,980)
718
(31,995)
-
13,688
(101,857)
(1,886,504)
72
2,175
-
-
-
-
-
(20,277)
(6,196)
6,606
71,437
(304,150)
BrainChip Holdings Ltd
2015 Annual Report
52
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
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11. TRADE AND OTHER RECEIVABLES
CURRENT
Other receivables (1)
2015
US$
2014
US$
571,885
571,885
-
-
(1) Of this balance $559,100 relates to the mineral licences sold within Madagascar. The timing of receipt of
the receivable is dependent upon the Madagascar mining titles office processing the licence transfers
which were delayed due to governing elections. It is expected the amount will be received in 2016.
12. OTHER ASSETS
CURRENT
Prepayments
13. PLANT & EQUIPMENT
Plant and equipment
At cost
Accumulated depreciation
Total plant and equipment
Movement in plant and equipment
At 1 January net of accumulated depreciation
Additions
WDV of plant and equipment from Acquisition
Depreciation charge for the year
Foreign exchange movements
At 31 December net of accumulated depreciation
14. EXPLORATION AND EVALUATION EXPENDITURE
2015
US$
2014
US$
62,555
20,277
106,140
(40,759)
65,381
1,649
71,703
4,805
(12,808)
32
65,381
1,721
(72)
1,649
-
1,721
-
(72)
-
1,649
2015
US$
2014
US$
Exploration and evaluation costs carried forward in respect of mining areas of interest
Net carrying amount at cost
Movement in exploration and evaluation expenditure
At 1 January
Additions
Exploration and evaluation expenditure written off
Foreign exchange movements
At 31 December
-
-
64,038
(64,038)
-
-
-
-
-
-
-
-
The Company declared its intention to divest itself of all exploration assets prior to the Acquisition. Accordingly,
exploration and evaluation expenditure incurred during the year of $64,038 (2014: $Nil) was immediately written
off to the Statement of comprehensive income.
BrainChip Holdings Ltd
2015 Annual Report
53
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
15.
INTANGIBLE ASSETS
At cost – patents with definite useful life
Accumulated amortisation
Total intangible assets
Movement in intangible assets
At 1 January
Additions
Adjustment to opening balance – credit from vendor
Amortisation
At 31 December
2015
US$
2014
US$
35,227
(3,523)
31,704
38,961
6,342
(12,252)
(1,347)
31,704
41,136
(2,175)
38,961
-
41,136
-
(2,175)
38,961
The patents acquired during the year have been granted for a minimum of 20 years by the relevant government
agency. As at 31 December 2015, the Group considered indicators of impairment of these assets and no
adjustment was deemed necessary.
16. TRADE AND OTHER PAYABLES
CURRENT
Trade creditors
17. EMPLOYEE BENEFITS LIABILITIES
CURRENT
Provision for annual leave
The nature of the provision is described in note 2(p).
2015
US$
2014
US$
354,290
354,290
83,688
83,688
2015
US$
2014
US$
40,730
40,730
6,606
6,606
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BrainChip Holdings Ltd
2015 Annual Report
54
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
18. NOTES PAYABLE
CURRENT
Convertible notes payable (1)
Reconciliation of convertible notes payable
Opening balance
Convertible notes issued to shareholder (2)
Convertible notes issued to other parties (3)
Interest on convertible notes issued to other parties
BrainChip Inc. shares issued to extinguish convertible note liability
immediately prior to Acquisition
BrainChip Holdings shares issued to extinguish convertible note liability
immediately prior to Acquisition
Interest paid to other party convertible noteholders
Closing balance
2015
US$
2014
US$
-
-
346,177
346,177
346,177
190,000
247,872
6,126
(536,892)
(247,872)
(5,411)
-
-
100,000
246,177
-
-
-
-
346,177
(1) The 2014 balance was reclassified in the current financial period and has been reclassified from non-current
to current liability as the convertible notes had a maturity date of less than 12 months from 31 December
2014.
(2) Convertible notes were issued to Mr Mitro in exchange for cash in the amounts of US$50,000 on 3 January
2014, US$50,000 on 13 June 2014, and US$190,000 on 2 January 2015. Interest was payable on the
convertible notes at 4% pa. These notes and accrued interest were extinguished through the issue of
BrainChip Inc. shares on 10 September 2015.
(3) During September 2014 BrainChip Inc. issued convertible notes to third parties in the amount of A$300,000
(US$246,177). The convertible notes accrued interest at the rate of the USA Applicable Federal Rate. The
total liability was extinguished via the issue of BrainChip Inc. shares on 10 September 2015. During August
2015, BrainChip Inc. issued convertible notes to third parties in the amount of A$350,000 (US$247,872).
