l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
Annual Report
2016
Corporate Directory
Board of Directors
l
y
n
o
Eric (Mick) Bolto (Non-Executive Chairperson)
Louis DiNardo (Executive Director and CEO)
Peter van der Made (Executive Director)
Julie H. Stein (Non-Executive Director, Audit Committee Chairperson)
Adam Osseiran (Non-Executive Director)
Company Secretary
Mark Pitts
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Registered Office
Level 2, 6 Thelma Street West Perth WA 6005 Australia
Telephone: +61 8 9316 9100
Facsimile: +61 8 9315 5475
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
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, BRNAB, BRNAC, BRNAD, BRNAE, BRNAJ
Contents
Chairman’s Address
Review of Operations
Directors’ Report
Auditor’s Independence Declaration
Consolidated Statement of Profit or Loss and Comprehensive Income for the Year ended 31
December 2016
Consolidated Statement of Financial Position as at 31 December 2016
Consolidated Statement of Cash Flows for the Year ended 31 December 2016
Consolidated Statement of Changes in Equity for the Year ended 31 December 2016
l
Notes to the Consolidated Financial Statements for the Year ended 31 December 2016
Director’s Declaration
Independent Audit Report
Security Holder Information as at 24 March 2017
1
2
7
28
29
30
31
32
33
73
74
78
l
y
n
o
e
s
u
a
n
o
s
r
e
p
r
o
F
Chairman’s Address
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
The Chairman’s letter to shareholders in the 2015 Annual Report welcomed the creation of a vibrant new
technology company entering a rapidly expanding market sector from a listed mining “shell”, and
acknowledged the challenges which we were facing. The tasks included identifying and focusing on early
market opportunities, developing a market approach based on solutions, identifying clients and collaboration
partners and building the management team.
We have made great strides in achieving these goals in 2016, as the operational review of this report
demonstrates.
The technical team lead by Peter van der Made and supported by Anil Mankar, put in place the technical
developments to meet milestones and create viable commercial products. To do so they identified the
importance of neural algorithms in providing the means of delivering the advantages inherent in the SNAP
core system. A group of scientists based in Toulouse, France had been working on this aspect of the
technology for over ten years and our team partnered with them in the first instance, then assessed the
significance of the two technologies working together, with the result that the company, Spikenet Technology
SAS, was acquired by Brainchip Holdings Ltd in September 2016. This has accelerated BrainChip’s speed to
market and widened the early scope of the SNAP technology in terms of viable commercial products.
The difficult task of integrating the two teams and technologies has been achieved over the past six months,
with significant contributions from the management and technical staff in France. The commercial markets
now readily available are described in the operational review, but I would like to pay tribute to the technical
teams in carrying this out.
Another key target for the Company was to appoint a CEO to replace Peter van der Made who had been
carrying the burden of this role on an interim basis as well as being the Chief Technology Officer. We were
looking for a person with experience and standing in the semi-conductor industry, track record as a CEO with
large and complex companies having a US base and global reach, and a leader to inspire and motivate our
management, scientists, customers and stakeholders. In September 2016 the Company appointed Lou
DiNardo after an intensive and well-researched recruitment program managed by one of the world’s leading
recruitment firms, and he has shown his abilities in all of these areas.
Lou has spearheaded the transition of the Company in many ways, including the establishment of a corporate
base in San Francisco, California U.S., introducing the Company to his networks in the industry, and with the
further team appointments referred to in the Operational Review.
Another significant development was the appointment of San Francisco based Julie H. Stein to the Board of
the Company in November 2016. Julie’s qualifications and experience are set out in the Operational Review.
She brings financial, business and investment, and governance skills and has proved invaluable firstly in
chairing the Audit Committee with the complex process involving multiple jurisdictions and acquisitions, and
secondly in providing support to our executive team.
Julie’s appointment coincided with the resignation of Neil Rinaldi, who was a director of the Company prior to
its transformation, and served the Company admirably since then. I recognise and thank Neil for his
contribution.
In January 2017 we welcomed Mark Pitts as the new company secretary, following the resignation of Nerida
Schmidt. Nerida provided excellent guidance and support to BrainChip through the difficult period of transition,
and dealt with all issues in a thoroughly professional and patient manner.
I would also like to thank the group of shareholders who supported the two fundraisings undertaken during the
2016 year, which provided the ongoing financial strength to enable the Company to progress.
Finally, I would like to recognise the contributions made by my fellow directors and all team members and
consultants, who have helped to create what I believe is a bright future for the Company.
Yours faithfully
E L (Mick) Bolto
Chairman
BrainChip Holdings Ltd
2016 Annual Report
1
Review of Operations
During 2016, BrainChip took significant steps to develop a strategic plan that focuses on market selection,
product definition, research and development and building a team that can execute a sound commercialization
strategy. We have field proven software and algorithms, an extensive new product pipeline that will bring SNAP
technology to the forefront of best-in-class Artificial Intelligence solutions, and a growing list of marquee
customers and partners:
l
y
n
o
e
s
u
l
Markets Selection
a
n
o
s
r
e
p
r
o
F
The market for Artificial Intelligence solutions is broad. Current solutions include Deep Learning, which
currently requires extremely large data sets and long training regimens, Autonomous Supervised Learning for
feature extraction and pattern recognition with small sample sets, and Autonomous Unsupervised Learning
when no sample set exists. With our proprietary Spiking Neural Network, BrainChip excels in Autonomous
Learning (Supervised or Unsupervised). Our significant competitive advantages are based on the combination
of well-developed algorithms and our hardware-based processor. Most important of these advantages is the
speed at which we can extract a feature or identify a pattern within a very small sample set. From a single
screen-shot we can review in real-time, or from storage of many hours of video or images, and identify a face
or pattern with great accuracy.
BrainChip has made the decision to focus our sales and marketing effort initially on visual applications in Civil
and Commercial Surveillance as well as Machine Learning. This decision is based on the large size of the
market, the mission critical and immediate demands presented by the threat of terrorism and crime, and
manufacturing efficacy. Our SNAP technology is also well suited for applications in FinTech (Financial
Technology) such as commodities and high-frequency trading analysis as well as High Performance
Computing (HPC) for data analysis in genomics, seismic analysis, natural resource extraction and
cybersecurity.
Civil Surveillance
Civil Surveillance includes Autonomous Feature Extraction (AFE) and Pattern Recognition for Law
Enforcement and Homeland Security, Airport Security, as well as School Campus Security. BrainChip has
existing customers in each of these categories including the Paris Department of Municipal Law Enforcement
and the French Department of Homeland Security (the DHS). Our work with the DHS has resulted in their
issuance of a strong formal endorsement for the Company’s Facial and Pattern Recognition products. During
2016 we built upon this endorsement and added new capabilities that serve their critical requirements in
fighting the threat of terrorism. We continue to work with the DHS to add improvements in facial recognition
and real-time analysis of live video streams.
BrainChip Holdings Ltd
2016 Annual Report
2
Review of Operations
l
y
n
o
l
a
n
o
s
r
e
p
We also have existing customers in the Airport Security sector. In Bordeaux, France, BrainChip serves the
requirements for perimeter intrusion and airplane security at the Bordeaux-Merignac Airport. Our early
success in servicing these needs has resulted in a strong formal endorsement from this customer. Also, in
Geneva, Switzerland we serve the requirements of the Operations Centre for Passenger and Restricted Area
Surveillance at the Geneva International Airport.
Finally, in 2016, BrainChip made significant inroads into the area of School Campus Security. We currently
have one school in New York, U.S., and another municipal school district in New York, U.S., where technical
specifications are being reviewed. Deployment for these customers is expected in 2017.
Commercial Surveillance
e
s
u
Commercial Surveillance includes Casino Gaming, Advertising Tracking, Consumer Behavior, and Vehicle
Detection. In 2016, BrainChip added customers in the Casino Gaming market. The first of these customers,
located in Las Vegas, Nevada, U.S, is one of the largest casinos within the MGM Group (the MGM Group is
one of the largest owners of casinos in North America). BrainChip added another significant Casino Gaming
customer in 2016, Mohegan Sun, located in Uncasville, Connecticut, U.S. Mohegan Sun is one of the largest
independent casino operators in the U.S. We have received numerous inquiries about our Game Outcome
solution from casino operators around the world and we are pursuing new opportunities in this space. Our
Game Statistics solution will be aggressively marketed to new and existing customers in 2017. We estimate
that there are over 2,600 casinos worldwide and over 50,000 gaming tables that would benefit from the use of
BrainChip solutions.
In 2016, BrainChip advanced its involvement in the Vehicle Detection arena. The Company is currently
collaborating with the Cisco Internet Innovation Center and Curtain University in Western Australia (CIIC) on
a two-phase project. Phase 1 involves vehicle detection and identification. Phase 2 involves an in-vehicle
camera to help drivers better understand their driving behavior and habits. This project is underway and on
schedule. In addition to our work with Cisco, we are working with major automobile manufacturers and/or their
suppliers on the potential deployment of our technology in conjunction with their development of autonomous
vehicles and Advanced Driver Assistance Systems (ADAS).
Machine Learning
Machine Learning includes Machine Vision and a host of other opportunities in data analytics for financial
transactions, genomics, seismic, natural resource analytics and cybersecurity. In 2016, the Company made
important advances with regard to Machine Vision. Specifically, we are engaged with customers that require
visual inspection for high volume manufacturing as well as mission critical assemblies. Safran, headquartered
in Paris and one of France’s largest industrial companies in the aeronautics sector, uses our Autonomous
Feature Extraction (AFE) and Pattern Recognition competency in a complex assembly process to ensure
quality and reliability of the system. Our current strategy is to expand our presence in Machine Learning and
Visual Inspection with the development of autonomous drones that can inspect infrastructure and large
facilities as well as transportation of products in the natural resources industry.
r
o
F
BrainChip believes that there are numerous other opportunities for the Company to pursue in the natural
resources industry. In order to advance this agenda, we signed an agreement in 2016 with Advisian, a
consulting group within the WorleyParsons Corporation. The objective of this agreement is to explore and
capitalise on important opportunities for our SNAP technology. As our hardware solution, SNAPvision,
becomes available in 2017, and this market will be a major focus.
BrainChip Holdings Ltd
2016 Annual Report
3
Review of Operations
Product Definition
On 15 September 2016, BrainChip announced the acquisition of Spikenet Technology, located in Toulouse,
France. Spikenet has been a provider of software-based neural networking technology since its inception in
1999. The company has well developed relationships in Civil Surveillance, Commercial Surveillance, and
Machine Vision. The purpose of the acquisition was to accelerate BrainChip’s product development plan by
integrating the Spikenet algorithms with the BrainChip Spiking Neural Adaptive Processor (SNAP) and learning
rules. BrainChip is well positioned to demonstrate leadership products in a broad range of Artificial Intelligence
applications. The Company’s product road map is depicted as follows:
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
The integration of these technologies will provide a unique high-speed, low-power image and video processing
platform for Autonomous Feature Extraction (AFE) and pattern recognition applications. The culmination of
this integration will result in a Field Programmable Gate Array (FPGA) SNAP solution that covers a wide-range
of complexity and cost points. BrainChip has defined a 4-Channel, 8-Channel and 16-Channel family of
products that are PCIe plug-in cards for Linux or Windows video servers which should open up a wide variety
of potential customers to the Company. A representation of the BrainChip FPGA is depicted in the figure below:
r
o
F
Illustration only – implemented on an FPGA
BrainChip Holdings Ltd
2016 Annual Report
4
Review of Operations
Research and Development
Research and Development (R&D) includes neuromorphic semiconductor development and neural computing,
algorithm development, software, and hardware development as well as integration engineering. BrainChip
now has two design centers in which the Company’s R&D activities take place. The first center is in Toulouse,
France where we have a team of highly skilled engineers that focus on algorithm and software development.
This team has developed Facial and Pattern Recognition technology that has been commercially deployed
and is based on several generations of development. The second R&D center is located in Aliso Viejo,
California, U.S. This team comprises a similarly highly skilled group of engineers who focus on neuromorphic
semiconductor technology, hardware development and system solutions. During 2016 and continuing in 2017,
we will add significant resources in all areas of R&D.
In the first quarter of 2017, we announced an exclusive license to next-generation learning rules (JAST) and
hardware implementation for the CERCO Mind and Brain Cognition Research Center in Toulouse, France.
This exclusive license provides BrainChip a new platform for Autonomous Unsupervised Learning. This
technology will be implemented on the BrainChip SNAP solution. The result of this integration will be an
unparalleled capability for real-time analytics of video and images, audio, and other data streams.
Human Resources
Human Resources includes the establishment of a management team, recruiting and retaining top engineering
talent and strengthening our Board of Directors. During 2016, management and the Board of Directors has
focused on recruiting a full management team and expanding the skill sets already represented on the
Company’s Board of Directors. The Company currently employs 24 people and has added senior engineering
talent in Aliso Viejo, California, U.S. and Toulouse, France, all of which have significant experience in their
respective areas.
Management and Professional Staff
In the fourth quarter of the year, I was hired as CEO of the Company, relieving Peter van der Made who
performed the CEO role on an interim basis in concert with his other permanent responsibilities as the Chief
Technology Officer.
BrainChip also added a US-based senior finance professional to its team this year, Cossette Drossler. Ms.
Drossler joined the Company in November of 2016 as Vice President of Finance and Administration. Ms.
Drossler has 30 years of experience as a finance and accounting executive in the San Francisco Bay Area,
California U.S.
In the first quarter of 2017 the Company hired Robert Beachler who has joined the Company as Senior Vice
President of Marketing and Business Development. Mr. Beachler, a Silicon Valley veteran with over 30 years
of success in developing and marketing cutting-edge technologies, is an important hire in support of the
Company’s mission for growth. His background includes more than 16 years of experience in a variety of
engineering and marketing roles at Altera Corporation, a leading provider of Field Programmable Gate Arrays
(FPGA) products which was acquired by Intel Corporation in 2015 for over US$16 billion. He has also served
as Vice-President of Marketing, Operations, and Systems Design at Stretch Inc., a provider of embedded video
processing solutions up until its acquisition by Exar Corporation. While at Exar, Mr Beachler served as Vice
President of Corporate Marketing and Business Development. Most recently, Mr. Beachler served at Xilinx
Corporation, the leading worldwide independent provider of FPGA products where he led the marketing of
imaging, video and machine learning solutions for industrial, scientific, and medical markets.
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2016 Annual Report
5
Review of Operations
Board of Directors
In November of 2016, the Board of Directors recruited Julie H. Stein, a highly seasoned, US-based finance
professional. Ms. Stein began her career at Goldman Sachs in 1981. Subsequently, she joined the investment
banking firm of Salomon Brothers. She co-founded the investment and development firm of SKS Investments
in 1992 and successfully executed a series of joint ventures with major global institutional investors. Over the
course of her career, Ms. Stein has been involved with the underwriting, negotiating, structuring and/or
placement of financial transactions aggregating over US$10 billion. In addition to holding a number of
advanced degrees, Ms. Stein is a National Association of Corporate Directors (NACD) Leadership Fellow and
holds a Certificate from Stanford University Directors' College.
l
y
n
o
Conclusion
e
s
u
In summary, BrainChip made significant progress in 2016. The Company has developed a solid strategic plan
with regard to market selection, product definition, technology development and building a team designed for
commercialisation and growth. The Company has made important practical advances in each of these areas
in 2016, putting BrainChip in an excellent position for growth in 2017. Importantly, we have global leaders
working with us to define products and we have an excellent design team. We are now building a best-in-
class sales and marketing organization to drive further commercialisation and revenue growth.
l
Sincerely,
Louis DiNardo
BrainChip
President and Chief Executive Officer
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2016 Annual Report
6
Directors’ Report
The Directors submit their report of the consolidated entity, being BrainChip Holdings Ltd (“BrainChip Holdings”
or “Company”) and its controlled entities (“Group”), for the year ended 31 December 2016.
