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BrainChip Holdings Ltd
Annual Report
2017
Corporate Directory
Board of Directors
Eric (Mick) Bolto (Non-Executive Chairperson)
Louis DiNardo (Executive Director and CEO)
Julie H. Stein (Non-Executive Director, Audit Committee Chair)
Adam Osseiran (Non-Executive Director)
Emmanuel Hernandez (Non-Executive Director, Remuneration Committee Chair)
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Company Secretary
Naomi Dolmatoff
Registered Office
Level 12, 680 George Street, Sydney NSW 2000 Australia
Telephone: +61 2 8280 7355
Facsimile: +61 2 9287 0350
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Postal Address
PO Box 20547, World Square NSW 2002
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: 1300 850 505 International: +61 3 9415 4000
Facsimile: +61 8 9323 2033 Online: www.investorcentre.com
Securities Exchange
Australian Securities Exchange Limited
Exchange Plaza, 2 The Esplanade, Perth WA 6000
Codes: BRN
ABN: 64 151 159 812
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Auditor’s Independence Declaration
Consolidated Statement of Profit or Loss and Comprehensive Income for the Year ended 31
December 2017
Consolidated Statement of Financial Position as at 31 December 2017
Consolidated Statement of Cash Flows for the Year ended 31 December 2017
Consolidated Statement of Changes in Equity for the Year ended 31 December 2017
Notes to the Consolidated Financial Statements for the Year ended 31 December 2017
Contents
Letter from the CEO
Directors’ Report
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Directors’ Declaration
Independent Audit Report
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Security Holder Information as at 13 March 2018
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Letter from the CEO
To our Valued Shareholders,
The year ending 31 December 2017 was a year of great progress for BrainChip. Our team has executed well
on all strategic and tactical plans. The results of this performance establish a foundation for growth and the
building of an enduring brand for BrainChip in the Artificial Intelligence (AI) market.
During the year we assembled a team that has deep experience; Robert Beachler joined the Company as
Senior Vice President of Marketing and Business Development and Ryan Benton joined the team as Chief
Financial Officer. Peter van der Made has complete focus on research and Anil Mankar has built a very strong
engineering team in Toulouse, France and Aliso Viejo, California. We have established a sales and marketing
presence in Europe, North America and Australia. We have new engagements with industry leaders in the
gaming and the large-scale storage industries. Our License and Development Agreement with Gaming
Partners International aligns us with a leader in the gaming industry and establishes a long-term revenue
sharing model. Our recent announcement with Quantum Corporation aligns us with a leader in mass storage
that has a large presence in the surveillance, media and entertainment markets. Our sales pipeline is robust
and continues to grow across multiple large markets. Our sales plan is to leverage these Original Equipment
Manufactures (OEMs) while we continue to engage directly with end users. Finally, we have strengthened our
board with the addition of Emmanuel Hernandez, who is a seasoned Silicon Valley executive and public
company board member.
We are well funded, following the completion of two capital raises during 2017 and the Company is in a position
to build a sustainable business in select targets markets for Civil Surveillance and Public Safety as well as
Commercial Surveillance. Most importantly we are now poised to further develop and commercialise the
AkidaTM Neuromorphic System-on-Chip (NSoC) which combines the JAST learning rules and neural
architecture with the fundamental intellectual property developed in our spiking neural network design.
During 2017 we introduced BrainChip Studio and BrainChip Accelerator. Our products have received multiple
awards and have been highlighted at trade shows and in trade publications. Our strategy is to capitalise on
our video analytic solutions in Civil and Commercial Surveillance while we engage with leaders in the
automotive, financial technology, cybersecurity and Internet-of-Things (IoT) industries to ensure success in
the AkidaTM product development and commercialization.
In short, we have a seasoned team, marquee customers and industry recognised products. We now pursue
the next phase of our vision, which is to provide a best-in-class AI processor based on our proprietary
technology. The Operations Review in our report highlights in detail the accomplishments that occurred in
2017. Our shareholders have been invaluable in supporting our efforts and we look forward to commercial
success in 2018.
Sincerely,
Louis DiNardo
President and Chief Executive Officer
BrainChip
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BrainChip Holdings Ltd
2017 Annual Report
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Directors’ Report
The directors submit their report of the consolidated entity, being BrainChip Holdings Ltd (“BrainChip
Holdings” or the “Company” or “BrainChip”) and its controlled entities (“Group” or “Consolidated Entity”), for
the year ended 31 December 2017.