The notes accrued a minimum of two months interest at 15% pa which was subsequently paid after the
Acquisition. The principal liability of US$247,872 was extinguished through the issue of BrainChip Holdings
shares on 10 September 2015.
19. LOANS FROM SHAREHOLDERS
NON-CURRENT
Loans from shareholders
2015
US$
-
-
2014
US$
100
100
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BrainChip Holdings Ltd
2015 Annual Report
55
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
20. CONTRIBUTED EQUITY
(a) Ordinary Shares
Issued and fully paid
(b) Movements in ordinary shares on issue
At 1 January 2014
Issue of shares
Paid in capital for patents costs
At 31 December 2014
At 1 January 2015
Conversion of R Mitro Convertible Loan (1)
Conversion of 2014 Convertible Loans other (1)
Issue of shares to Nerona Pte. Ltd
Elimination of all BrainChip Inc. shares on acquisition
of BrainChip Holdings Ltd (1)
Existing shares of BrainChip Holdings at Acquisition
Acquisition of BrainChip Inc. (1)
Conversion of Performance Rights (2)
2015
US$
2014
US$
27,266,878
20,112
Number
US$
-
10,000,000
-
-
1,000
19,112
10,000,000
20,112
10,000,000
749,354
620,155
1,182,429
(12,551,938)
248,269,752
353,605,500
69,000,000
20,112
290,000
246,893
118
-
-
26,709,755
-
At 31 December 2015
670,875,252
27,266,878
(1) Pursuant to the Acquisition Agreement, on 9 September 2015 convertible notes held by BrainChip Inc. and
payable to Robert Mitro, a former Director of BrainChip Inc., and other parties were converted to shares in
BrainChip Inc. Immediately thereafter 100% of the shares of BrainChip Inc. were issued to BrainChip
Holdings in exchange for 353,605,500 shares as part consideration for the Acquisition;
(2) Subsequent to the Acquisition, 69,000,000 Performance Rights were converted to shares in BrainChip
Holdings upon the achievement of Milestones 1 and 2.
(c)
Terms and conditions of contributed equity
Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to
one vote per share at shareholder meetings. In the event of winding up the Company the holders are entitled
to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts
paid up on shares held.
(d) Performance Rights on issue
Performance Rights on issue at 31 December 2015 are as follows:
Class A Performance Rights
Class B Performance Rights
Class C Performance Rights
Class D Performance Rights
13,500,000
13,500,000
48,500,000
46,500,000
122,000,000
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BrainChip Holdings Ltd
2015 Annual Report
56
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
20. CONTRIBUTED EQUITY (continued)
(e)
Performance Rights movements
Class A Perf Rights (1)
Class B Perf Rights (1)
Class C Perf Rights (1)
Class D Perf Rights (1)
Opening
balance
1 January
2015
-
-
-
-
-
Acquisition
Consideration
Converted
Unallocated
49,500,000
49,500,000
49,500,000
49,500,000
36,000,000 (2)
33,000,000 (3)
-
-
-
3,000,000
1,000,000
3,000,000
Closing
balance
31 December
2015
13,500,000
13,500,000
48,500,000
46,500,000
198,000,000
69,000,000
7,000,000
122,000,000
(1) 198,000,000 Performance Rights were approved by shareholders on 30 July 2015 to be allocated to the
shareholders of BrainChip Inc. as part consideration for the Acquisition. Of this amount 186,000,000
Performance Rights were issued on 10 September 2015 to BrainChip Inc. shareholders.
The remaining 12,000,000 Performance Rights were set aside to be issued to current and future
employees at the Board’s discretion. Any Performance Rights not issued by 30 June 2018 are to be issued
to Peter van der Made (60%) and Robert F. Mitro Trust (40%), subject to obtaining all required regulatory
and shareholder approvals. Subsequent to the Acquisition and prior to year-end, 3,000,000 Class A
Performance Rights and 2,000,000 Class C Performance Rights were issued to employees on 10
September 2015 and 21 December 2015 respectively (refer Note 23(b)). 3,000,000 Class B Performance
Rights, 1,000,000 Class C Performance Rights and 3,000,000 Class D Performance Rights were
unallocated at 31 December 2015.
(2) 36,000,000 Class A Performance Rights were converted to shares in BrainChip Holdings immediately
upon issue (10 September 2015) as attainment of Milestone 1 was achieved as announced to the ASX on
13 May 2015.
(3) 33,000,000 Class B Performance Rights were converted to shares in BrainChip Holdings on attainment of
Milestone 2 on 20 November 2015.