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:
Non-Executive Chairman
Executive Director (appointed 9 December 2016)
Eric (Mick) Bolto
Louis DiNardo
Peter van der Made Executive Director
Adam Osseiran
Julie H. Stein
Neil Rinaldi
Non-Executive Director
Non-Executive Director (appointed 14 November 2016)
Non-Executive Director (resigned 14 November 2016)
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
Mark Pitts
appointed 14 December 2015; resigned 9 January 2017
appointed 9 January 2017
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
On 1 September 2016 the Company completed the acquisition of Spikenet Technology SAS (“Spikenet”), a
revenue-producing, France-based Artificial Intelligence (AI) company and leader in computer vision technology
(first announced by the Company on 30 June 2016). The Company issued 10,405,488 shares and paid
€529,598 cash to the vendors of Spikenet pursuant to a Share Sale Agreement dated 25 August 2016 as
consideration for the acquisition of 100% of the shares of Spikenet.
In December 2016 the Group divested the subsidiaries which held the exploration assets within Madagascar.
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 21 employees at 31 December 2016 (2015: 6).
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2016 Annual Report
7
Directors’ Report
DIVIDENDS
No dividends have been paid or declared by the Company during the financial year or up to the date of this
report.
l
y
n
o
1)
2)
e
s
u
l
a
n
o
s
r
e
p
r
o
F
REVIEW OF OPERATIONS
Operating Results
The Group made a net loss after income tax for the year of US$4,855,614 (2015: US$27,360,115).
The loss from ordinary activities attributable to members decreased due to:
Increased research and development costs as a direct result of the newly acquired subsidiary, Spikenet,
and increased number of technical employees in the USA;
Increased administrative expenses which are a result of:
a)
increased consulting and professional costs, supporting management’s effort to reach BrainChip’s
operating milestones; and
the acquisition of Spikenet after capital raising efforts.
b)
Administrative expenses also increased due to a full year of corporate compliance expenditure being
incurred in the current year as compared with the post-acquisition period in the comparative year.
3) The comparative period includes 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).
4) Share based payment expense of $1,075,382 (2015: $1,939,902) which represents the value of options
and performance rights issued to directors, employees and consultants that have vested during the
reporting period.
At the end of the financial year the Group had consolidated net assets of US$5,509,106 (2015: net assets
US$1,736,570), including cash reserves of US$3,593,951 (2015: US$1,393,869).
Cash of US$7,035,885 was injected into the Group as a result of capital raising efforts and has been used to
further advance the BrainChip technology, as well as complete the Spikenet acquisition and fund the
extinguishment of various loans and advances held by Spikenet. BrainChip also received $493,337 from the
sale of various exploration tenements during the reporting period.
Overall there has been an increase in the amount of cash spent in operating activities to US$3,314,026 (2015:
US$1,886,504) as noted in the Statement of Consolidated Cash Flows, which reflects the increased research
& development and administrative work completed in acquiring Spikenet and transitioning the Group forward
to meet realigned strategies.
Managing the risks to our growth strategies
In developing our strategy, the Board undertook a comprehensive risk review to identify the key risks to
our business. The review included an internal and external stakeholder analysis that identified the diverse
needs of our various stakeholders and the potential risks to our business if those needs are not met. This
analysis is updated annually and is noted in the next table:
BrainChip Holdings Ltd
2016 Annual Report
8
Directors’ Report
Risk
Response
Execution in new product
including
development
definition,
product
and
research
development.
Cost
Structure
hardware products.
for
strong
Key Human Resources in
Sales and Marketing that
technical
have
skills, an understanding of
and marketing
sales
process
complex
solutions.
for
The Group has taken several steps to mitigate the risk regarding
product definition, research and development. The acquisition of
Spikenet provides additional engineering resources as well as active
customer engagements which support the product definition process.
The Group has added incremental engineering resources in Aliso
Viejo, California, USA. The Group has hired a veteran semiconductor
CEO and a veteran semiconductor Senior Vice President of Marketing
and Business Development to mitigate the risk regarding product
definition and product development.
The Group has taken steps to evaluate the minimum required Field
Programmable Gate Array (FPGA) to reduce cost for specific use
cases and is evaluating the efficacy of multiple products and varying
price points based on the Cost of Goods.
The Group has recruited and retained a veteran semiconductor
professional as Senior Vice President of Marketing and Business
Development and has planned for adequate funding in cash
compensation as well as equity compensation to secure top-tier sales
and marketing talent.
requirements
Capital
to
fund development and
commercialisation through
profitability.
The Group has a continuous process to evaluate capital requirements.
The process includes the quarterly review of an annual budget with the
Board of Directors as well as regular communication with financial
advisors to stay apprised of capital market conditions.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS
It is expected that the Group will further develop its SNAP technology and licensing of the SNAP technology
designs with potential technology partners.
Further information regarding likely developments are described in more detail in the Review of Operations
above.
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2016 Annual Report
9
Directors’ Report
SHARE ISSUES
The following share issues of the Company were completed during the financial year and to the date of this
report:
l
y
n
o
e
s
u
l
• 35,500,000 shares issued on conversion of Class C Performance Rights on attainment of Milestone 3
on 8 April 2016;
• 4,526,634 shares issued at an issue price of A$0.15 per Share in accordance with the non-
Renounceable Rights Issue to raise A$678,996 on 18 May 2016;
• 11,666,668 shares issued at an issue price of A$0.15 per Share in accordance with Underwriting
Agreements to raise A$1,750,000 on 25 May 2016;
• 10,976,284 shares issued at an issue price of A$0.15 per Share in accordance with Shortfall
Agreements to raise A$1,646,443 on 16 June 2016;
• 10,405,488 shares issued at an issue price of A$0.12 per Share as part consideration for the purchase
of Spikenet Technology SAS on 1 September 2016;
• 100 shares issued at an issue price of A$0.14 per Share in accordance with the Prospectus dated 1
September 2016 on 5 September 2016;
• 29,750,000 shares issued at an issue price of A$0.18 per Share pursuant to a private placement to
institutional and sophisticated investors raising A$5.335m and issued on 1 November 2016; and
• 34,500,000 shares issued on 22 December 2016 on conversion of Class A, B and C Performance
Rights, milestones of which had been attained and announced previously.
SHARE OPTIONS
As at the date of this report, there were 98,650,000 unissued ordinary shares under option.
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 term of the
options.
The following options were issued during the financial year and to the date of this report:
• 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;
• 50,000,000 unlisted options exercisable at A$0.225 per share before 30 September 2021 issued
pursuant to the Company’s Long Term Incentive Plan as approved by shareholders on 30 July 2015
to the CEO on 30 September 2016. 27,000,000 of these options have specific performance criteria
linked to the attainment of these options;
• 4,000,000 unlisted options exercisable at A$0.15 per share before 10 October 2021 issued pursuant
to the Company’s Long Term Incentive Plan as approved by shareholders on 30 July 2015 to
employees on 10 October 2016;
• 2,000,000 unlisted options exercisable at A$0.27 per share before 10 October 2021 issued pursuant
to the Company’s Long Term Incentive Plan as approved by shareholders on 30 July 2015 to
employees on 10 October 2016;
• 7,000,000 unlisted options exercisable at A$0.18 per share before 1 November 2019 issued to
Foster Stockbroking Pty Ltd as consideration for acting as Sole & Exclusive Lead Manager to the
Placement announced on ASX on 26 October 2016. These options will vest when the share price is
trading at 150% of the exercise price ie. $0.27 (based on 30 day VWAP) for 30 consecutive trading
days;
• 4,000,000 unlisted options exercisable at A$0.24 per share before 22 December 2021 issued
pursuant to the Company’s Long Term Incentive Plan as approved by shareholders on 30 July 2015
to employees on 22 December 2016;
• 6,000,000 unlisted options exercisable at A$0.245 per share before 31 December 2022 issued
pursuant to the Company’s Long Term Incentive Plan as approved by shareholders on 30 July 2015
to employees on 16 February 2017;
BrainChip Holdings Ltd
2016 Annual Report
10
a
n
o
s
r
e
p
r
o
F
Directors’ Report
• 1,000,000 unlisted options exercisable at A$0.33 per share before 16 February 2022 issued
pursuant to the Company’s Long Term Incentive Plan as approved by shareholders on 30 July 2015
to employees on 16 February 2017; and
• 100,000 unlisted options exercisable at A$0.32 per share before 16 February 2022 issued pursuant
to the Company’s Long Term Incentive Plan as approved by shareholders on 30 July 2015 to
employees on 16 February 2017.
No options were cancelled or lapsed or converted to shares in BrainChip Holdings during the financial year:
The following options were forfeited during and since the end of the financial year:
• 5,000,000 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 on 21 December 2015.
PERFORMANCE RIGHTS
As at the date of this report, there were 56,000,000 Performance Rights on issue.
The following Performance Rights were issued during the financial year and to the date of this report:
• 500,000 Class C Performance Rights issued pursuant to the Company’s Performance Rights Plan as
approved by shareholders on 30 July 2015 to employees 1 February 2016.
• 2,000,000 Class D Performance Rights issued pursuant to the Company’s Performance Rights Plan
as approved by shareholders on 30 July 2015 to employees on 30 September 2016
• 1,000,000 Class B Performance Rights issued pursuant to the Company’s Performance Rights Plan
as approved by shareholders on 30 July 2015 to employees on 10 October 2016; and
• 500,000 Class C Performance Rights issued pursuant to the Company’s Performance Rights Plan as
approved by shareholders on 30 July 2015 to employees on 10 October 2016.
The following Performance Rights were converted during the financial year:
• 35,500,000 Class C Performance Rights on 8 April 2016 on the attainment of Milestone 3; and
• 34,500,000 Class A, B and C Performance Rights on 22 December 2016, milestones of which had
been attained and announced previously.
SIGNIFICANT EVENTS AFTER THE BALANCE DATE
No matters or circumstances have arisen since the end of the financial year which significantly affected or may
significantly affect the operations of the Consolidated Entity, the results of those operations, or the state of
affairs of the Consolidated Entity in subsequent financial years.
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2016 Annual Report
11
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Directors’ Report
ENVIRONMENTAL REGULATION AND PERFORMANCE
The Group’s operations were 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 28 March 2017 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.
Louis DiNardo, BA – Executive Director (Appointed 9 December 2016) and CEO
Mr DiNardo has a strong track record of growing publicly listed and privately owned technology businesses,
and has worked in venture capital firms where he has successfully backed a number of emerging technology
companies. He is currently a board member of NYSE-listed Quantum Corp., a data management company;
and Conexant, a privately held fabless semiconductor company based in California, USA. Some of his recent
past roles include the President and Chief Executive Officer (CEO) of Exar Corporation, where he was credited
for turning around the underperforming NYSE-listed mid-cap semiconductor company by revamping the
management team, cutting operating expenses and growing revenue and profit. His efforts helped Exar
achieve 16 consecutive quarters of revenue and EPS growth. Before Exar, Mr DiNardo was responsible for
investing in and overseeing a portfolio of companies, including programmable logic companies, while he
served as a partner at Crosslink Capital from 2008 to 2012 and the Managing Director at Vantage Point Venture
Partners from 2007 to 2008. Mr DiNardo also served as President and Chief Executive Officer, as well as Co-
Chairman of the Board of Directors, at Xicor Corporation from January of 2001 until NASDAQ-listed Intersil
Corp acquired the company in July of 2004. He subsequently held senior executive positions at Intersil and
became its President and Chief Operating Officer.
Mr DiNardo is currently a board member of NYSE-listed Quantum Corp and in the past three years has held a
public company directorship as President and Chief Executive Officer (CEO) of NYSE-listed Exar Corporation.
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.
BrainChip Holdings Ltd
2016 Annual Report
12
Directors’ Report
INFORMATION ON DIRECTORS (Continued)
Names, qualifications, experience and special responsibilities (continued)
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
Julie H. Stein, BA, MA, MBA, NACD Leadership Fellow – Non-Executive Director (Appointed 14 November
2016)
Ms Stein began her career at Goldman Sachs in 1981. Subsequently, she joined the investment banking firm
of Salomon Brothers. She co-founded SKS Investments in 1992 and successfully executed a series of joint
ventures with major global institutional investors. Over the course of her career, Ms. Stein has been involved
in the underwriting, negotiating, structuring and/or placement of financial transactions aggregating over $10
billion ($US). Ms Stein holds a B.A. and M.A. from the University of Pennsylvania and an M.B.A. from
Columbia University. She is a National Association of Corporate Directors (NACD) Leadership Fellow and
holds a Certificate from Stanford University Directors’ College. Ms Stein also serves as the Chair of the
Company’s Audit Committee.
Ms Stein has held no other public company directorships in the past three years.
Adam Osseiran, A/Prof – Non-Executive Director (Appointed 10 September 2015)
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 on the Company’s Audit Committee.
Dr Osseiran has held no other public company directorships in the past three years.
Neil Rinaldi – Non-Executive Director (Appointed 12 June 2013, resigned 14 November 2016)
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. 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 served
on the Company’s Audit Committee until his resignation.
Mr Rinaldi has held no other public company directorships in the past three years.
r
o
F
BrainChip Holdings Ltd
2016 Annual Report
13
Directors’ Report
COMPANY SECRETARY
Mark Pitts BBus FCA GAICD - Company Secretary (appointed 9 January 2017)
Mr Pitts holds a Bachelor of Business from Curtin University, is a Fellow of the Institute of Chartered
Accountants in Australia and is a member the Australian Institute of Company Directors. Mr Pitts has over 30
years professional experience in commercial, corporate finance and public practice roles in Australia and has
consulted to a number of public Companies holding Directorships and senior financial management positions.
Mr Pitts is a Partner in corporate advisory firm Endeavour Corporate providing company secretarial support,
financial services, governance and compliance advice to a number of public companies.
l
y
n
o
a
n
o
s
r
e
p
r
o
F
Nerida Schmidt - Company Secretary (appointed 14 December 2015; resigned 9 January 2017)
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 stockbroking firm Paterson Ord Minnett
and a member of the taxation and corporate recovery divisions of public accounting firm Arthur Andersen.
e
s
u
l
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
L DiNardo
Fully Paid
Ordinary
Shares
Options over
Ordinary Shares
Performance
Rights
-
-
5,000,000 (1)
-
50,000,000 (2)
2,000,000 (3)
P Van der Made
161,305,508
-
-
-
19,500,000 (4)
-
8,438,500
2,000,000 (1)
900,000 (5)
169,744,008
57,000,000
22,400,000
J Stein
A Osseiran
Total
(1)
These options are exercisable at A$0.225 before 30 November 2018.
(2) These options are exercisable at A$0.225 before 30 September 2021. 27,000,000 of these options have specific
performance criteria linked to the attainment of these options.
(3) Mr DiNardo holds 2,000,000 Class D Performance Rights.
(4) Mr van der Made holds 6,000,000 Class C Performance Rights and 13,500,000 Class D Performance Rights. Mr van
der Made also currently holds an interest in 1,200,000 Class B Performance Rights and 600,000 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).
(5) Dr Osseiran holds 900,000 Class D Performance Rights.