DIRECTORS
The names and details of the Company’s directors in office during the financial period and until the date of
this report are as follows:
Eric (Mick) Bolto
Louis DiNardo
Peter van der Made
Julie H. Stein
Adam Osseiran
Emmanuel Hernandez
Non-Executive Chairman
Executive Director
Executive Director (resigned 1 January 2018)
Non-Executive Director
Non-Executive Director
Non-Executive Director (appointed 9 July 2017)
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:
Naomi Dolmatoff
Mark Pitts
Nerida Schmidt
appointed 6 October 2017
appointed 9 January 2017, resigned 6 October 2017
resigned 9 January 2017
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
During the reporting period the Group dissolved the following wholly-owned subsidiaries:
- Eternal Resources Pty Ltd on 16 February 2017;
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- Aziana Exploration Corporation on 29 November 2017.
Indian Ocean Minerals (Corporation) on 31 March 2017; and
The financial results of the Group are presented in US dollars, unless otherwise referenced.
PRINCIPAL ACTIVITIES
The principal activity of the Group is a developer of software and hardware accelerated solutions for
advanced artificial intelligence (AI) and machine learning applications with a primary focus on the
development of its BrainChip Studio and related software products, BrainChip Accelerator and AKIDA
Neuromorphic Processor Unit hardware products.
EMPLOYEES
The Consolidated Entity employed 26 employees at 31 December 2017 (2016: 21).
DIVIDENDS
No dividends have been paid or declared by the Company during the financial year or up to the date of this
report.
BrainChip Holdings Ltd
2017 Annual Report
3
Directors’ Report
REVIEW OF OPERATIONS
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Overview
The Group made a net loss after income tax for the year of $13,774,013 (2016: $5,098,102).
The increase in the loss from the prior year was mainly attributable to:
1) Share based payment expense of $6,941,360 (2016: $1,075,382), which represents the portion of the
vesting expense of options and performance rights issued to directors, employees and consultants
recognised during the reporting period, increased from the previous year due to the hiring of additional
senior executives, directors, and staff and the expected achievement of performance milestones.
2) Administrative expenses of $4,996,259 (2016: $2,556,319) increased on a year-over-year basis
principally a result of increased personnel expenses, consulting and professional costs and reflective of
management’s effort to reach BrainChip’s operating milestones; and
3) Amortisation of intangibles $1,108,423 (2016: $441,796) increased from the previous year reflecting a
full year of amortisation after the acquisition of subsidiary BrainChip SAS in the prior year.
At the end of the financial year the Group had consolidated net assets of $18,066,470 (2016: $5,266,618),
including cash reserves of $16,049,330 (2016: $3,593,951).
The Group completed two capital raisings during the year resulting in cash injections totalling $20,888,073
(2016: $7,035,885) before capital raising costs. Management has utilised these funds to further advance
the research, development, and commercialisation of BrainChip products and technology and to fund the
extinguishment of various loans and advances held by BrainChip SAS.
Operational Highlights
During 2017, the Company achieved a number of key milestones including:
Commercial developments and achievements
In March 2017, the Company successfully integrated the Spikenet Technologies Neural Network in
a Field Programmable Gate Array (“FPGA”) hardware platform.
In March 2017, the Company acquired an exclusive license to learning rules and algorithms
developed by CERCO (Brain and Cognition Research Center), a preeminent public research lab
based in Toulouse, France. The “JAST” technology significantly enhanced the Company's existing
neural network design.
In May 2017, the Company announced that its Game Statistics and Game Outcome solutions had
been placed in a field trial at a leading casino in Las Vegas, Nevada.
In June 2017, the Company announced a collaboration with Safran, a multi-billion dollar industrial
technology original equipment manufacturer (“OEM”) for development of a machine vision
inspection system.
In July 2017, the Company launched BrainChip Studio Software, an integrated software solution
for pattern matching and facial classification.
In August 2017, the Company announced the commencement of development of AKIDA, a
system-on-a-chip Neuromorphic Processor Unit.
In August 2017, the Company’s BrainChip Studio product was awarded ‘New Product of the Year
for Video Analytics’ by Security Today's panel of independent judges.
In September 2017, the Company launched BrainChip Accelerator, the first Neuromorphic
Hardware solution for facial and pattern recognition.