The Performance Rights have the following milestones attached to them:
Class A Performance Rights: upon announcing on the ASX that BrainChip has simulated a race car
demonstration in software for “proof of technology” by comparing BrainChip’s Spiking Neuron Adaptive
Processor (SNAP) to traditional sigmoid technology (Milestone 1) (as announced to ASX on 13 May 2015);
Class B Performance Rights: upon announcing on the ASX that BrainChip has implemented the race car
demonstration in hardware to visually illustrate the capability and scalability of BrainChip’s SNAP
technology to prospective licensees (Milestone 2) (as announced to ASX on 30 October 2015);
Class C Performance Rights: upon announcing on the ASX that BrainChip has released a software API
specification and RTL design solution for implementing customer Client/Server neural network
applications using BrainChip hardware technology (Milestone 3) (as announced to ASX on 15 March 2016);
and
Class D Performance Rights: upon announcing on the ASX that BrainChip has executed an unconditional
binding licensing agreement that has an upfront payment of no less than $500,000 (Milestone 4).
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BrainChip Holdings Ltd
2015 Annual Report
57
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
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20. CONTRIBUTED EQUITY (continued)
(f)
Options on issue
Unissued ordinary shares of the Company under option at 31 December 2015 are as follows:
Type
Options issued as part consideration as part of the Acquisition
Unlisted (1)
Options issued to Directors and employees (refer Note 23)
Unlisted (2)
Unlisted (3)
Unlisted (4)
Total
Expiry Date
Exercise
Price (US$)
Number of
options
10/09/2019
0.112
6,250,000
30/11/2018
21/12/2020
21/12/2020
0.161
0.258
0.172
11,000,000
250,000
10,550,000
28,050,000
The above options are exercisable at any time on or before the expiry date.
(1) 6,250,000 unlisted options exercisable at A0.157 cents per share before 10 September 2019 were issued to
a BrainChip Inc. shareholder as part of the consideration for the Acquisition on 10 September 2015.
(2) The unlisted options issued to Directors are exercisable at any time before 30 November 2018.
(3) The 250,000 unlisted options issued to consultants are exercisable after 21 December 2016 and before the
expiry date of 21 December 2020
(4) The 10,550,000 unlisted options issued to employees and consultants vest equally over a 4 year period and,
after vesting, are exercisable before 21 December 2020.
21. RESERVES
CONSOLIDATED
At 1 January 2014
Movement
At 31 December 2014
Share based
payment
reserve
Other
equity
reserve
Total
US$
US$
US$
-
-
-
-
-
-
-
-
-
At 1 January 2015
Share based payments
Shares issued to extinguish Group convertible notes
At 31 December 2015
-
1,939,902
-
1,939,902
-
-
247,872
247,872
-
1,939,902
247,872
2,187,774
Nature and purpose of reserves
Share based payment reserve
The share based payment reserve is used to record the value of share based payments provided to Directors,
employees and third parties as part of their remuneration.
Other equity reserve
This reserve arises from the issue of shares in BrainChip Holdings to extinguish the liability owing to
convertible note holders in BrainChip Inc., on 10 September 2015.
22. ACCUMULATED LOSSES
At 1 January
Net loss in current period attributable to members of the Company
At 31 December
2015
US$
2014
US$
(357,967)
(27,360,115)
(27,718,082)
-
(357,967)
(357,967)
BrainChip Holdings Ltd
2015 Annual Report
58
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
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23. SHARE-BASED PAYMENTS
(a) Recognised share-based payment expenses
Performance Rights issued to employees
Options issued to directors, employees and contractors
2015
US$
2014
US$
681,324
1,258,578
1,939,902
-
-
-
A Performance Rights Plan (PRP) and a Long Term Incentive Plan (LTIP) were adopted by Shareholders on
30 July 2015. A Directors’ and Officers’ Option Plan (DOOP) was adopted by shareholders on 4 December
2015.
Terms of the PRP and LTIP were included in the Notice of General Meeting 30 June 2015 lodged with ASX.
Terms of the DOOP were included in the Prospectus dated 10 December 2015 lodged with ASX.
(b) Performance Rights issued to employees
198,000,000 Performance Rights were approved by shareholders on 30 July 2015 to be allocated to the
shareholders of BrainChip Inc. as part consideration for the Acquisition.
Of this amount 12,000,000 Performance Rights were set aside to be issued to current and future employees at
the Board’s discretion.