BrainChip Holdings Ltd
2016 Annual Report
14
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:
Directors Meetings
Audit Committee
Meetings
Eligible to
attend
Attended
Eligible to
attend
Attended
E Bolto
L DiNardo (Appointed 9 December 2016)
P van der Made
J Stein (Appointed 14 November 2016)
N Rinaldi (Resigned 14 November 2016)
A Osseiran
10
-
10
1
8
10
10
-
10
1
8
10
1
-
-
-
1
1
1
-
-
-
1
1
Committee Membership
The Company has an Audit Committee of the Board of Directors with the following members:
This remuneration report for the year ended 31 December 2016 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.
J Stein (Chair) (appointed 14 November 2016)
E Bolto
A Osseiran (resigned as Chair 14 November 2016)
N Rinaldi (resigned 14 November 2016)
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 and performance rights 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
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2016 Annual Report
15
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
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
E Bolto
L DiNardo (1)
Non-Executive Chairman
Executive Director & Chief
Executive Officer
3 August 2015
30 September 2016
-
-
P van der Made (2)
J Stein
A Osseiran
N Rinaldi
Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
10 September 2015
14 November 2016
10 September 2015
12 June 2013
-
-
-
14 November 2016
Other Key Management Personnel
A Mankar
N Drossler
H DoDuy (3)
Chief Operating Officer
VP Finance & Administration
President: Spikenet Technology
SAS
1 October 2014
9 December 2016
1 September 2016
-
-
-
(1) Mr DiNardo was appointed as CEO on 30 September 2016, and Executive Director on 9 December 2016.
(2) Mr van der made was acting CEO from 10 September 2015 to 30 September 2016.
(3) Mr DoDuy was President of Spikenet at the time of the acquisition of that company.
On 21 March 2017, Mr Robert Beachler was appointed to the position of Senior Vice President of Marketing
and Business Development. There were no other changes to key management personnel after the reporting
date and before the date the financial report was authorised for issue.
r
o
F
BrainChip Holdings Ltd
2016 Annual Report
16
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
2. Remuneration governance
Remuneration Committee
l
y
n
o
e
s
u
a
n
o
s
r
e
p
r
o
F
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.
l
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.
Structure
The remuneration of non-executive directors consists of director’s fees. Non-executive 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.
The Non-Executive Chairman receives a base fee of A$80,000 per year and each other non-executive director
receives a base fee of A$50,000 per year, unless otherwise approved by the Board. The Audit Committee
Chair receives an additional fee of A$15,000 per year.
BrainChip Holdings Ltd
2016 Annual Report
17
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
4. Executive remuneration arrangements
Remuneration Policy
The Company aims to reward executives with a level and mix of remuneration commensurate with their position
and responsibilities within the Company.
The remuneration package of the CEO is linked to the Company’s financial performance. The CEO received
3 tranches of performance options at his date of employment which are linked to attainment of certain
performance criteria.
The current remuneration policy adopted is that, other than the CEO remuneration package, no element of
any other executive package is required to be directly related to the Company’s financial performance.
Generally, 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).
l
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 or prior years.
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 share 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.
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 but before the exercise or conversion 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 but before the exercise or conversion 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.
l
y
n
o
e
s
u
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2016 Annual Report
18
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
5. Options and performance rights granted as part of remuneration
(a) Options and performance rights with linked performance criteria
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
The Board of Directors has full discretion in approving specified performance criteria linked with options and
performance rights granted to Key Management Personnel with the intention to align management with
shareholders and reward the execution of corporate strategies that will increase shareholder wealth.
Options and performance rights with linked performance criteria were issued to the CEO, Mr Lou DiNardo, as
approved by the Board of Directors. The performance criteria were selected as they establish specific goals
that support adequate capitalisation of the Company, execution of previously established Milestones, and
introduction and commercialisation of products that support BrainChip’s strategic plan.
Details of Options over ordinary shares in the Company provided as remuneration with linked performance
conditions are as follows:
31
December
2016
Directors
L DiNardo
Year Options
awarded
during
the year
Grant
Date
Vesting
criteria
Fair
value
per
option
^
Total Fair
Value
Exercis
e price
per
option
Expiry
date
Options
vested
during
the year
Options
lapsed
during
the year
(Number)
(US$)
(US$)
(US$)
(Number)
(Number)
2016 27,000,000 28/09/2016
refer table
below
$0.064
1,719,474
$0.161 30/09/2021
-
-
^ For details on valuation of the options, including models and assumptions used, please refer to note 23.
The performance criteria of the above Performance Options issued is as follows:
Tranche
Number of
Options
awarded
Grant
Date
Performance criteria
Vesting period
Tranche 1 15,000,000
28/09/2016
Upon the Company raising funds necessary to
attain Milestone 4 of the Share Purchase
Agreement dated 10 September 2015
Tranche 2
6,000,000
28/09/2016
Upon the announcement to the ASX by BrainChip
of an unconditional binding licensing or
commercial agreement that has an obligation to
pay a license fee of US$500,000 in accordance
with an agreed timetable
25% over 4 year period
from achievement of
the performance
criteria.
25% over 4 year period
from achievement of
the performance
criteria.
Expiry
date
30/09/2021
30/09/2021
Tranche 3
TOTAL
6,000,000
28/09/2016
27,000,000
Commercial introduction of the PCle SNAPvision
solution. “Introduction” means a fully qualified
card with all supporting collateral material
including a User’s Manual.
25% over 4 year period
from achievement of
the performance
criteria.
30/09/2021
Details of Performance Rights over ordinary shares in the Company provided as remuneration to each Key
Management Personnel, of which there are performance conditions linked, are set out in the tables below:
31
December
2016
Class D Performance Rights
Year
Performance
rights awarded
during the year
(Number)
Grant Date
Fair value per
performance
right at grant
date
(US$)
Performance criteria
Number
vested
L DiNardo
2016
2,000,000
28/09/2016
0.08
The announcement to the ASX by BrainChip
of an unconditional binding licensing
agreement that has an obligation to pay a
license fee of US$500,000 in accordance
with an agreed timetable (Milestone 4).
-
BrainChip Holdings Ltd
2016 Annual Report
19
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
5. Options and performance rights granted as part of remuneration (continued)
(b) Options and performance rights with no linked performance criteria
Options were also issued to Key Management Personnel with no performance criteria however included a
service condition of a 4 year vesting period from the date of issue of the options to encourage the retention of
staff. Details of these Options over ordinary shares in the Company are set out in the table below:
Year
Options
awarded
during the
year
(Number)
Grant
Date
Vesting
Date
Fair
value
per
option
^
Total Fair
Value
Exercise
price
per
option
Expiry
date
Options
vested
during
the year
Options
lapsed
during
the year
(US$)
(US$)
(US$)
(Number) (Number)
2016
23,000,000
28/09/2016 30/09/2020
$0.064
1,461,607
$0.161
30/09/2021
2016
4,000,000
14/12/2016 14/12/2020
$0.136
545,526
$0.180
22/01/2021
-
-
-
-
^ For details on valuation of the options, including models and assumptions used, please refer to note 23.
l
y
n
o
31
December
2016
Directors
L DiNardo
N Drossler
e
s
u
6. Company performance and the link to remuneration
l
a
n
o
s
r
e
p
r
o
F
The actual remuneration earned by Executives and Non-executives in the 2016 year is set out in section 7 of
this report. Shareholders can see the remuneration earned and the value ascribed to share based payments
which vested during the year.
Remuneration, in the form of share based payments, awarded to Executives has in the past been largely in
recognition of the service provided, however as outlined in section 5 of this report the award of Options to Mr
DiNardo in 2016 was made with over half the award being subject to specific performance criteria.
The BrainChip Holdings LTIP and DOOP do not have direct performance requirements built into the plans but
rather the Board has the ability to add performance criteria as appropriate to the specific terms as and when
options or performance rights are issued.
The granting of options and performance rights is carried out to encourage retention and, is in substance, a
performance incentive which allows executives to share the rewards of the success of the Company.
The table below shows the performance of the Group as measured by its share price over the past three years.
The movements illustrated in the table reflect the considerable change that the Group has undergone since
2015 particularly.
Closing share price AUD
Closing share price USD
Loss per share (US cents)
Net tangible assets US cents per share
2016
$0.28
$0.202
0.67
0.39
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.
BrainChip Holdings Ltd
2016 Annual Report
20
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
7. Executive contractual arrangements
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Mr Louis DiNardo is employed under an annual salary employment contract with BrainChip Inc. Mr DiNardo
commenced employment with BrainChip Inc. as Chief Executive Officer on 29 September 2016 (USA), 30
September 2016 (Australia). His employment contract has the following terms:
• During the term of his employment Mr DiNardo must render his services exclusively to BrainChip Inc.;
• Mr DiNardo will receive a base salary of US$400,000 effective 30 September 2016 as compensation
for his services (Base Salary). The Base Salary is subject to annual reviews by the Board;
• Mr DiNardo will be entitled to receive all reasonable expenses incurred in the fulfilment of his duties.
In addition, Mr DiNardo 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 DiNardo’s position may be terminated at any time with or without cause or notice by either himself
or BrainChip Inc.; and
• Mr DiNardo 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 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 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 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 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.
Ms Cossette Drossler is employed under an annual salary employment contract with BrainChip Inc. Ms
Drossler commenced employment with BrainChip Inc. as VP Finance & Administration on 9 December 2016.
Her employment contract has the following terms:
• During the term of her employment Ms Drossler must render her services exclusively to BrainChip Inc.;
• Ms Drossler will receive a base salary of US$200,000 effective 30 December 2016 as compensation
for her services (Base Salary). The Base Salary is subject to annual reviews by the Board;
• Ms Drossler will be entitled to receive all reasonable expenses incurred in the fulfilment of her duties.
In addition, Ms Drossler and her 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.;
• Ms Drossler’s position may be terminated at any time with or without cause or notice by either herself
or BrainChip Inc.; and
• Ms Drossler is entitled to 6 months’ severance pay upon termination by BrainChip Inc. at any time
without cause. The amount is payable over 6 months from the date of termination.
BrainChip Holdings Ltd
2016 Annual Report
21
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
7. Executive contractual arrangements (continued)
Mr Hung DoDuy was employed by Spikenet as Director of Operations on 1 December 2005, and was appointed
President of Spikenet on 16 December 2013. Mr DoDuy has an annual salary contract with Spikenet of
€120,000. His employment contract has the following terms:
• During the term of his employment Mr DoDuy is to render his services exclusively to Spikenet;
• Mr DoDuy is entitled to receive all reasonable expenses incurred in the fulfilment of his duties. In
addition, Mr DoDuy and his family are entitled to receive all benefits under health and welfare benefit
plans, practices, policies and programs provided by Spikenet; and
In accordance with French Law, Mr DoDuy ’s position may be terminated at any time with or without
cause or 3 months’ notice by either himself or Spikenet. If Mr DoDuy is terminated without fault, Mr
DoDuy is entitled to 2 times his annual salary plus 10% of gross salary times the number of years
employed by Spikenet.
•
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 BrainChip Inc.;
• During the term of his employment Mr Mankar will receive a base salary of US$200,000 effective 1
October 2015 (US$180,000 prior to this) as compensation for his services (Base Salary). The Base
Salary is subject to annual reviews by the Board. In addition to the Base Salary, Mr Mankar will be
entitled to a cash bonus on such terms and conditions as determined from time to time by the Board
(Annual Bonus). The Annual Bonus may be an amount up to fifty percent (50%) of the base salary in
effect at the end of any fiscal year;
• Mr Mankar will be entitled to receive all reasonable expenses incurred in the fulfilment of his duties. In
addition, Mr Mankar and his family will be entitled to receive all benefits under health and welfare
benefit plans, practices, policies and programs provided by BrainChip Inc. to the extent they are offered
to other executives of BrainChip Inc.;
• Mr Mankar’s position may be terminated at any time with or without cause or notice by either himself
or BrainChip Inc.; and
• Mr Mankar is entitled to 24 months’ severance pay upon termination by BrainChip Inc. at any time
without cause. The amount is payable over 24 months from the date of termination.
There are no other formalised KMP employment agreements.
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2016 Annual Report
22
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
7.
Executive contractual arrangements (continued)
Remuneration of Directors
Short Term
Post-
Employment
Salary and
Fees (10)
US$
Super-
annuation
US$
Short
Term
Annual
leave (11)
US$
Share-
based
Payment
Options
US$
Termin-
ation
Total
%
Perform
-ance
related
US$
US$
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Non-Executive Directors
E Bolto (1)
J Stein (2)
A Osseiran (4)
N Rinaldi (3)
P Cook (5)
P Wall (6)
Executive Directors
L DiNardo (7)
P van der Made (8)
R Mitro (9)
Totals
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
85,439
24,750
12,255
-
37,147
11,492
46,433
103,430
-
13,082
-
21,061
2016
2015
105,893
-
2016
216,745
2015
201,859
2016
-
2015
12,456
2016
2015
503,912
388,130
fees of US$25,291 (refer section 9).
fees of US$7,226 (refer section 9).
-
-
-
-
-
-
-
21,539
-
-
-
-
-
548,068
-
-
-
219,227
-
438,455
-
-
-
-
5,946
307,261
-
6,731
11,538
-
11,538
-
-
-
-
-
-
-
-
-
-
-
-
8,039
-
1,243
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
85,439
572,818
12,255
-
37,147
230,719
46,433
571,463
-
14,325
-
21,061
-
95%
-
-
-
95%
-
76%
-
-
-
-
419,100
73%
-
223,476
213,397
-
-
-
-
-
-
216,330
240,324
12,677
307,261
-
823,850
9,282
44,615
1,205,750
216,330
1,864,107
(1) Mr Bolto was appointed as Non-Executive Chairman on 3 August 2015. Short term remuneration includes consulting
(2) Ms Stein was appointed as Non-Executive Director on 14 November 2016. Short term remuneration includes consulting
(3) Mr Rinaldi ceased being an Executive Director on 10 September 2015 and continued as a Non-Executive Director. Mr
Rinaldi resigned as a Non-Executive Director on 14 November 2016. Short term remuneration includes consulting fees
of US$15,475 (refer section 9).
(4) Dr Osseiran was appointed as Non-Executive Director on 10 September 2015.
(5) Mr Cook resigned on 10 September 2015.
(6) Mr Wall resigned on 3 August 2015.
(7) Mr DiNardo was appointed as CEO of BrainChip Inc on 30 September 2016 and is reported as a KMP effective from
that date. He was appointed as a Director of BrainChip Holdings on 9 December 2016.
(8) Mr van der Made was appointed as Executive Director of BrainChip Holdings on 10 September 2015. Prior to this date,
he was employed as a KMP of BrainChip Inc.
(9) Mr Mitro was appointed as Executive Director and CEO on 10 September 2015 and resigned on 3 October 2015. His
termination payment is paid on a monthly basis up to 30 September 2016 and has been accrued at 31 December 2015.
Mr Mitro was employed as a KMP of BrainChip Inc. on 1 October 2014.
(10) No bonuses were awarded to any KMP during the year.
(11) The comparative has been amended to include all applicable annual leave benefits.
BrainChip Holdings Ltd
2016 Annual Report
23
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
7.
Executive contractual arrangements (continued)
Remuneration of Key Management Personnel
Other Key Management Personnel
A Mankar
l
y
n
o
N Drossler (1)
H DoDuy (2)
R Mitro (3)
e
s
u
Totals
Short Term
Post-
Employment
Short Term
Annual
leave (4)
Share-
based
Payment
Termin-
ation
Total
Salary and
Fees
US$
Super-
annuation
US$
Options
US$
US$
US$
US$
%
Perform-
ance
related
2016
2015
2016
2015
2016
2015
2016
2015
216,745
201,255
12,241
-
43,350
-
-
126,143
2016
2015
272,336
327,398
-
-
-
-
-
-
-
-
-
-
10,577
11,538
703
-
792
-
-
-
12,072
11,538
-
-
13,038
-
-
-
-
-
13,038
-
-
-
50%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
227,322
212,793
25,982
-
44,142
-
-
126,143
297,446
338,936
(1) Ms Drossler was employed as a KMP of BrainChip Inc. on 9 December 2016. Prior to her appointment, Ms Drossler
provided consulting services to BrainChip Inc totalling $25,000 for the period 11 November to 9 December 2016.