Any of these Performance Rights not issued by 30 June 2018 will be issued to Peter van der Made (60%) and
Robert F. Mitro Trust (40%), subject to obtaining all required regulatory and shareholder approvals.
The following issues of Performance Rights to employees were completed since the date of the Acquisition
and up to 31 December 2015:
3,000,000 Class A Performance Rights issued and converted to shares on 10 September 2015, approved by
shareholders on 30 July 2015 at the share price of US$0.11; and
2,000,000 Class C Performance Rights issued on 21 December 2015, at a grant date fair value of US$0.17
per right.
The following table summarises the movement in Performance Rights issued to employees:
Class A Perf Rights
Class B Perf Rights
Class C Perf Rights
Class D Perf Rights
Opening
balance
1 January
2015
Issued
during the
year
Converted
during the
year
-
-
-
-
-
3,000,000
-
2,000,000
-
5,000,000
3,000,000
-
-
-
3,000,000
(c) Summary of options granted under the Long Term Incentive Plan
Type
Unissued ordinary shares of the Company under option at 31 December 2015 are as follows:
Number of
options
11,000,000
250,000
10,550,000
21,800,000
Exercise
Price (US$)
0.161
0.258
0.172
Unlisted (1)
Unlisted (2)
Unlisted (3)
Total
30/11/2018
21/12/2020
21/12/2020
4/12/2015
4/12/2015
4/12/2015
Grant Date
Expiry Date
Closing
balance
31
December
2015
-
-
2,000,000
-
2,000,000
Vested at
year end
11,000,000
-
-
11,000,000
(1) 11,000,000 unlisted options exercisable at A$0.225 per share on or before 30 November 2018 were
issued on 11 December 2015 pursuant to the Company’s Directors’ and Officers’ Option Plan as
approved by shareholders on 4 December 2015 to Directors;
(2) 250,000 unlisted options exercisable at A$0.36 per share before 21 December 2020 issued on 21
December 2015 pursuant to the Company’s Long Term Incentive Plan as approved by shareholders on
30 July 2015 to consultants; and
(3) 10,550,000 unlisted options exercisable at A$0.24 per share before 21 December 2020 issued on 21
December 2015 pursuant to the Company’s Long Term Incentive Plan as approved by shareholders on
30 July 2015 to employees and consultants.
The above options are exercisable after vesting and at any time on or before the expiry date. Vesting periods
for the above options vary.
BrainChip Holdings Ltd
2015 Annual Report
59
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
23. SHARE-BASED PAYMENTS (continued)
(d) Movements during the year
The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements
in, share options during the year:
Outstanding at 1 January
Granted during the year
Forfeited during the year
Lapsed during the year
Expired during the year
Outstanding at 31 December
Exercisable (vested and unrestricted)
at 31 December
2015
Number
-
21,800,000
-
-
-
21,800,000
11,000,000
2015
WAEP
(US$)
2014
Number
2014
WAEP
(US$)
-
0.168
-
-
-
0.168
-
-
-
-
-
-
-
-
-
-
-
-
-
The weighted average remaining contractual life for the share options outstanding at 31 December 2015 is
3.94 years (2014: Nil).
The weighted average fair value of options granted during the year was US$0.12 (2014: Nil)
The range of exercise prices for options outstanding at the end of the year was US$0.16 to US$0.26
(e) Options pricing model
The fair value of the equity-settled share options granted under the LTIP and DOOP is estimated as at the
date of grant using a Black Scholes Option Pricing model.
The following table lists the inputs to the models used for the valuation of options as at 31 December 2015:
Number of options issued
Fair values at measurement date US$
Share price at Grant Date US$
Exercise price US$
Expected volatility
Dividend yield
Risk-free interest rate (%)
Expected life of options in years
Non-
Executive
Directors
Options
11,000,000
0.11
0.17
0.16
2.72
-
2%
3.0
Consultant
Options
250,000
0.12
0.17
0.26
2.72
-
2%
5.0
Employees/
consultants
Options
10,550,000
0.13
0.17
0.17
2.72
-
2%
5.0
The expected life of the share options is based on historical data and is not necessarily indicative of exercise
patterns that may occur. The expected volatility reflects the assumption that the historical volatility over a
period similar to the life of the options is indicative of future trends, which may not necessarily be the actual
outcome.
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2015 Annual Report
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
24. COMMITMENTS
(a) Operating lease commitments - Company as lessee
Office lease
2015
US$
2014
US$
45,650
45,650
41,330
41,330
(b) Exploration commitments
In order to maintain current rights of tenure to exploration permits and licences, the entity has certain
obligations including the payment of annual fees. The following exploration permit and licence annual fees
have not been provided for in the financial report and are payable:
Within one year
2015
US$
2014
US$
28,605
28,605
-
-
25. CONTINGENT ASSETS AND LIABILITIES
The Consolidated Entity had no contingent assets or liabilities at 31 December 2015 (31 December 2014: $Nil).
26. EVENTS AFTER THE BALANCE SHEET DATE
On 1 February 2016, the Company announced it had signed a strategic joint development and marketing agreement
with Applied Brain Research (ABR), a provider of an integrated technology software platform focused on building
unified Artificial Intelligence (AI) systems.
On 18 February 2016, in a major advancement to its existing and patented SNAP (Spiking Neuron Adaptive
Processor) technology, the Company announced that its research and development team had completed
development of a unique Autonomous Feature Extraction (“AFE”) system. Utilizing the hyper-speed SNAP neural
processor, the AFE system is able to process and learn complex and overlapping real-world digital features, and
has been used on a range of input patterns and shapes.
On 23 February 2016 the Company announced that it had achieved a further significant advancement of its artificial
intelligence technology with completion of the development of an Autonomous Visual Feature Extraction system
(AVFE), an advancement of the AFE system. The AVFE system was developed and interfaced with a Dynamic
Vision Sensor (DVS) which is an artificial retina.
On 15 March 2016 the Company announced the achievement of Milestone 3 by achieving the development and
release of a Client / Server Interface Tool to its autonomously learning SNAP technology, ahead of schedule and
within budget.
BrainChip Holdings Ltd
2015 Annual Report
61
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
27. AUDITOR'S REMUNERATION
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Amounts received or due to be receivable by Ernst & Young (Australia) for:
An audit or review of the financial reports of the entity
Amounts received or due and receivable by non-Ernst & Young audit firms
for:
An audit or review of the financial report of the entity
2015
US$
2014
US$
35,105
35,105
15,500
15,500
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-
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28. OPERATING SEGMENTS
For management purposes, the Group is organised into one main operating segment, being the technological
development of designs that can be licensed to original equipment manufacturers and semiconductor
manufacturers of Chips based on Artificial Neural Networks.
All of the Group’s activities are interrelated, and each activity is dependent on the others. Accordingly, all
significant operating disclosures are based upon analysis of the Group as one segment. The financial results
from this segment are equivalent to the financial statements of the Group as a whole.
The Group does not derive revenue from any one of its investments held.
The Group has the following non-current assets from each geographic location, from where its investing
activities are managed.
Non-current assets
USA
Australia
2015
US$
101,255
2,027
103,282
2014
US$
46,806
-
46,806
BrainChip Holdings Ltd
2015 Annual Report
62
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
29.
ACQUISITION OF BRAINCHIP
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Acquisition of BrainChip
On 10 September 2015 BrainChip Holdings (formerly Aziana Limited) completed the legal acquisition of
BrainChip Inc. via a newly wholly owned Delaware based subsidiary of BrainChip Holdings named AZK
Merger Subsidiary Inc. and by way of merger in accordance with Delaware General Corporation Law.
Under the Australian Accounting Standards, BrainChip Inc. was deemed to be the accounting acquirer in this
transaction. The acquisition has been accounted for as a share based payment by which BrainChip Inc.
acquires the net assets and listing status of BrainChip Holdings resulting in the BrainChip Group.
The purchase consideration is summarised as follows:
the issue of 353 605,500 shares in BrainChip Holdings (legal parent) to the shareholders of
BrainChip Inc. in exchange for 100% ownership of the 12,551,938 shares of BrainChip Inc.
(exchange ratio of 28.17),
46,500,000 Class A Performance Rights upon the achievement of Milestone 1,
46,500,000 Class B Performance Rights upon the achievement of Milestone 2,
46,500,000 Class C Performance Rights upon the achievement of Milestone 3,
46,500,000 Class D Performance Rights upon the achievement of Milestone 4, and
6,250,000 options granted 10 September, exercisable at AUD$0.157 on or before 10 September
2019.
A further 3,000,000 of each of Classes A, B, C, and D Performance Rights were set aside for issue at the
Board’s discretion. Any of these Performance Rights not issued by 30 June 2018 will be issued to Peter van
der Made (60%) and Robert F. Mitro Trust (40%), subject to obtaining all required regulatory and shareholder
approvals.