(2) Mr DoDuy is the President of Spikenet Technology S.A.S. and became a KMP of BrainChip upon the acquisition of
Spikenet on 1 September 2016.
(3) 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.
(4) The comparative has been amended to include all applicable annual leave benefits.
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2016 Annual Report
24
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
8. Equity Instruments Disclosure
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Shareholdings of Key Management Personnel (including nominees)
Shares held in BrainChip Holdings Ltd by Key Management Personnel are summarised as follows:
Balance held at
1 January 2016
Acquired
Directors
E Bolto
L DiNardo (1)
P van der Made
J Stein (2)
A Osseiran
N Rinaldi (2)
Other KMPs
A Mankar
N Drossler (3)
H DoDuy (4)
Total
-
-
126,805,508
-
7,538,500
7,803,335
91,885,000
-
-
234,032,343
Conversion
of
Performance
Rights
-
-
-
-
-
-
-
-
34,500,000
-
900,000
-
-
17,250.000
-
-
-
5,030,685
5,030,685 52,650,000
Exercise of
options
Net change
other
Balance held at
31 December
2016
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(7,803,335)
-
-
-
(7,803,335)
-
-
161,305,508
-
8,438,500
-
109,135,000
-
5,030,685
283,909,693
(1) Mr DiNardo was appointed CEO on 30 September 2016 and an Executive Director on 9 December 2016.
(2) Ms Stein was appointed as Non-Executive Director and Mr Rinaldi resigned as Non-Executive Director on 14
November 2016. Mr Rinaldi’s shares held are removed from this table.
(3) Ms Drossler was appointed a KMP on 9 December 2016.
(4) Mr DoDuy became a KMP upon the acquisition of Spikenet on 1 September 2016.
Options holdings of Key Management Personnel (including nominees)
Options granted to Key Management Personnel during the current year are detailed in section 5. There were
no alterations to the terms and conditions of options awarded as remuneration since their award date. No
options were exercised, lapsed or vested during the current year.
Balance at
beginning of
period 1
January 2016
Granted as
remuneration Exercised
Net change
other
Balance at
end of period
31 December
2016
Vested and
not
exercisable
Vested and
exercisable
Directors
E Bolto
L DiNardo (1)
P van der Made
J Stein
A Osseiran
N Rinaldi (2)
Other KMPs
A Mankar
N Drossler
H DoDuy
Total
5,000,000
-
-
-
2,000,000
4,000,000
-
-
-
11,000,000
-
50,000,000
-
-
-
-
-
4,000,000
-
54,000,000
-
-
-
-
-
-
-
-
-
-
-
(4,000,000)
-
-
-
-
-
-
- (4,000,000)
5,000,000
50,000,000
-
-
2,000,000
-
-
4,000,000
-
61,000,000
-
-
-
-
-
-
-
-
-
-
5,000,000
-
-
-
2,000,000
-
-
-
-
7,000,000
(1) Mr DiNardo received 23,000,000 options and 27,000,000 performance options at the date of his appointment as CEO
on 30 September 2016.
(2) Mr Rinaldi resigned as Non-Executive Director on 14 November 2016 and his options are removed from this table.
BrainChip Holdings Ltd
2016 Annual Report
25
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
8. Equity Instruments Disclosure (continued)
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Performance Rights held by Key Management Personnel (including nominees)
The table below discloses the number of Performance Rights held by Key Management Personnel that were
granted and vested during the year as remuneration. No performance rights lapsed during the year.
Balance at
beginning
of period 1
January
2016
Directors
-
E Bolto
L DiNardo (1)
-
P van der Made 54,000,000
-
J Stein
1,800,000
A Osseiran
N Rinaldi
-
Other KMPs
A Mankar
N Drossler
H DoDuy
Total
34,500,000
-
-
90,300,000
Acquired
Exercised(²)
Balance at
end of
period 31
December
2016
Vested and
not
exercisable
Vested and
exercisable
-
2,000,000
-
-
-
-
-
-
-
2,000,000
(34,500,000) 19,500,000
-
900,000
-
-
(900,000)
-
-
-
-
2,000,000
(17,250,000)
-
-
(52,650,000)
17,250,000
-
-
39,650,000
-
-
-
-
-
-
-
-
-
-
-
-
6,000,000
-
-
-
-
-
-
6,000,000
Value of
performance
rights
exercised
US$
-
-
6,132,000
-
122,525
-
-
2,348,405
-
-
8,602,930
(1) Mr DiNardo received 2,000,000 Class D performance rights as part of his remuneration package at the date of his
appointment as CEO on 30 September 2016.
(2) Class A, B and C Performance Rights were exercised and converted to shares in the year ended 31 December 2016.
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
Effective 1 December 2016, Mr. Bolto and Ms. Stein each have a consulting agreement with the Company as
requested by the CEO for ad hoc services related to the next transitional phases of the Company. Consulting
fees payable to each of Mr. Bolto and Ms. Stein pursuant to these contracts are A$10,000 per month. In
addition, Mr. Bolto received A$25,000 in consulting fees for an ad hoc assignment related to the sale of the
Mauritius company, Blue Sky Corporation, and its subsidiaries. These consulting services are outside the
scope of what is expected of Mr. Bolto and Ms. Stein in their roles as Non-Executive Directors of the Company.
Consulting fees payable to Mr. Bolto and Ms. Stein as at 31 December 2016 totaled US$25,291 and US$7,226
respectively (31 December 2015: US$Nil)
Mr Rinaldi provided consulting services for 6 months from 10 September 2015 at a rate of A$50,000 per
annum.
No further transactions with other Key management personnel have been incurred, other than reported above.
End of Audited Remuneration Report.
BrainChip Holdings Ltd
2016 Annual Report
26
Directors’ Report
INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS
During the financial year, the Company paid a premium in respect to a contract of insurance to insure Directors
and officers of the Company and related bodies corporate against those liabilities for which insurance is
permitted under section 199B of the Corporations Act 2001. Disclosure of the nature of the liabilities and the
amount of the premium is prohibited under the conditions of the contract of insurance.
INDEMNIFICATION OF AUDITORS
To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of
the terms of its audit engagement agreement against claims by third parties arising from the audit (for an
unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial
year.
The Directors received the Independence Declaration, as set out on page 28, from Ernst & Young.
AUDITOR INDEPENDENCE
NON-AUDIT SERVICES
The following non-audit services were provided by the entity’s auditor, Ernst & Young. The Directors are
satisfied that the provision of non-audit services is compatible with the general standard of independence for
auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service
provided means that auditor independence was not compromised.
Ernst & Young received or are due to receive the following amounts for the provision of non-audit services to
BrainChip Holdings:
Tax compliance services
2016
US$
25,260
2015
US$
9,314
Signed in accordance with a resolution of the Directors.
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
E L (Mick) Bolto
Chairman
Perth, 30 March 2017
BrainChip Holdings Ltd
2016 Annual Report
27
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Auditor’s Independence Declaration to the Directors of BrainChip
Holdings Ltd
As lead auditor for the audit of BrainChip Holdings Ltd for the financial year ended 31 December 2016, I
declare to the best of my knowledge and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of BrainChip Holdings Ltd and the entities it controlled during the financial
year.
Ernst & Young
Philip Teale
Partner
30 March 2017
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
PT:RH:BRAINCHIP:015
Consolidated Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December 2016
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Continuing operations
Revenue
Interest revenue
Other income
Research & development expenses
Administration and other expenses
Amortisation of intangible assets
Share based payment expense
Interest expense
Listing fee expense on acquisition of BrainChip
Loss from continuing operations before income tax
Income tax expense
Note
5(a)
5(b)
5(c)
6(a)
6(b)
6(c)
23(a)
30(c)
8(c)
31 December
2016
$US
31 December
2015
$US
149,284
16,975
11,427
177,686
(867,360)
(2,629,617)
(199,310)
(1,075,382)
(10,602)
-
-
6,863
42,560
49,423
(386,288)
(1,362,064)
(1,347)
(1,939,902)
(43,957)
(23,611,942)
(4,604,585)
(27,296,077)
-
-
Loss from continuing operations after income tax
(4,604,585)
(27,296,077)
Loss from discontinued operations after tax
31(a)
(251,029)
(64,038)
Net loss for the period
(4,855,614)
(27,360,115)
Other comprehensive income / (loss)
Other comprehensive income not to be reclassified to profit or loss
in subsequent periods (net of tax):
Remeasurement gains (losses) on defined benefit plans
Items that may be reclassified subsequently to profit or loss (net of
tax):
Exchange differences on translation of foreign operations
Other comprehensive loss for the period, net of tax
362
5,414
5,776
-
-
-
Total comprehensive loss for the period, net of tax
(4,849,838)
(27,360,115)
Loss per share from continuing operations attributable to ordinary
equity holders of the Company
Basic and diluted loss per share
(0.64)
(8.42)
US cents per
share
US cents per
share
Loss per share from discontinuing operations attributable to
ordinary equity holders of the Company
Basic and diluted loss per share
(0.03)
(0.01)
Loss per share attributable to ordinary equity holders of the
Company
Basic and diluted loss per share
9
(0.67)
(8.43)
The above statement of comprehensive income should be read in conjunction with the accompanying notes.
BrainChip Holdings Ltd
2016 Annual Report
29
Consolidated Statement of Financial Position
As at 31 December 2016
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Inventory
Other assets
Total current assets
NON-CURRENT ASSETS
Plant and equipment
Intangible assets
Other assets
Total non-current assets
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Financial liabilities
Other liabilities
Employee benefits liabilities
Total current liabilities
NON-CURRENT LIABILITIES
Financial liabilities
Defined benefit plan
Total non-current liabilities
TOTAL LIABILITIES
NET ASSETS
EQUITY
Contributed equity
Share based payments reserve
Foreign currency translation reserve
Other equity reserve
Accumulated losses
TOTAL EQUITY
Note
31 December
2016
$US
31 December
2015
$US
10
11
12
13
14
15
17
18
16
17
19
3,593,951
385,477
1,435
306,119
4,286,982
140,209
2,674,805
33,689
2,848,703
7,135,685
630,385
220,562
287,507
102,770
1,241,224
277,232
108,123
385,355
1,626,579
1,393,869
571,885
-
62,555
2,028,309
65,381
31,704
6,196
103,281
2,131,590
354,290
-
-
40,730
395,020
-
-
-
395,020
5,509,106
1,736,570
20(a)
21
21
21
22
34,013,023
3,792,094
5,414
247,872
(32,549,297)
27,266,878
1,939,902
-
247,872
(27,718,082)
5,509,106
1,736,570
The above statement of financial position should be read in conjunction with the accompanying notes.
BrainChip Holdings Ltd
2016 Annual Report
30
Consolidated Statement of Cash Flows
For the year ended 31 December 2016
CASH FLOWS USED IN OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Grants received from third parties
Other income
Note
31 December
2016
US$
31 December
2015
US$
48,953
(3,449,312)
16,975
(10,602)
68,533
11,427
-
(1,855,708)
6,863
(43,238)
-
5,579
Net cash flows used in operating activities
10
(3,314,026)
(1,886,504)
CASH FLOWS (USED IN)/FROM INVESTING ACTIVITIES
Payments for property, plant and equipment
Payments for exploration and evaluation
Payments for purchase of patents
Payments for capitalised research and development
Proceeds from sale of mineral licences
Cash disposed on sale of subsidiaries
Advance to Spikenet prior to Acquisition
Acquisition of a subsidiary, net of overdraft/cash acquired
Net cash flows (used in)/from investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Receipts from the issue of shares
Payment of share issue costs
Loans from BrainChip Holdings prior to Acquisition
Loans from shareholders
Loans to third parties
Repayment of loans to third parties
Loans from third parties via convertible notes
Loans repaid to shareholders
Net cash flows from financing activities
(88,544)
(254,541)
(1,688)
(106,782)
493,337
48,256
(139,554)
(667,786)
(717,302)
7,035,885
(445,401)
-
-
(54,000)
(237,458)
-
(5,268)
6,293,758
(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
29(a)
29(c)
31(a)
Net increase in cash and cash equivalents
2,262,430
1,325,256
Net foreign exchange differences
Cash at the beginning of the financial period
Cash and cash equivalents at the end of the period
(62,348)
1,393,869
3,593,951
36,980
31,633
1,393,869
10
The above cash flow statement should be read in conjunction with the accompanying notes.
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2016 Annual Report
31
Consolidated Statement of Changes in Equity
For the year ended 31 December 2016
Contributed
equity
Share based
payment
reserve
Other
reserves
Foreign
currency
reserve
Accumulated
losses
Total equity
US$
US$
US$
US$
US$
US$
At 1 January 2015
20,112
Loss for the year
Other
income
comprehensive
Total
loss for the period
comprehensive
Transactions
with
owners in their capacity
as owners
-
-
-
Issue of share capital
27,246,766
Shares issued to extinguish
Group convertible notes
Share-based payment
-
-
-
-
-
-
-
-
-
-
-
-
-
247,872
1,939,902
-
At 31 December 2015
27,266,878
1,939,902
247,872
-
-
-
-
-
-
-
-
(357,967)
(337,855)
(27,360,115)
(27,360,115)
-
-
(27,360,115)
(27,360,115)
-
27,246,766
-
-
247,872
1,939,902
(27,718,082)
1,736,570
Contributed
equity
Share based
payment
reserve
Other
reserves
Foreign
currency
reserve
Accumulated
losses
Total equity
US$
US$
US$
US$
US$
US$
At 1 January 2016
27,266,878
1,939,902
247,872
Loss for the year
Other comprehensive loss
Total
loss for the period
comprehensive
Transactions
with
owners in their capacity
as owners
-
-
-
Issue of share capital
7,974,326
Share issue costs
(1,228,181)
-
-
-
-
Forfeit of options
Share-based payment
-
-
(24,037)
1,876,229
-
-
-
-
-
-
-
-
(27,718,082)
1,736,570
(4,855,614)
(4,855,614)
5,414
362
5,776
5,414
(4,855, 252)
(4,849,838)
-
-
-
-
-
-
7,974,326
(1,228,181)
24,037
-
-
1,876,229
At 31 December 2016
34,013,023
3,792,094
247,872
5,414
(32,549, 297)
5,509,106
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2016 Annual Report
32
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
1. CORPORATE INFORMATION
The annual financial report of BrainChip Holdings Ltd (“Company”) and its controlled entities (“Consolidated Entity”
or “Group”) for the year ended 31 December 2016 was authorised for issue in accordance with a resolution of the
Directors on 28 March 2017.
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.
Except for the adoption of new and amended standards, the policies are consistently applied.
The Group applied for the first time certain standards and amendments, which are effective for annual periods
beginning on or after 1 January 2016. Although these new standards and amendments applied for the first time in
2016, they did not have a material impact on the annual consolidated financial statements of the Group.
T ghgtgpeg Vkvng
Uwo o ct{
AASB
2015-3
AASB
2014-4
Amendments to Australian
Standards
Accounting
arising
the
Withdrawal of AASB 1031
Materiality
from
Clarification of Acceptable
Methods of Depreciation
and
Amortisation
(Amendments to
AASB 116 and AASB 138)
AASB 1057 Application of Australian
Accounting Standards
The Standard completes the AASB’s project to remove Australian guidance on
materiality from Australian Accounting Standards.
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.
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.