The purchase consideration is deemed to have a value of US$26,709,755 determined as follows:
(a)
Purchase consideration
Shares on issue
Shares issued for the conversion of notes
Total number of equity instruments
Share price of BrainChip Holdings on the date of Acquisition (AUD$0.15)
Purchase consideration
US$
229,694,094
18,575,658
248,269,752
0.108
26,709,755
(b)
Fair value of assets acquired and liabilities assumed
The fair values of the identifiable assets and liabilities of BrainChip Holdings as at the date of Acquisition are:
Assets
Cash and cash equivalents (1)
Trade receivables
Receivables from BrainChip Inc.
Prepayments
Property plant and equipment
Liabilities
Trade and other payables
Provisions
Payables to third parties
Total identifiable assets at fair value
(1) Cash and cash equivalents comprises cash of US$2,327,055 and cash
previously received upon the issuance of an Option fee of US$300,185 in
accordance with the original Heads of Agreement.
(c)
Excess of deemed purchase consideration over net assets acquired
Deemed consideration
Net assets of BrainChip Holdings acquired
Listing expense
US$
2,627,240
652,451
190,210
10,283
4,805
3,484,989
330,879
20,436
35,861
387,176
3,097,813
26,709,755
(3,097,813)
23,611,942
BrainChip Holdings Ltd
2015 Annual Report
63
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
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30. RELATED PARTY DISCLOSURES
(a) Subsidiaries
The consolidated financial statements include the financial statements of BrainChip Holdings and the
subsidiaries listed in the following table:
Name
BrainChip Inc. (1)
AZK Merger Subsidiary Inc. (2)
Aziana Exploration Corporation
Eternal Resources Pty Ltd
companies
Subsidiary
Corporation
Blue Sky Corporation
Indian Ocean Minerals Investment Corporation
of Aziana
Exploration
Subsidiary companies of Blue Sky Corporation
Laka Minerals SARL (3)
Tanety Lava SARL (4)
Tanety Zina SARL (5)
Country of
incorporation
USA
USA
British Virgin
Islands
Australia
Mauritius
Mauritius
Madagascar
Madagascar
Madagascar
Beneficial interest
2015
2014
100%
-
100%
100%
100%
100%
100%
100%
100%
-
-
100%
100%
100%
100%
100%
100%
100%
Subsidiary companies of
Investment Corporation
Esama Minerals SARL
Indian Ocean Minerals
Madagascar
100%
100%
Subsidiary companies of Eternal Resources Limited
Eternal Resources (USA) Incorporated
USA
100%
100%
Subsidiary companies of Eternal Resources (USA)
Incorporated
Eternal Resources (USA) LLC
USA
100%
100%
(1) BrainChip Holdings Limited holds 100% of the shares of BrainChip Inc. effective from 10 September 2015.
(2) AZK Merger Subsidiary Inc. was incorporated as a wholly owned subsidiary of BrainChip Holdings and
merged with BrainChip Inc. in accordance with the Delaware Merger Law at the time of the Acquisition.
(3) 2% interest is held on trust on behalf of AEC by General Manager (Rija Raherimandimby = 2%)
(4) 1% interest is held on trust on behalf of AEC by General Manager (Rija Raherimandimby = 1%)
(5) 1% interest is held on trust on behalf of AEC by General Manager (Rija Raherimandimby = 1%)
(b) Ultimate legal parent
BrainChip Holdings Ltd is the ultimate parent entity.
BrainChip Holdings Ltd
2015 Annual Report
64
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
30. RELATED PARTY DISCLOSURES (continued)
(c) Key Management Personnel compensation
Refer to the Remuneration Report contained in the Directors’ Report for detailed remunerations disclosures of
payments to each member of the Group’s Key Management Personnel for the year ended 31 December 2015.
Total remuneration paid to KMP of the Group during the year are as
follows:
Short-term employee benefits (1)
Termination benefit (2)
Share-based payment
Consolidated Entity
2014
2015
US$
US$
146,206
602,012
-
216,330
-
1,205,750
2,024,092
146,206
(1) Director fees were payable to Dr Osseiran as at 31 December 2015 totalling US$11,492.
(2) Accrued termination salary payable to Mr Mitro as at 31 December 2015 totalled US$163,611.
Related party transactions with KMPs of the Group are as follows:
During the year ended 31 December 2015, the following related party transactions occurred between Mr Robert
Mitro and BrainChip Inc.:
On 3 January 2014 Mr Mitro advanced US$100 to BrainChip Inc. This amount was repaid on 2 December
2015;
Convertible notes were issued to Mr Mitro in exchange for cash in the amounts of US$50,000 on 3 January
2014, US$50,000 on 13 June 2014, and US$190,000 on 2 January 2015. Interest was payable on the
convertible notes at 4% pa. These notes and accrued interest were extinguished through the issue of
BrainChip Inc. shares on 10 September 2015.