AASB
2015-1
Amendments to Australian
Accounting Standards –
Annual Improvements to
Australian Accounting
Standards 2012–2014
Cycle which are relevant
to the Group.
The subjects of the principal amendments to the Standards are set out below:
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.
BrainChip Holdings Ltd
2016 Annual Report
33
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
T ghgtgpeg Vkvng
Uwo o ct{
AASB
2015-2
Amendments to Australian
Accounting Standards –
Disclosure Initiative:
Amendments to AASB 101
AASB
2015-9
Amendments to Australian
Accounting Standards –
Scope and Application
Paragraphs
[AASB 8, AASB 133 &
AASB 1057]
Going concern
The Standard makes amendments to AASB 101 Presentation of Financial Statements
arising from the IASB’s Disclosure Initiative project. The amendments are designed to
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.
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.
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 2016, the Group incurred a net loss after tax of US$4,855,614 and a cash
outflow from operating activities of US$3,314,026.
At 31 December 2016, the Group had cash and cash equivalents of US$3,593,951, net assets of US$5,509,106 and
a net working capital of US$3,045,758.
The Company has prepared a detailed cash budget showing the need to generate additional commercial agreements
or 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 new commercial agreements; and
The ability of the Group to obtain funding through various sources, including debt and/or equity issues which
are currently being investigated by management.
The Directors have reasonable expectations that they will be able to generate additional commercial agreements or
raise the funds needed for the Group to continue to execute the business plan of the Group in the medium term.
However, cashflows can be adjusted by controlling headcount and R&D and marketing expenses to ensure that the
Company can pay its debts as and when they fall due until such funding is secured, or new commercial agreements
are in place.
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.
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2016 Annual Report
34
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(b) Statement of compliance
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.
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 2016. The Group has yet
to fully assess the impact of these Standards and Interpretations when applied in future periods.
T ghgtgpeg
Vkvng
Uwo o ct{
l
y
n
o
Financial
Instruments
AASB 9
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Cr r nkecvkqp"
f cvg"
qh"
uvcpf ctf ,
Cr r nkecvkqp"
f cvg"
hqt"
I tqwr
January
1
2018
1 January
2018
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
impairment model and a
substantially-reformed approach to hedge accounting.
‘expected
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
2016 Annual Report
35
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
T ghgtgpeg
Vkvng
Uwo o ct{
Cr r nkecvkqp"
f cvg"
qh"
uvcpf ctf ,
Cr r nkecvkqp"
f cvg"
hqt"
I tqwr
l
y
n
o
e
s
u
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 15
l
a
n
o
s
r
e
p
r
o
F
Revenue
Contracts
Customers
from
with
AASB 15 Revenue from Contracts with Customers replaces the
existing revenue recognition standards AASB 111 Construction
Interpretations
Contracts, AASB 118 Revenue and related
(Interpretation 13 Customer Loyalty Programmes, Interpretation 15
Agreements for the Construction of Real Estate, Interpretation 18
Transfers of Assets
131
from Customers,
Revenue—Barter Transactions Involving Advertising Services and
Interpretation 1042 Subscriber Acquisition Costs
the
the
Telecommunications
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).
in
incorporates
Industry). AASB 15
Interpretation
January
1
2018
1 January
2018
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
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:
leases or
(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
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.
to AASB 15 amends AASB 15
AASB 2016-3 Amendments to Australian Accounting Standards –
Clarification
the
requirements on identifying performance obligations, principal
versus agent considerations and the timing of recognising revenue
from granting a license and provides further practical expedients on
transition to AASB15.
to clarify
BrainChip Holdings Ltd
2016 Annual Report
36
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
T ghgtgpeg
Vkvng
Uwo o ct{
Cr r nkecvkqp"
f cvg"
qh"
uvcpf ctf ,
Cr r nkecvkqp"
f cvg"
hqt"
I tqwr
January
1
2019
1 January
2019
AASB 16
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
AASB 2016-1
r
o
F
AASB 2016-2
Leases
The key features of AASB 16 are as follows:
Lessee accounting
•
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.
• 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.
AASB 16 supersedes:
(a) AASB 117 Leases;
(b) Interpretation 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, AASB 15 Revenue from Contracts with
Customers, has been applied, or is applied at the same date as
AASB 16.
Amendments to
Australian
Accounting
Standards
–
Recognition of
Tax
Deferred
for
Assets
Unrealised
Losses
[AASB 112]
Amendments to
Australian
Accounting
Standards –
Disclosure
Initiative:
Amendments to
AASB 107
This Standard amends AASB 112 Income Taxes (July 2004) and
AASB 112 Income Taxes (August 2015) to clarify the requirements
on recognition of deferred tax assets for unrealised losses on debt
instruments measured at fair value.
January
1
2017
1 January
2017
to require entities preparing
This Standard amends AASB 107 Statement of Cash Flows (August
2015)
in
accordance with Tier 1 reporting
requirements to provide
disclosures that enable users of financial statements to evaluate
changes in liabilities arising from financing activities, including both
changes arising from cash flows and non-cash changes.
financial statements
January
1
2017
1 January
2017
BrainChip Holdings Ltd
2016 Annual Report
37
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
T ghgtgpeg
Vkvng
Uwo o ct{
AASB 2016-5
l
y
n
o
to
Amendments
Australian
Accounting
Standards
–
Classification and
Measurement
of
Share-based
Payment
Transactions
[AASB 2]
This standard amends AASB 2 Share-based Payment, clarifying
how to account for certain types of share-based payment
transactions. The amendments provide requirements on the
accounting for:
• The effects of vesting and non-vesting conditions on the
measurement of cash- settled share-based payments
• Share-based payment transactions with a net settlement
feature for withholding tax obligations
• A modification to the terms and conditions of a share-based
payment that changes the classification of the transaction from
cash-settled to equity- settled
Cr r nkecvkqp"
f cvg"
qh"
uvcpf ctf ,
Cr r nkecvkqp"
f cvg"
hqt"
I tqwr
January
1
2018
1 January
2018
Annual
Improvements
IFRS Standards
2014–2016
Cycle^
e
s
u
to
Annual
Improvements
IFRS Standards
2014–2016 Cycle
to
This amending standard addresses the following:
•
•
•
IFRS 12 Disclosure of Interests in Other Entities Clarification of
the scope of the Standard (effective date 1 January 2017)
IFRS 1 First-time Adoption of International Financial Reporting
Standards - Deletion of short-term exemptions for first-time
adopters (effective date 1January 2018)
IAS 28 Investments in Associates and Joint Ventures -
Measuring an associate or joint venture at fair value. (effective
date 1 January 2018)
January
1
2017
1 January
2017
IFRIC
Interpretation
22^
22
IFRIC
Interpretation
Foreign Currency
Transactions and
Advance
Consideration
IFRIC Interpretation 22 Foreign Currency Transactions and Advance
Consideration, which addresses the exchange rate to use in
transactions that involve advance consideration paid or received in a
foreign currency, is effective 1 January 2018.
January
1
2018
1 January
2018
Designates the beginning of the applicable annual reporting period unless otherwise stated.
Currently only issued by the IASB but may be adopted by the AASB in future periods.
"""
,
^
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2016 Annual Report
38
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Basis of consolidation
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
(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
2016 Annual Report
39
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d) Business Combination (continued)
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
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.
(e) 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. The United States Dollar is also the
functional currency of all subsidiaries in the Group except for Spikenet which has a functional currency of Euros.
(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.
(f) 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.
(g) 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
2016 Annual Report
40
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(h) Trade and other receivables
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
(k)
r
o
F
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.
(i) 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.
(j) 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
2016 Annual Report
41
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(k)
Intangible assets (continued)
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
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.
(l) 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 profit and loss. 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
Internally generated or
acquired
Patents
Finite (5 - 20 years)
Amortised on a straight-
line basis over the period
of the patent
Development costs
Finite (5 - 20 years)
Amortised on a straight-line basis over
the period of expected future sales from
the related project
Acquired
Internally generated
(m) 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.
(n) 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
2016 Annual Report
42
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(o) Provisions
l
y
n
o
(p)
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.
(q) Share-based payment transactions
e
s
u
l
a
n
o
s
r
e
p
r
o
F
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
2016 Annual Report
43
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(q) Share-based payment transactions (continued)
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
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.
(r) Employee benefits
(i) Wages, salaries and annual leave
Liabilities for wages and salaries, including non-monetary benefits and annual 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.
(iv) Defined benefit plan
The Group’s net obligation in respect of defined benefits plans is calculated by estimating the discounted amount of
future benefit that employees have earned in the current and prior periods.
The calculation of defined benefit plan obligations is performed annually by a qualified actuary using the projected
unit credit method, taking into account staff turnover and mortality probability.
Re-measurements of the net defined benefit liability, which comprise actuarial gains and losses, are recognised
immediately in OCI. The Group determines the net interest expense (Income) on the defined benefit liability (asset)
for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the
annual period to then-net defined benefit liability(asset) during the period as a result of contributions and benefit
payments. Net interest expense and other expenses related to defined benefit plans are recognised in profit or loss.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to
past service or the gain or loss on curtailment is recognised immediately in profit or loss.
BrainChip Holdings Ltd
2016 Annual Report
44
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(s) Revenue
l
y
n
o
e
s
u
(u)
l
a
n
o
s
r
e
p
r
o
F
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the
revenue can be reliably measured, regardless of when the payment is received. Revenue is measured at the fair
value of the consideration received or receivable, taking into account contractually defined terms of payment and
excluding taxes or duty.
(t) Government grants
Government grants are recognised where there is reasonable assurance that the grant will be received and all
attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on
a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed.
When the grant relates to an asset, it is recognised as income in equal amounts over the expected useful life of the
related asset.
When the Group receives grants of non-monetary assets, the asset and the grant are recorded at nominal amounts
and released to profit or loss over the expected useful life of the asset, based on the pattern of consumption of the
benefits of the underlying asset by equal annual instalments.
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.
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.
BrainChip Holdings Ltd
2016 Annual Report
45
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(v) Other taxes
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
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.
(w) 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:
•
•
•
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
2016 Annual Report
46
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
3. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
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 judgements, 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.
• Development costs
The Group capitalises development costs for a project in accordance with the accounting policy. Initial
capitalisation of costs is based on management’s judgement that technological and economic feasibility is
confirmed. In determining the amounts to be capitalised, management makes assumptions regarding the expected
future cash generation of the project, discount rates to be applied and the expected period of benefits. At 31
December 2016, the carrying amount of capitalised development costs was $2,639,874 (2015: $Nil).
• Defined benefit plans
The cost of the defined benefit pension plan and the present value of the pension obligation are determined using
actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual
developments in the future. These includes the determination of the discount rate, future salary growth, mortality
rates and employee turnover rate. Due to the complexities involved in the valuation and its long-term nature, a
defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at
each reporting date. Further details about defined benefit plans are provided in Note 19.
• Business combination
Management exerts judgement in assessing whether the consolidation of a new entity is a business combination
or an asset acquisition in the consolidated results. Management considers the definitions of a business combination
within AASB3 and the various terms and conditions of relevant purchase agreements in determining the correct
accounting treatment.
Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial
statements.
BrainChip Holdings Ltd
2016 Annual Report
47
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
4.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Overview
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
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 and France, and is exposed to credit
risk from its operating activities (primarily trade and other receivables).
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
The Group operates primarily in technology development and has trade receivables. The Group has other
receivables related to the receipt of various research & development credits from regulatory authorities. There is risk
that these receivables may not be recovered however the Group does not consider this to be likely. The Group
establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other
receivables (see Note 11).
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
Trade and other receivables
Liquidity risk
Carrying amount
2015
2016
US$
US$
Note
10
11
3,593,951
385,477
1,393,869
571,885
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.
BrainChip Holdings Ltd
2016 Annual Report
48
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
4.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
Liquidity risk (Continued)
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
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$
630,385
497,794
1,128,179
630,385
220,562
850,947
630,385
124,477
754,862
-
96,085
96,085
-
277,232
277,232
354,290
354,290
354,290
354,290
354,290
354,290
-
-
-
-
-
-
-
-
-
31 December 2016
Trade and other payables
Financial liabilities
31 December 2015
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. The French subsidiary, Spikenet,
operates in Euros, the legal parent has cash balances in AUD and the Madagascan subsidiaries divested in
November 2016 operated cash balances denominated in Madagascan Ariary (MGA). As as result, the Consolidated
Entity’s statement of financial position can be affected by movements in the USD/Euro, USD/MGA and USD/AUD
exchange rates when translating to the USD functional currency.
Generally, borrowings are denominated in currencies that match the cash flows generated by the underlying
operations of the subsidiary – primarily Euro. This provides an economic hedge without derivatives being entered
into and therefore hedge accounting is not applied in these circumstances.
In respect of other monetary assets and liabilities denominated in foreign currencies (MGA and AUD), the Group’s
policy is to ensure that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot
rates when necessary to address short-term imbalances
The Consolidated Entity’s exposure to foreign currency risk at the reporting date was as follows:
AUD
US$
2016
Euro
US$
Total
US$
AUD
US$
2015
Ariary
US$
Total
US$
Cash
Trade and other receivables
Trade and other payables
2,066,159
12,866
(112,824)
1,966,201
266,179
-
-
266,179
2,332,338
12,866
(112,824)
2,232,380
61,427
-
-
61,427
4,589
-
-
4,589
66,016
-
-
66,016
The table below highlights the effect on the Consolidated Entity’s equity and post-tax losses of a +/- 5% change in
the foreign exchange rates. This analysis assumes that all other variables remain constant:
2016
2015
Losses
US$
Equity
US$
Losses
US$
Equity
US$
AUD
EURO
68,563
13,320
68,563
13,320
-
-
-
-
BrainChip Holdings Ltd
2016 Annual Report
49
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
4.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
Interest rate risk
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
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
2015
2016
US$
US$
2,066,159
-
2,066,159
21,888
36,495
58,383
A change of 100 basis points in interest rates would have increased or decreased the Consolidated Entity’s equity
and post-tax profits by $20,659 (2015: $500). 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) Trade and other receivables, trade and other payables and current financial liabilities:
Trade and other receivables, trade and other payables and current financial liabilities are short term in nature.
As a result, the fair value of these instruments is considered to approximate its fair value.
(ii) Non-current financial liabilities:
Non-current financial liabilities have been discounted using the variable market rate to calculate the fair value.
Capital Management
Capital managed by the Board includes contributed equity totalling $34,013,023 and other equity reserves of
$247,872 at 31 December 2016 (2015: $27,266,878 and $247,872 respectively). 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 contributed equity 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 2016, 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
2016 Annual Report
50
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
5.
REVENUE
(a) Revenue
Sales to external customers
(b)
Interest revenue
Interest received
(c) Other income
Other income – oil & gas royalty income
Other income
Foreign exchange gain
Total Other income
6.
EXPENSES (1)
(a) Research & development costs (2)
Wages and salaries
Grants received
Other expenses
Total research & development expenses
(b) Administration expenses:
Director fees and executive salaries
Wages and salaries
Acquisition related transaction costs
Legal and professional fees
Travel and accommodation expenses
Depreciation of plant & equipment
Office rent
Administration expenses
Loss on foreign exchange
Total administration expenses
2016
US$
2015
US$
149,284
-
16,975
6,863
9,801
1,626
-
11,427
5,580
-
36,980
42,560
885,147
(42,903)
25,116
867,360
800,997
90,917
113,030
1,004,057
109,871
24,979
108,558
314,860
62,348
2,629,617
381,262
-
5,026
386,288
780,963
-
-
414,645
84,936
12,808
49,823
18,889
-
1,362,064
(c) Amortisation of intangible assets
199,310
1,347
(1) Certain comparative expenditures have been reclassified to align with
the current period reporting presentation.
(2) Research and development costs expensed in the profit and loss
includes costs incurred in relation to the development of SNAP
technology which is not eligible for capitalisation to intangible assets.
7. DIVIDENDS PAID AND PROPOSED
No dividends have been paid or declared by the Company during the financial period or up to the date of this report.
BrainChip Holdings Ltd
2016 Annual Report
51
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
8.
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
2016
US$
2015
US$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Accounting loss before tax
4,855,614
27,360,115
At statutory income tax rate of 28.5% (2015: 30%)
(1,383,850)
(8,208,035)
Non-deductible (income) / expenses
Deductible capital raising items
Effect of lower/(higher) taxation rates of foreign subsidiaries
Unrecognised tax losses and deferred income tax
Income tax expense/(benefit) reported in statement of comprehensive
income
Effective income tax rate
(d) Deferred tax relates to the following:
Accrued expenses
Tax losses
Business related expenditure, Borrowing costs
Share based compensation
Intangible assets - USA
Intangible assets - France
Deferred State Tax deduction
Other
Not recognised
Net deferred tax liability
Deferred tax income/ (expense)
(e) Unrecognised losses
457,205
-
(123, 948)
1,050,593
7,699,799
(52,477)
281,700
279,013
-
0%
-
0%
Consolidated Statement of
financial position
2016
40,726
2,193,951
128,220
1,114,947
73,379
(469,588)
(130,691)
34,923
(2,985,866)
-
-
2015
20,744
401,456
-
-
-
-
-
-
(422,200)
-
-
At 31 December 2016, there are unrecognised losses of $2,193,951 for the Consolidated Entity (2015: $5,259,296).
BrainChip Holdings Ltd
2016 Annual Report
52
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
9.
LOSS PER SHARE
2016
US$
2015
US$
l
y
n
o
e
s
u
Net loss attributable to ordinary equity holders
(4,855,614)
(27,360,115)
Net loss attributable to ordinary shareholders for diluted earnings per share
(4,855,614)
(27,360,115)
Basic and diluted loss per share (US cents per share)
(0.67)
(8.43)
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
722,076,531
-
324,371,513
-
722,076,531
324,371,513
(1) At 31 December 2016, the Company had on issue 91,550,000 (2015: 28,050,000) 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 however may be dilutive in the future.
(2) At 31 December 2016, the Company had on issue 56,000,000 (2015: 122,000,000) 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 however may be dilutive in the future.
l
a
n
o
s
r
e
p
r
o
F
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:
Depreciation
Amortisation
Share based payments
Listing fee expense
Exploration and evaluation expenditure written off
Impairment of receivable
Impairment of loan to third party
Gain on deconsolidation of subsidiaries
Other income from the sale of minerals licenses classified as investing
Foreign exchange loss/(gain)
Interest expense extinguished by the issue of shares
Working capital adjustments:
Increase in trade and other receivables
Increase in inventory
Increase in prepayments
Decrease in other assets
Increase in financial liabilities
Decrease in defined benefits plan
Increase in employee provisions
Increase /(Decrease) in trade and other payables
Net cash used in operating activities
2016
US$
2015
US$
3,593,951
3,593,951
1,393,869
1,393,869
(4,855,614)
(27,360,115)
24,979
199,310
1,075,382
-
157,990
120,281
54,000
(26,725)
(54,517)
62,348
-
(119,545)
(1,284)
(35,786)
26,077
4,610
(1,948)
17,502
38,914
(3,314,026)
12,808
1,347
1,939,902
23,611,942
64,038
-
-
-
-
(36,980)
718
-
-
(31,995)
-
-
-
13,688
(101,857)
(1,886,504)
BrainChip Holdings Ltd
2016 Annual Report
53
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
11. TRADE AND OTHER RECEIVABLES
CURRENT
Trade receivables
Receivable related to the sale of mining licenses (1)
Research tax credit (2)
Other receivables
2016
US$
2015
US$
111,372
-
174,395
99,710
385,477
-
559,100
-
12,785
571,885
(1) The receivable related to the 2013 sale of mining licenses from two separate purchasers. During the six
months ended 30 June 2016, the Company impaired the receivable after receipt of US$24,819.
Subsequent to this date a further US$414,000 was received. A net impairment of US$120,281 remains
expensed in the profit and loss and reported in discontinued operations (refer Note 31(a)).
(2) Spikenet Technology recognised research credits from the French regulatory authorities as receivable
according to the French tax regulations.
12. OTHER ASSETS
CURRENT
Grants receivable from third parties (1)
Prepayments
2016
US$
2015
US$
207,642
98,477
306,119
-
62,555
62,555
(1) Other current assets are grants to be received from various French government agencies.
13. PLANT & EQUIPMENT
Plant and equipment
At cost
Accumulated depreciation
Movement in plant and equipment
At 1 January net of accumulated depreciation
Additions
Plant and equipment from Acquisition of Spikenet
Foreign exchange movements – cost
Depreciation charge for the year
Foreign exchange movements – accumulated depreciation
At 31 December net of accumulated depreciation
205,890
(65,681)
140,209
65,381
88,544
11,875
(669)
(24,979)
57
140,209
106,140
(40,759)
65,381
1,649
71,703
4,805
-
(12,808)
32
65,381
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2016 Annual Report
54
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
14.
INTANGIBLE ASSETS
Patents and licenses (a)
Capitalised research & development costs (b)
(a) At cost – patents and licenses with finite useful life
Accumulated amortisation
Movement in patents
At 1 January
Additions
Additions upon Spikenet acquisition
Adjustment to opening balance – credit from vendor
Foreign exchange movements - cost
Amortisation
Foreign exchange movements - accumulated amortisation
(b) Capitalised research & development costs
Accumulated amortisation
Movement in capitalised research & development costs
At 1 January
Additions upon Spikenet acquisition
Additions
Foreign exchange movements - cost
Amortisation
Foreign exchange movements - accumulated amortisation
At 31 December
2016
US$
2015
US$
34,931
2,639,874
2,674,805
41,787
(6,856)
34,931
31,704
1,688
5,175
-
(303)
(3,384)
51
34,931
2,832,309
(192,435)
2,639,874
-
2,800,283
106,782
(74,756)
(195,925)
3,490
2,639,874
31,704
-
31,704
35,227
(3,523)
31,704
38,961
6,342
-
(12,252)
-
(1,347)
-
31,704
-
-
-
-
-
-
-
-
As at 31 December 2016, the Group considered indicators of impairment of these assets and determined there
was none.
15. TRADE AND OTHER PAYABLES
CURRENT
Trade creditors and accruals
Vat and other taxes payable to foreign authorities
16. EMPLOYEE BENEFITS LIABILITIES
CURRENT
Provision for annual leave
The nature of the provision is described in note 2(r).
2016
US$
2015
US$
524,630
105,755
630,385
354,290
-
354,290
2016
US$
2015
US$
102,770
102,770
40,730
40,730
BrainChip Holdings Ltd
2016 Annual Report
55
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
17. FINANCIAL LIABILITIES
Current
Financial liabilities from third parties
Non-Current
Financial liabilities from third parties
(a) Reconciliation of financial liabilities – current (i)
Opening balance
Financial liabilities from third parties upon acquisition of Spikenet
Repayment of advance to third parties
Interest charged on advances
Foreign exchange movements
(b) Reconciliation of financial liabilities – non-current
Opening balance
Financial liabilities from third parties upon acquisition of Spikenet
Repayment of advances to third parties
Advances received from third parties
Foreign exchange movements
2016
US$
2015
US$
220,562
220,562
277,232
277,232
-
490,933
(248,024)
5,298
(27,645)
220,562
-
247,053
(2,978)
45,435
(12,278)
277,232
(i) Current and non-current financial liabilities include loans from various French government agencies which
are granted without any interest and are to be repaid under certain conditions. The benefit of the
government loan at a below-market rate of interest is treated as a government grant.
18. OTHER LIABILITIES
Deferred income in relation to research & development projects
287,507
(a) Reconciliation of other liabilities
Opening balance
Financial liabilities from third parties upon acquisition of Spikenet
Grant revenue released to the statement of profit and loss
Foreign exchange movement
-
343,652
(37,847)
(18,298)
287,507
Deferred income relates to grants acquired from third parties before all attached conditions have been
complied with. Deferred income has been released to the profit and loss on a systematic basis over the
periods that the related research and development costs are expensed.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2016 Annual Report
56
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
19. DEFINED BENEFIT PLAN – NON-CURRENT
2016
US$
2015
US$
Net employee defined benefit liabilities
108,123
-
Spikenet has a defined benefit pension plan which is governed by the employment laws of France. Pension
plans, similar compensation, and other employee benefits that qualify as defined benefit schemes (in which
the Company guarantees an amount or defined level of benefits) are recognised on the balance sheet based
on an actuarial valuation of the obligations at period-end.
This valuation uses the projected unit credit method, taking into account staff turnover and mortality
probability.
The defined benefit plan is administered by the French regulatory authority and is legally separated from the
Group. The authority is required by law to act in the best interests of the plan participants and is responsible
for setting certain policies (eg investment, contribution and indexation policies) of the fund.
The defined benefit plan exposes the Group to actuarial risks, such as longevity risk, currency risk, interest
rate risk, and market (investment) risk.
2016
US$
2015
US$
Movement in net defined benefit liability
1 January
Defined benefit plan upon acquisition of Spikenet
Included in profit or loss
Current service costs
Finance costs
Included in OCI
Actuarial gains
Foreign exchange movement
Defined benefit obligation
The following were the principal actuarial assumptions at the reporting date:
Discount rate
Future salary growth
Retirement at employee’s initiative
Turnover rate (weighted average)
-
110,433
3,762
557
(410)
(6,219)
108,123
1.4%
1.5%
45.0%
1.3%
-
-
-
-
-
-
-
-
-
-
-
Assumptions regarding future mortality have been based on published statistics and morality tables provided
by the French government.
Sensitivity analysis
Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other
assumptions constant, would have affected the defined benefit obligation by the amounts shown below:
Discount rate (+/-0.5% movement)
Future increase cost (+/-1.0 % movement)
Increase
US$
Decrease
US$
8,549
(14,521)
(7,538)
18,265
Although the analysis does not take account of the full distribution of cashflows expected under the plan, it
does provide an approximation of the sensitivity of the assumptions shown.
BrainChip Holdings Ltd
2016 Annual Report
57
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
20. CONTRIBUTED EQUITY
(a) Ordinary Shares
Issued and fully paid
(b) Movements in ordinary shares on issue
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
Consideration shares (1)
Conversion of Performance Rights (2)
At 31 December 2015
At 1 January 2016
Conversion of Performance Rights April 2016 (3)
Issue of shares pursuant to non-renounceable rights
issue (4)
Issue of shares pursuant to underwriting agreements
relating to non-renounceable rights issue (4)
Issue of shares pursuant to shortfall agreements
relating to non-renounceable rights issue (4)
Issue of shares pursuant to Acquisition of Spikenet
Technology SAS (5)
Issue of shares pursuant to prospectus dated 1
September 2016 (6)
Issue of shares pursuant to private placement (7)
Conversion of Performance Rights December 2016 (8)
Share issue costs incurred
At 31 December 2016
2016
US$
2015
US$
34,013,023
27,266,878
Number
10,000,000
749,354
620,155
1,182,429
(12,551,938)
248,269,752
353,605,500
69,000,000
US$
20,112
290,000
246,893
118
-
-
26,709,755
-
670,875,252
27,266,878
670,875,252
35,500,000
27,266,878
-
4,526,634
487,364
11,666,668
1,256,101
10,976,284
1,221,216
10,405,488
938,442
100
29,750,000
34,500,000
-
11
4,071,192
-
(1,228,181)
808,200,426
34,013,023
(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;
(3) 35,500,000 Performance Rights were converted to shares in BrainChip on 8 April 2016 upon the achievement
of Milestone 3.
(4) On 14 April 2016 BrainChip announced a pro-rata non-renounceable rights issue on a 1 for 26 shares held
by eligible shareholders on 20 April 2016 at an issue price of A$0.15 per share to raise A$4,075,438.
Entitlements not taken up were allocated to underwriters and pursuant to shortfall applications by
sophisticated investors, resulting in an issue of a total of 27,169,586 shares.
(5) On 1 September 2016, 10,405,488 shares were issued at an issue price of A$0.12 per Share as part
consideration for the purchase of Spikenet Technology SAS.
(6) On 5 September 2016, 100 shares were issued at an issue price of A$0.14 per Share in accordance with the
Prospectus dated 1 September 2016.
(7) On 1 November 2016, 29,750,000 shares were issued at an issue price of A$0.18 per Share pursuant to a
private placement to institutional and sophisticated investors raising A$5.335m.
(8) 34,500,000 Class A, B and C Performance Rights were converted to shares in BrainChip on 22 December
2016, milestones of which had been attained and announced previously.
BrainChip Holdings Ltd
2016 Annual Report
58
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
-
1,000,000
6,500,000
48,500,000
56,000,000
Closing
balance
31 December
2016
-
1,000,000
6,500,000
48,500,000
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
20. CONTRIBUTED EQUITY (Continued)
(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 2016 are as follows:
Class A Performance Rights (all of which are restricted);
Class B Performance Rights (all of which are restricted);
Class C Performance Rights (all of which are restricted);
Class D Performance Rights (all of which are restricted).
(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
2016
13,500,000
13,500,000
48,500,000
46,500,000
122,000,000
Converted (2)
Allocated
(13,500,000)
(13,500,000)
(43,000,000)
-
-
1,000,000
1,000,000
2,000,000
(70,000,000)
4,000,000
56,000,000
(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 BrainChip Holdings. 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 at the Board’s discretion. Any
Performance Rights not issued by 30 June 2018 would be issued to Peter van der Made (60%) and Robert
F. Mitro Trust (40%), subject to obtaining all required regulatory and shareholder approvals.
(2) 35,500,000 Class C Performance Rights were converted to shares in BrainChip on 8 April 2016 on
attainment of Milestone 3 as announced 15 March 2016. Included in the converted Class C Performance
Rights were 500,000 Performance Rights issued to employees in January 2016 from the unallocated pool
held at 31 December 2015. A further 34,500,000 Class A, B and C Performance Rights were converted to
shares in BrainChip on 22 December 2016, milestones of which had been attained and announced
previously.
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 $500,000 (Milestone 4).
BrainChip Holdings Ltd
2016 Annual Report
59
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
20. CONTRIBUTED EQUITY (continued)
(f)
Options on issue
Unissued ordinary shares of the Company under option at 31 December 2016 are as follows:
Type
Options issued as part consideration as part of the Acquisition
Unlisted (1)
Options issued to Directors and employees (refer Note 23)
Unlisted (2)
Unlisted (3)
Unlisted (4)
Unlisted (5)
Unlisted (6)
Unlisted (7)
Unlisted (8)
Unlisted (8)
Unlisted (9)
Total
Expiry Date
Exercise
Price (US$)
Number of
options
10/09/2019
0.112
6,250,000
30/11/2018
21/12/2020
21/12/2020
1/2/2021
01/11/2019
30/09/2021
10/10/2021
10/10/2021
22/12/2021
0.161
0.258
0.172
0.165
0.137
0.161
0.113
0.205
0.180
11,000,000
250,000
5,550,000
1,500,000
7,000,000
50,000,000
4,000,000
2,000,000
4,000,000
91,550,000
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 of BrainChip Holdings 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 were issued to employees and consultants vest equally over a 4-year period
and, after vesting, are exercisable before 21 December 2020. 5,000,000 were forfeited on cessation of
employment in the half-year.