Accrued unclaimed travel expenses in BrainChip Inc. of US$24,723 as at 31 December 2015.
On 1 January 2014 Mr van der Made received 4,500,000 shares in BrainChip Inc. valued at US$19,562 as
reimbursement of development costs incurred and the assignment to BrainChip Inc. of patent “8250011
Autonomous Learning Dynamic Artificial Neural Computing Device and Brain Inspired System” filed with the
United States Patent and Trademark Office The execution of the assignment of the patent was completed 23
July 2015.
(d) Transactions with other related parties
Mr Peter Cook is a director of Metals X Limited, which was a director-related entity up to the date of Mr Cook’s
resignation as a Director of BrainChip Holdings (10 September 2015). The following related party transactions
occurred between Metals X Limited and the BrainChip Holdings:
Accounting, secretarial and administrative services were provided to BrainChip Holdings totalling A$127,747
(2014: A$133,270) up to 10 September 2015.
BrainChip Holdings entered into a secured convertible loan agreement with Metals X Limited for A$250,000,
interest bearing at 12% and maturing in October 2015, as announced on the ASX 1 April 2015. The loan,
plus interest of A$13,233, was extinguished via the conversion of 13,161,644 shares on 24 August 2015.
(e) Loans to/from related parties
There were no outstanding loans arising to or from related parties (31December 2014: $Nil)
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BrainChip Holdings Ltd
2015 Annual Report
65
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
31. PARENT ENTITY INFORMATION
Information relating to BrainChip Holdings
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Issued capital
Other contributed equity
Accumulated losses
Share based payment reserve
Option premium reserve
Foreign currency translation reserve
Other reserves
Total shareholders’ equity
2015
US$
2014
US$
111,132
1,727,306
(101,868)
-
1,736,570
54,531,922
2,025,617
(77,694,188)
21,784,534
480,731
858,982
(251,028)
1,736,570
499,922
10,744,683
(109,397)
-
11,135,208
16,672,006
-
(3,886,454)
-
660,114
(2,310,458)
-
11,135,208
Net loss of the parent entity (1)
Total comprehensive income of the parent entity
72,674,632
69,505,192
678,860
-
(1) At the reporting date investments and loans receivable from controlled entities at cost totalled
US$43,072,198 and US$6,577,764 respectively. An impairment of US$47,924,683 was recognised for the
year ended 31 December 2015 against the loans receivable of US$6,577,764, and the investments of
$41,346,919.
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
Nil
Contingent liabilities of the parent entity
Nil
Contractual commitments by the parent entity for the acquisition of property, plant or equipment
Nil
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BrainChip Holdings Ltd
2015 Annual Report
66
Director’s Declaration
In accordance with a resolution of the Directors of BrainChip Holdings Ltd, I state that:
In the opinion of the Directors:
(a)
the financial statements and notes of the Company and of the Consolidated Entity are in accordance
with the Corporations Act 2001, including:
(i)
(ii)
giving a true and fair view of the Company's and the Consolidated Entity's financial position as
at 31 December 2015 and of their performance for the year ended on that date; and
complying with the Australian Accounting Standards (including the Australian Accounting
Interpretations) and Corporations Regulations 2001; and
the financial statements and notes also comply with International Financial Reporting Standards as
disclosed in note 2(b) and;
subject to the matters described in note 2(a), there are reasonable grounds to believe that the Company
will be able to pay its debts as and when they become due and payable; and
this declaration has been made after receiving the declarations required to be made to the Directors in
accordance with section 295A of the Corporations Act 2001 for the financial year ended 31 December
2015.
(b)
(c)
(d)
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On behalf of the Board.