(5) The 1,500,000 unlisted options issued to employees vest equally over a 4-year period and, after vesting, are
exercisable before 1 February 2021.
(6) The 7,000,000 unlisted options were issued to Foster Stockbroking Pty Ltd as consideration for acting as
Sole & Exclusive Lead Manager to the Placement announced on ASX on 26 October 2016. These options
will vest when the share price is trading at 150% of the exercise price ie. $0.27 (based on 30 day VWAP) for
30 consecutive trading days, are exercisable before 1 November 2019.
(7) Of the 50,000,000 unlisted options issued to the CEO, Lou DiNardo, 23,000,000 options vest equally over a
4-year period and, after vesting, are exercisable before 30 September 2020. 27,000,000 of these options
have specific performance criteria linked to the attainment of these options and vest equally over a 4-year
period after attainment of the performance criteria, and are exercisable before 30 September 2021.
(8) The 6,000,000 unlisted options issued to employees vest equally over a 4-year period and, after vesting, are
exercisable before 10 October 2021.
(9) The 4,000,000 unlisted options issued to employees vest equally over a 4-year period and, after vesting, are
exercisable before 22 December 2021
BrainChip Holdings Ltd
2016 Annual Report
60
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
21. RESERVES
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Foreign
currency
reserve
Share
based
payment
reserve
Other
equity
reserve
Total
US$
US$
-
1,939,902
-
1,939,902
US$
-
-
247,872
247,872
US$
-
1,939,902
247,872
2,187,774
1,939,902
(24,037)
1,876,229
-
3,792,094
247,872
-
-
-
247,872
2,187,774
(24,037)
1,876,229
5,414
4,045,380
-
-
-
-
-
5,414
5,414
CONSOLIDATED
At 1 January 2015
Share based payments
Shares issued to extinguish Group convertible notes
At 31 December 2015
At 1 January 2016
Forfeit of options
Share based payments
Foreign translation of foreign operations
At 31 December 2016
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.
Translation reserve
The translation reserve comprises all foreign currency differences arising from the translation
of the financial statements of foreign operations.
22. ACCUMULATED LOSSES
At 1 January
Forfeit of options issued to employee in the prior year
Re-measurement gains (losses) on defined benefit plans
Net loss in current period attributable to members of the Company
At 31 December
2016
US$
2015
US$
(27,718,082)
24,037
362
(4,855,614)
(32,549,297)
(357,967)
-
-
(27,360,115)
(27,718,082)
BrainChip Holdings Ltd
2016 Annual Report
61
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
23. SHARE-BASED PAYMENTS
(a) Recognised share-based payment expenses
Performance Rights issued to employees
Options issued to directors, employees and contractors
2016
US$
2015
US$
157,877
917,505
1,075,382
681,324
1,258,578
1,939,902
A Performance Rights Plan and a Long Term Incentive Plan were adopted by Shareholders on 30 July 2015.
A Directors’ and Officers’ Option Plan was adopted by shareholders on 4 December 2015.
Performance Rights Plan
The Company established the ‘BrainChip Holdings Limited Performance Rights Plan” (PRP) in July 2015,
awards are made in order to retain key Directors, employees and contractors and to provide selected
participants with the opportunity to participate in the growth of the Company. Rights are granted under the
PRP for no consideration. Each right, upon vesting, entitles the holder to one fully paid ordinary share in the
capital of the Company if certain time and/or performance measures are met in the measurement period. The
Rights issued to date are subject to a combination of conditions including time-based conditions which
prescribe a period of time that the employee must stay employed by the Company prior to automatic vesting
and specific operational based milestones.
The application of conditions on issue and at vesting are at the absolute discretion of the Board. If at any time
prior to the Vesting Date a participant ceases to be eligible through resignation or termination the Rights
automatically lapse and are forfeited, subject to the discretion of the Board.
Long Term Incentive Plan
The Company established a “Long Term Incentive Plan” (LTIP) in July 2015, the objective of the plan is to
attract and maintain key employees and consultants. It is considered that the LTIP, through the issue of
Options, will provide selected employees and consultants with opportunity to participate in the future growth of
the Company. Options offered under the LTIP must be offered at no more than a nominal value and under
terms to be determined by the Board from time to time. It is not the intention of the Company to apply for
quotation of any of the Options which are issued under the LTIP.
Directors and Officers Option Plan
The Company established the “BrainChip Directors’ and Officers’ Option Plan” (DOOP) in December 2015, to
enable eligible Directors and officers (including executive and non-executive directors) of the Company or its
subsidiaries to receive options to acquire shares in the Company. Issues under the DOOP provide Directors
and Officers with an additional incentive to work to improve the performance of the Company and to attract
and/or retain eligible Directors and Officers.
Options offered under the DOOP will be offered on terms at the absolute discretion of the Board, but unless
otherwise determined will have an exercise price of not less than the average closing price of at least five
days trading prior to the invitation being issued, will have an expiry date of not later than five years and will
vest at such times as the Board with the advice of the remuneration committee may specify.
(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 BrainChip Holdings.
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 during the year:
- 500,000 Class C Perf Rights issued on 1 February 2016, at a grant date fair value of US$0.16 per right and
include a 12 month escrow period from the date of grant; and
- 2,000,000 Class D Perf Rights issued on 28 September 2016, at a grant date fair value of US$0.08 per
right and include a 12 month escrow period from the date of issue; and
- 1,000,000 Class B Perf Rights issued on 10 October 2016, at a grant date fair value of US$0.11 per right
and include a 12 month escrow period from the date of grant; and
- 500,000 Class C Perf Rights issued on 10 October 2016, at a grant date fair value of US$0.20 per right and
include a 12 month escrow period from the date of grant.
BrainChip Holdings Ltd
2016 Annual Report
62
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
23. SHARE-BASED PAYMENTS (continued)
The following table summarises the movement in Performance Rights issued to employees:
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Class A Perf Rights
Class B Perf Rights
Class C Perf Rights
Class D Perf Rights
Opening
balance
1 January
2016
Issued
during the
year
Converted
during the
year
-
-
2,000,000
-
2,000,000
-
1,000,000
1,000,000
2,000,000
4,000,000
-
-
(2,500,000)
-
(2,500,000)
Closing
balance
31 December
2016
-
1,000,000
500,000
2,000,000
3,500,000
(c)
Summary of options granted under the Long Term Incentive Plan and Directors & Officers Option
Plan
Unissued ordinary shares of the Company under option at 31 December 2016 are as follows:
Type
Grant Date
Expiry Date
Unlisted (1)
Unlisted (2)
Unlisted (3)
Unlisted (4)
Unlisted (5)
Unlisted (6)
Unlisted (7)
Unlisted (7)
Unlisted (8)
Total
4/12/2015
4/12/2015
4/12/2015
22/01/2016
01/11/2016
28/09/2016
8/07/2016
7/10/2016
14/12/2016
30/11/2018
21/12/2020
21/12/2020
01/02/2021
01/11/2019
30/09/2021
10/10/2021
10/10/2021
22/12/2021
Exercise
Price (US$)
0.161
0.258
0.172
0.165
0.137
0.161
0.113
0.205
0.180
Number of
options
11,000,000
250,000
5,550,000
1,500,000
7,000,000
50,000,000
4,000,000
2,000,000
4,000,000
85,300,000
Vested at
year end
11,000,000
-
-
-
7,000,000
-
-
-
-
18,000,000
(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. 5,000,000 were forfeited on cessation of employment in the half-
year.
(4) 1,500,000 unlisted options exercisable at A$0.23 per share before 1 February 2021 issued on 1 February
2016 pursuant to the Company’s Long Term Incentive Plan as approved by shareholders on 30 July 2015
to employees.
(5) 7,000,000 unlisted options were issued on 1 November 2016 pursuant to the Company’s Long Term
Incentive Plan as approved by shareholders on 30 July 2015 to Foster Stockbroking Pty Ltd as consideration
for acting as Sole & Exclusive Lead Manager to the Placement announced on ASX on 26 October 2016.
These options will vest when the share price is trading at 150% of the exercise price ie. $0.27 (based on 30
day VWAP) for 30 consecutive trading days, are exercisable before 1 November 2019.
(6) 50,000,000 unlisted options were issued to the CEO, Lou DiNardo, on 30 September 2016 pursuant to the
Company’s Long Term Incentive Plan as approved by shareholders on 30 July 2015. 23,000,000 options
vest equally over a 4-year period and, after vesting, are exercisable before 30 November 2021. 27,000,000
of these options have specific performance criteria linked to the attainment of these options and vest equally
over a 4-year period and attainment of the performance criteria, and are exercisable before 30 November
2021.
(7) 6,000,000 unlisted options were issued to employees on 10 October 2016 pursuant to the Company’s Long
Term Incentive Plan as approved by shareholders on 30 July 2015. These options vest equally over a 4-
year period and, after vesting, are exercisable before 10 October 2021.
(8) 4,000,000 unlisted options were issued to employees on 22 December 2016 pursuant to the Company’s
Long Term Incentive Plan as approved by shareholders on 30 July 2015. These options vest equally over
a 4-year period and, after vesting, are exercisable before 22 December 2021
The above options are exercisable after vesting and at any time on or before the expiry date. Vesting periods
for the above options vary.
BrainChip Holdings Ltd
2016 Annual Report
63
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
23. SHARE-BASED PAYMENTS (continued)
(d) Movements during the year
The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in,
share options during the year:
Outstanding at 1 January
Granted during the year
Forfeited during the year
Lapsed during the year
Expired during the year
Outstanding at 31 December
Exercisable (vested and unrestricted)
at 31 December
2016
WAEP
(US$)
0.168
0.158
(0.172)
-
-
0.160
2016
Number
21,800,000
68,500,000
(5,000,000)
-
-
85,300,000
11,000,000
2015
WAEP
(US$)
-
0.168
-
-
-
0.168
2015
Number
-
21,800,000
-
-
-
21,800,000
11,000,000
The weighted average remaining contractual life for the share options outstanding at 31 December 2016 is 4.18
years (2015: 3.94 years).
The weighted average fair value of options granted during the year was US$0.09 (2015: US$0.12)
The range of exercise prices for options outstanding at the end of the year was US$0.11 to US$0.26
(e) Options pricing model
The fair value of the equity-settled share options granted under the LTIP and DOOP is estimated as at the
date of grant using a Black Scholes Option Pricing model.
The following table lists the inputs to the models used for the valuation of options as at 31 December 2016:
Executive
Director
Options
Employee
Options
Employee
Options
Employee
Options
Employee
Options
Consultant
Options
50,000,000
4,000,000
2,000,000
4,000,000
1,500,000
7,000,000
0.06
0.08
0.16
110%
-
0.14
0.17
0.18
110%
-
0.16
0.20
0.20
110%
-
0.09
0.11
0.11
110%
0.12
0.17
0.17
138%
-
0.11
0.21
0.14
110%
-
1.73%
2.15%
1.78%
1.61%
2.00%
1.72%
5.0
5.0
5.0
5.0
5.0
3.0
Number of options
issued
Fair values at
measurement date
US$
Share price at
Grant Date US$
Exercise price
US$
Expected volatility
Dividend yield
Risk-free interest
rate (%)
Expected life of
options in years
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.
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2016 Annual Report
64
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
24. COMMITMENTS
(a) Operating lease commitments - Company as lessee
Office lease
Up to one year
Two to five years
2016
US$
2015
US$
120,311
116,376
236,687
45,650
-
45,650
(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
(c) Commitments
2016
US$
2015
US$
-
-
28,605
28,605
Certain employees within the Group are entitled to severance payments in the event that they are terminated
without cause. As at 31 December 2016, the total of all possible severance payments due to employees in the
Group was US$2,221,544 (31 December 2015: US$600,000).
25. CONTINGENT ASSETS AND LIABILITIES
The Consolidated Entity had no contingent assets or liabilities at 31 December 2016 (31 December 2015: $Nil).
26. EVENTS AFTER THE BALANCE SHEET DATE
No matters or circumstances have arisen since the end of the financial year which significantly affected or may
significantly affect the operations of the Consolidated Entity, the results of those operations, or the state of affairs
of the Consolidated Entity in subsequent financial years.
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2016 Annual Report
65
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
27. AUDITOR'S REMUNERATION
l
y
n
o
Amounts received or due to be receivable by Ernst & Young (Australia) for:
An audit or review of the financial reports of the entity
Non-audit services – tax compliance
Amounts received or due and receivable by non-Ernst & Young audit firms
for:
An audit or review of the financial report of the entity
2016
US$
2015
US$
64,242
25,260
89,502
35,105
9,314
44,419
16,073
16,073
15,500
15,500
e
s
u
l
a
n
o
s
r
e
p
r
o
F
28. OPERATING SEGMENTS
For management purposes, the Group is organised into one operating segment, being the technological
development of designs that can be licensed to OEM Customers and semiconductor manufacturers of Chips based
on Artificial Neural Networks.
All the activities of the Group 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 currently derives revenue from its France based subsidiary, Spikenet Technology.
Geographically, the Group has the following revenue information based on the location of its customers and non-
current assets from where its investing activities are managed.
Revenue from external customers
North America
Europe
Revenue from continuing operations
Customers representing more than 10% of revenues in the current year
amounted to $102,682 comprised license revenue of $75,860 (2015:$Nil)
and engineering services of $26,822 (2015: $Nil), both of which are located
in Europe.
Non-current assets
USA
Australia
France
2016
US$
2015
US$
4,912
144,372
149,284
-
-
-
174,153
-
2,674,550
2,848,703
101,255
2,026
-
103,281
BrainChip Holdings Ltd
2016 Annual Report
66
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
29. ACQUISTION OF SPIKENET
On 1 September 2016, BrainChip Holdings Ltd completed the acquisition of Spikenet Technology SAS, a France based
Artificial Intelligence company pursuant to a Share Sale Agreement dated 25 August 2016.
The purchase consideration comprised the issue of 10,405,488 shares in BrainChip Holdings Ltd and €529,598 cash
to the vendors of Spikenet, in exchange for 100% of the issued capital of Spikenet, as noted below:
(a) Purchase Consideration
BrainChip Holdings Ltd shares issued
Share price of A$0.12 being the share price of BrainChip Holdings on 1
September 2016
Fair value of shares issued
Cash paid - €529,598
Loan from BrainChip Holdings Ltd
Purchase consideration
(b) Provisional fair value of assets and liabilities acquired
Trade and other receivables
Inventories
Grants receivable (Note 12)
Other current assets (Note 12)
Property plant and equipment (Note 13)
Intangible assets (Note 14)
Non-current other assets
Overdraft facility acquired
Trade and other payables (Note 15)
Financial liabilities - current (Note 17)
Financial liabilities - non-current (Note 17)
Employee benefits liabilities (Note 16)
Other liabilities (Note 18)
Defined benefit plan (Note 19)
Net assets acquired
US$
10,405,488
0.09
938,442
590,226
139,554
1,668,222
255,116
151
221,837
34,403
11,875
2,805,458
21,924
(77,560)
(365,754)
(490,933)
(247,053)
(47,157)
(343,652)
(110,433)
1,668,222
From the date of acquisition, Spikenet contributed $150,910 of revenue and $199,115 loss before tax from
continuing operations to the Group. If the combination had taken place at the beginning of the year, revenue
from continuing operations would have been $386,423 and loss before tax from continuing operations for the
Group would have been $4,812,818.
The fair value of trade and other receivables is $255,116. None of the trade and other receivables have been
impaired and it is expected that the full contractual amounts can be collected.
(c) Analysis of cash flow on acquisition
Transaction costs of the acquisition (included in cash flows from operating activities)
Acquisition of subsidiary, net of overdraft acquired (included in cash flows from investing
activities)
Transaction costs attributable to issuance of shares (included in cash flows from financing
activities, net of tax)
Net cash flow on acquisition
(80,566)
(667,786)
(4,644)
(752,996)
The fair value of assets and liabilities acquired has been measured provisionally due to the acquisition having
occurred close to the year end.
BrainChip Holdings Ltd
2016 Annual Report
67
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
30.
ACQUISITION OF BRAINCHIP
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
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 was 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
2016 Annual Report
68
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
31. DISCONTINUED OPERATION
On 21 December 2016, Blue Sky Corporation, a wholly owned subsidiary within the BrainChip Group, was
sold to a third party for A$1. The transaction resulted in the disposal of Blue Sky Corporation and its wholly
owned subsidiaries and released BrainChip from any future exploration lease commitments.
The Group also dissolved two US subsidiaries, Eternal Resources (USA) LLC and Eternal Resources (USA)
Inc., after the assignment of an overriding royalty agreement from Eternal Resources (USA) LLC to BrainChip
Inc.
(a)
Financial performance
Revenue from the sale of exploration tenements
Impairment of exploration expenses
Impairment of receivable from third parties (note 11)
Impairment of advance to third parties
Operating loss from discontinued operations
Income tax expense
Operating loss attributable to discontinued operations after tax
Gain on sale and dissolution of subsidiaries
Income tax expense
Gain on sale and dissolution of subsidiaries after tax
Loss attributable to discontinued operations
2016
US$
54,517
(157,990)
(120,281)
(54,000)
(277,754)
-
(277,754)
26,725
-
26,725
(251,029)
2015
US$
-
(64,038)
-
-
(64,038)
-
(64,038)
-
-
-
(64,038)
Cash flow information for the period 1 January 2016 to 21 December 2016, and the comparative year
(10 September 2015 to 31 December 2015)
(b)
Net cash outflow from operating activities
Net cash inflow from investing activities
Net cash outflow from financing activities
Net cash flow
Consideration received (A$1)
Carrying amount of net liabilities sold
Gain on disposal
Income tax expense
Gain on disposal after income tax
-
70,326
-
70,326
-
287,052
-
287,052
1
26,724
26,725
-
26,725
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2016 Annual Report
69
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
32. 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)
Spikenet Technology SAS (3)
Aziana Exploration Corporation
Eternal Resources Pty Ltd
Country of
incorporation
USA
USA
France
British Virgin
Islands
Australia
Subsidiary
Corporation
companies
of Aziana
Exploration
Indian Ocean Minerals Investment Corporation
Blue Sky Corporation (5)
Mauritius
Mauritius
Subsidiary companies of Blue Sky Corporation
Laka Minerals SARL (5)
Tanety Lava SARL (5)
Tanety Zina SARL (5)
Esama Minerals SARL (5)
Subsidiary companies of
Investment Corporation
Esama Minerals SARL (4),(5)
Indian Ocean Minerals
Subsidiary companies of Eternal Resources Pty Ltd
Eternal Resources (USA) Inc. (6)
Subsidiary companies of Eternal Resources (USA)
Incorporated
Eternal Resources (USA) LLC (6)
Madagascar
Madagascar
Madagascar
Madagascar
Madagascar
USA
USA
Beneficial interest
2016
2015
100%
-
100%
100%
100%
100%
-
-
-
-
-
-
-
-
100%
-
-
100%
100%
100%
100%
100%
100%
100%
-
100%
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) Spikenet Technology SAS was acquired on 1 September 2016.
(4) Esama Minerals SARL shares were transferred to Blue Sky Corporation on 28 October 2016.
(5) Blue Sky Corporation, and its wholly owned subsidiaries were sold to a third party on 21 December 2016.
(6) Eternal Resources (USA) lnc. and Eternal Resources (USA) LLC were dissolved on 30 November 2016.
(b) Ultimate legal parent
BrainChip Holdings Ltd is the ultimate parent entity.
BrainChip Holdings Ltd
2016 Annual Report
70
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
32. 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 2016.
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
2015
2016
US$
US$
800,997
-
320,299
780,963
216,330
1,205,750
1,121,296
2,203,043
(1) Consulting fees payable to Mr Bolto and Ms Stein as at 31 December 2016 totalled US$25,291 and
US$7,226 respectively (31 December 2015: US$Nil). Director fees payable to Dr Osseiran as at 31
December 2016 totalled US$Nil (31 December 2015: US$11,492). The comparative has been amended to
include all applicable annual leave benefits.
(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:
The Group accrued unclaimed travel expenses related to business travel incurred by Mr Lou DiNardo of
US$56,000 (31 December 2015: US$Nil).
During the reporting 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.
(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 during the prior reporting period:
• Accounting, secretarial and administrative services were provided to BrainChip Holdings totalling A$127,747
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
At the time of the acquisition of Spikenet had a loan payable to a shareholder of Spikenet of €5,000
(US$5,268). This loan was repaid in December 2016.
There were no outstanding loans arising to or from related parties (31December 2015: $Nil).
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2016 Annual Report
71
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
33. PARENT ENTITY INFORMATION
Information relating to BrainChip Holdings
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Issued capital
Other contributed equity
Accumulated losses
Share based payment reserve
Option premium reserve
Foreign currency translation reserve
Other reserves
Total shareholders’ equity
Net loss of the parent entity (1)
Total comprehensive loss of the parent entity
2016
US$
2015
US$
3,178,824
2,599,230
5,778,054
(268,948)
-
(268,948)
5,509,106
111,132
1,727,306
1,838,438
(101,868)
-
(101,868)
1,736,570
59,252,449
2,025,617
(80,494,371)
23,636,726
480,731
858,982
(251,028)
5,509,106
52,506,305
2,025,617
(75,668,571)
21,784,534
480,731
858,982
(251,028)
1,736,570
4,849,836
4,849,836
72,838,245
72,838,245
(1) At the reporting date investments and loans receivable from controlled entities at cost totalled US$6,493,357
and US$805,488 respectively. An impairment of US$4,698,615 (2015: US$47,924,683) was recognised for
the year ended 31 December 2016 of which US$804,488 (2015: US$6,577,764) was recognised against the
loans receivable, and US$3,894,127 (2015: US$41,346,919) was recognised against the investments.
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
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2016 Annual Report
72
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 2016 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
(b)
the financial statements and notes also comply with International Financial Reporting Standards as
disclosed in note 2(b) and;
(c)
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
(d)
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
2016.
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
On behalf of the Board.
E L (Mick) Bolto
Chairman
r
o
Perth, 30 March 2017F
BrainChip Holdings Ltd
2016 Annual Report
73
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Independent Auditor’s Report to the Shareholders of BrainChip Holdings
Limited
Report on the audit of the financial report
Opinion
We have audited the financial report of BrainChip Holdings Limited (“the Company”), including its
subsidiaries (“the Group”), which comprises the consolidated statement of financial position as at 31
December 2016, the consolidated statement of comprehensive income, the consolidated statement of
changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising
a summary of significant accounting policies and other explanatory information and the directors’
declaration.
In our opinion the accompanying financial report of the Group is in accordance with the Corporations Act
2001, including:
(i)
(ii)
giving a true and fair view of the Group’s consolidated financial position as at 31 December 2016
and of its consolidated financial performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the Corporations Act
2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s
APES110 Code of Ethics for Professional Accountants (“the Code”) that are relevant to our audit of the
financial report in Australia; and we have fulfilled our other ethical responsibilities in accordance with the
Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Material Uncertainty Related to Going Concern
Without qualifying our opinion, we draw attention to Note 2 to the financial report which describes the
principal conditions that raise doubt about the consolidated entity’s ability to continue as a going concern.
These conditions indicate the existence of a material uncertainty that may cast significant doubt about
the consolidated entity’s ability to continue as a going concern and therefore, the consolidated entity may
be unable to realise its assets and discharge its liabilities in the normal course of business.
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
PT:RH:BRAINCHIP:014
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial report of the current year. These matters were addressed in the context of our
audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a
separate opinion on these matters. For the matter below, our description of how our audit addressed the
matter is provided in that context. In addition to the matter described in the Material Uncertainty Related
to Going Concern section, we have determined the matter described below to be the key audit matters to
be communicated in our report.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of material
misstatement of the financial report. The results of our audit procedures, including the procedures
performed to address the matter below, provide the basis for our audit opinion on the accompanying
financial report.
Share-based payments
Why significant
How our audit addressed the key audit matter
As disclosed in note 23 share-based payments to the
financial statements, the Group has awarded share
options and performance rights to management and
other staff during the year. The Group calculated the
related expense, using an external expert to determine
the fair value of the options and performance rights.
This matter was significant to our audit because the
calculations are complex and the determination of fair
value involves estimates.
We involved our valuation specialists to assess the
Group’s calculation of the expense associated with the
options and performance rights issued during the year,
in particular the assumptions used in determining the
fair value of the options on the grant date.
We assessed the work of the Group’s external expert and
the Group’s assumptions used in the share based
payment expense calculations. In addition, we assessed
the independence and the competence of the external
expert.
We assessed the adequacy of the disclosures included in
note 23 to the financial statements and whether the
classifications and disclosures were in accordance with
the applicable Australian Accounting Standards.
Information Other than the Financial Statements and Auditor’s Report
The directors are responsible for the other information. The other information comprises the information
in the Company’s Annual Report for the year ended 31 December 2016, but does not include the financial
report and the auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any form
of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the financial report or
our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based upon the
work we have performed, we conclude that there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report in this regard.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
PT:RH:BRAINCHIP:014
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Directors’ responsibilities for the financial report
The directors of the company are responsible for the preparation of the financial report that gives a true
and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for
such internal control as the Directors determine is necessary to enable the preparation of the financial
report that gives a true and fair view and is free from material misstatement, whether due to fraud or
error.
In preparing the financial report, the directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with Australian Auditing Standards will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken
on the basis of this financial report.
As part of an audit in accordance with Australian Auditing Standards, we exercise professional judgment
and maintain professional scepticism throughout the audit. We also:
►
identify and assess the risks of material misstatement of the financial report, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that
is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control
► obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control
► evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors
► conclude on the appropriateness of the directors’ use of the going concern basis of accounting in the
preparation of the financial report. We also conclude, based on the audit evidence obtained, whether
a material uncertainty exists related to events and conditions that may cast significant doubt on the
entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we
are required to draw attention in the auditor’s report to the disclosures in the financial report about
the material uncertainty or, if such disclosures are inadequate, to modify the opinion on the financial
report. However, future events or conditions may cause an entity to cease to continue as a going
concern
►
evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the consolidated financial statements represent the underlying transactions
and events in a manner that achieves fair presentation
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
PT:RH:BRAINCHIP:014
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
► obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the financial report. We are responsible
for the direction, supervision and performance of the Group audit. We remain solely responsible for
our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated to the directors, we determine those matters that were of most
significance in the audit of the financial report of the current year and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should
not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Report on the remuneration report
Opinion on the remuneration report
We have audited the remuneration report included in pages 15 to 26 of the directors' report for the year
ended 31 December 2016.
In our opinion, the remuneration report of BrainChip Holdings Limited for the year ended 31 December
2016, complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the company are responsible for the preparation and presentation of the remuneration
report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing
Standards.
Ernst & Young
Philip Teale
Engagement Partner
Perth
30 March 2017
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
PT:RH:BRAINCHIP:014
Security Holder Information as at 24 March 2017
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
(a) Top 20 Quoted Shareholders
MR PETER AJ VAN DER MADE
MR ROBERT F MITRO
MR ANIL SHAMRAO MANKAR & MRS MEENA ANIL MANKAR
METALS X LIMITED
NERONA PTE LTD
MR PAUL GLENDON HUNTER
MS CRISTINA M MITRO
MS VELIA MITRO
CITICORP NOMINEES PTY LIMITED
D'YQUEM INVESTMENTS LIMITED
CROSSFIELD INTECH NOMINEES PTY LTD
MR ADAM OSSEIRAN + MRS REBECCA OSSEIRAN-MOISSON
J P MORGAN NOMINEES AUSTRALIA LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
HUNG {DO-DUY}
MR NEIL ROBERT RINALDI
PETROLEUM MANAGEMENT INTERNATIONAL PTY LTD
ABN AMRO CLEARING SYDNEY NOMINEES PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
MR DAMIEN TERENCE MICHAEL RHODES
%
19.96
13.76
13.50
6.45
5.64
1.24
1.24
1.24
1.16
1.14
1.04
1.04
0.65
0.62
0.62
0.57
0.49
0.44
0.38
0.35
Number of
shares
161,305,508
111,202,500
109,135,000
52,088,889
45,555,500
10,000,000
10,000,000
10,000,000
9,345,997
9,198,000
8,438,500
8,438,500
5,285,636
5,046,944
5,030,685
4,582,500
4,000,000
3,538,602
3,043,250
2,800,000
Total
71.52%
578,036,011
(b) Distribution of quoted ordinary shares
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 1,000,000,000
Total
Number of
share holders
Number of
shares
112
897
708
1,819
456
3,992
18,955
2,969,588
5,735,836
67,433,007
732,043,040
808,200,426
(c) Number of holders with less than a marketable parcel of ordinary shares
204
160,166
(d) Substantial Shareholders
MR PETER AJ VAN DER MADE
MR ROBERT F MITRO
MR ANIL SHAMRAO MANKAR & MRS MEENA ANIL MANKAR
APAC RESOURCES LIMITED AND RELATED BODIES CORPORATE
NERONA PTE LTD
%
19.96
13.76
13.50
6.74
5.64
Number of
shares
161,305,508
111,202,500
109,135,000
54,445,177
45,555,500
(1) APAC has indirect holdings through its interest in BNP Paribas Nominees Pty Ltd, 384,066 shares and Metals X Ltd, 54,061,111 shares.
BrainChip Holdings Ltd
2016 Annual Report
78
Security Holder Information as at 24 March 2017
(e) Voting Rights
The voting rights for each class of security on issue are:
Ordinary fully paid shares
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
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
5,550,000
250,000
1,500,000
50,000,000
7,000,000
4,000,000
2,000,000
4,000,000
3,000,000
3,000,000
1,000,000
100,000
15.7 cents
22.5 cents
24.0 cents
36.0 cents
23.0 cents
22.5 cents
18.0 cents
15.0 cents
27.0 cents
24.0 cents
24.5 cents
24.5 cents
33.0 cents
32.0 cents
10/09/2019
30/11/2018
21/12/2020
21/12/2020
01/02/2021
30/09/2021
1/11/2019
10/10/2021
10/10/2021
22/12/2021
16/02/2022
31/12/2022
16/02/2022
16/02/2022
1
3
7
1
1
1
1
1
1
1
1
1
1
1
Number of
Class
Milestone
Number holders
Performance Rights
1,000,000
6,500,000
48,500,000
Class B
Class C
Class D
Refer note 20(e)
Refer note 20(e)
Refer note 20(e)
1
2
8
(g) Restricted Securities
Securities
Number
Exercise Price
A$
Expiry Date
Restricted
until
Number
holders
Shares
Performance Rights
2,500,000
1,000,000
Shares
361,881,894
Performance Rights
2,000,000
-
-
-
-
-
1/04/2017
10/09/2020
8/07/2017
-
10/09/2017
21/12/2020
2
1
10
1
(h) Statement pursuant to ASX Listing Rule 4.10.19
Pursuant to the requirements of ASX Listing Rule 4.10.19, during the year ended 31 December
2016, the Company has used the cash and assets in a form readily convertible to cash that it had
at the time of re-admission to ASX in a way consistent with its business objectives.
BrainChip Holdings Ltd
2016 Annual Report
79