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E L Bolto
Chairman
Perth, 31 March 2016
BrainChip Holdings Ltd
2015 Annual Report
67
Independent Audit Report
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BrainChip Holdings Ltd
2015 Annual Report
68
Security Holder Information as at 29 February 2016
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BrainChip Holdings Ltd
2015 Annual Report
69
Security Holder Information as at 29 February 2016
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(a) Top 20 Quoted Shareholders
Peter AJ van der Made
Robert F Mitro
Anil S & Meena A Mankar
Metals X Ltd
Nerona Pte Ltd
D’YQuem Inv Ltd
Paul G Hunter
Cristina M Mitro
Velia Mitro
Citicorp Nominees Pty Ltd
Crossfield Intech Nominees Pty Ltd
A & Moi Osseiran
BNP Paribus Nominees Pty Ltd
Neil R Rinaldi
Petroleum Management International Pty Ltd
P & R Sheth
JP Morgan Nominees Australia Pty Ltd
l
Antony Page
Roberto Crisafio
Bin Lui
Total
(b) Distribution of quoted ordinary shares
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Size of parcel
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 to 25,000,000
Total
%
18.90%
15.23%
13.70%
7.76%
6.12%
1.84%
1.69%
1.49%
1.49%
1.22%
1.12%
1.12%
1.07%
0.68%
0.60%
0.56%
0.47%
0.45%
0.45%
0.37%
Number of
shares
126,805,508
102,202,500
91,885,000
52,085,595
41,055,500
12,364,387
11,350,000
10,000,000
10,000,000
8,172,085
7,538,500
7,538,500
7,196,000
4,582,500
4,000,000
3,769,250
3,119,898
3,000,000
3,000,000
2,500,000
76.33%
512,165,223
Number of
share holders
Number of
shares
68
546
435
1,200
315
2,564
18,860
1,736,636
3,549,072
43,976,878
621,593,806
670,875,252
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(c) Number of holders with less than a marketable parcel of ordinary shares
195
232,983
(d) Substantial Shareholders
Peter AJ van der Made
Robert F Mitro
Anil S & Meena A Mankar
APAC Resources Limited & related body corporates (1)
Nerona Pte Ltd
(1) APAC has a direct holding of 7,196,000 and 52,085,595 indirectly through its interest in Metals X Ltd.
%
18.90%
15.23%
13.70%
8.83%
6.12%
Number of
shares
126,805,508
102,202,500
91,885,000
59,281,595
41,055,500
BrainChip Holdings Ltd
2015 Annual Report
70
Security Holder Information as at 29 February 2016
(e) Voting Rights
The voting rights for each class of security on issue are:
Ordinary fully paid shares
Each ordinary shareholder is entitled to one vote for each share held.
Options
The holders of options have no rights to vote at a general meeting of the Company.
Performance Rights
The holders of performance rights have no rights to vote at a general meeting of the Company.
(f) Unquoted Equity Securities
Number of Options
Exercise Price A$
Expiry Date
Number holders
6,250,000
11,000,000
10,550,000
250,000
1,500,000
15.7 cents
22.5 cents
24.0 cents
36.0 cents
23.0 cents
10/09/2019
30/11/2018
21/12/2020
21/12/2020
01/02/2021
1
3
7
1
1
Number of
Class
Milestone
Number holders
Performance Rights
13,500,000
13,500,000
49,000,000
46,500,000
Class A
Class B
Class C
Class D
Refer note 20(e)
Refer note 20(e)
Refer note 20(e)
Refer note 20(e)
1
1
9
7
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BrainChip Holdings Ltd
2015 Annual Report
71
Summary of Mining Tenements
Madagascar
Permit Holder
Tanety Lava Sarl
Tanety Lava Sarl
Tanety Zina Sarl
Tanety Lava Sarl
Tanety Lava Sarl
Tanety Zina Sarl
Tanety Lava Sarl
Esama Minerals Sarl
Esama Minerals Sarl
Esama Minerals Sarl
Esama Minerals Sarl
Esama Minerals Sarl
Esama Minerals Sarl
Tanety Lava Sarl
Tanety Lava Sarl
Tanety Lava Sarl
Tanety Lava Sarl
Tanety Lava Sarl
Tanety Lava Sarl
Esama Minerals Sarl
Esama Minerals Sarl
Tanety Lava Sarl
Tanety Lava Sarl
Tanety Lava Sarl
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* Sold pending licence transfer
Permit
Number
No. of Squares
(0.391km2)
20231*
20232*
20796
21577*
21589*
21736*
21743*
25071
25072
25073
25074
25075
25076
26218
26232*
26234*
26438*
26669*
28034*
39670
39671
39046*
39047*
39669
128
16
256
288
48
256
304
64
16
160
16
16
32
256
48
32
16
16
16
24
24
176
32
32
Issue Date
26/07/2006
26/07/2006
19/07/2006
14/09/2007
18/01/2007
18/01/2007
14/09/2007
30/04/2008
30/04/2008
30/04/2008
30/04/2008
30/04/2008
30/04/2008
16/10/2007
20/09/2007
20/09/2007
11/02/2008
11/02/2008
26/10/2007
30/06/2011
30/06/2011
26/07/2006
26/07/2006
4/11/2015
Aziana's
Interest
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
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BrainChip Holdings Ltd
2015 Annual Report
72