In October 2017, the Company was selected to provide video analytics in a new large-scale French
municipal deployment.
In October 2017, the Company shipped its first BrainChip Accelerator card to a major European
automobile manufacturer.
In November 2017, the Company’s BrainChip Accelerator product was selected as the winner of
the Milipol Innovation Award, which recognises companies with the most outstanding technology
solutions related to homeland security.
BrainChip Holdings Ltd
2017 Annual Report
4
Directors’ Report
Key human resource additions
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In March 2017, the Company appointed Robert Beachler, a 30-year technology veteran with prior
public and private company experience in marketing, business development and operations, as
Senior Vice President of Marketing and Business Development.
In July 2017, the Company appointed Emmanuel Hernandez, a 40-year technology veteran with
public and private company operating and board experience, to the Board of Directors.
In August 2017, the Company appointed Thomas Stengel, a 25-year technology veteran with
experience driving revenue growth at major OEMs, as Vice President of America’s Business
Development.
In August 2017, the Company appointed Ryan A. Benton as Chief Financial Officer (“CFO”) of
BrainChip Inc. and subsequently, in October 2017, Mr. Benton was appointed as CFO of BrainChip
Holdings Ltd.
In November 2017, the Company announced the appointment of Greg Ryan as Director of Sales
and Business Development for Australia.
Key financing milestones
In June 2017, the Company raised A$6.0 million, before fees, through a share placement to
institutional and sophisticated investors.
In November 2017, the Company raised A$21.5 million, before fees, through a share placement
which included numerous institutional and sophisticated investors.
Subsequent to the reporting period, in January 2018, the Company and Gaming Partners International
Corporation entered into a licensing, development and revenue sharing agreement related to the joint
development of video analytic products for worldwide deployment in casino currency security, game table
operations and player behaviour applications.
Risk
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Factors that may impact sales growth and Company performance include commercial viability and delays
of new products and technology, delays in the establishment of an effective sales organisation and the
global economy. Some of the risks related to this include:
As the Company develops products for more advanced technologies, the commercial viability of
new products increases. This risk will be mitigated through in-depth market research, as well as
continued investment in R&D and a nimble approach to product development to keep pace with
market requirements.
The timing of new product development is a key factor in sales growth. New technology
development carries inherent risks of delay and quality. Collaboration with key customers and
partners regarding technology requirements for each release and disciplined project management
and quality assurance processes mitigate these risks.
Sales of software and hardware solutions requires lengthy lead times and sophisticated
engagement with customers. Failure to recruit, hire and train the proper direct and representative
sales force in a timely and effective manner could reduce revenue growth. This risk is mitigated
through the due diligence process prior to appointing a new sales representative or reseller and
comprehensive training, upon appointment and continuously thereafter.
New financial risks can arise from expanding the geographic reach of the company, broadening the
customer base through acquired product lines or new services, and inheriting new or unique
contract terms through partnerships and joint development agreements.
The Company’s performance and success is also dependent upon our ability to effectively identify, protect,
defend, and in certain instances keep secret, intellectual property. Some of the risks related to this include:
In the future we may be subject to intellectual property or other claims, which are costly to defend,
could result in significant damage awards, and could limit our ability to use certain technologies in
the future. Regardless of the merits of the claims, intellectual property claims are often time
consuming, expensive to litigate or settle, and cause significant diversion of management attention.
To the extent such intellectual property infringement claims are successful, they may have an
adverse effect on our business, consolidated financial position, results of operations, or cash flows.
BrainChip Holdings Ltd
2017 Annual Report
5
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Directors’ Report
Our patents, trademarks, trade secrets, copyrights, and other intellectual property rights are
important and valuable assets for us. Various events outside of our control pose a threat to our
intellectual property rights, as well as to our products and technologies. For example, effective
intellectual property protection may not be available or feasible in every country in which our
products and services could be distributed. Also, the efforts we have taken to protect our
proprietary rights may not be sufficient or effective.
Although we seek to obtain patent protection for our innovations, it is possible we may not be able
to protect some of these innovations. Moreover, we may not have adequate patent or copyright
protection for certain innovations that later turn out to be important. Furthermore, there is always
the possibility, despite our efforts, that the scope of the protection gained will be insufficient or that
an issued patent may be deemed invalid or unenforceable
We also may seek to maintain certain intellectual property as trade secrets. The secrecy could be
compromised by outside parties, or by our employees, which could cause us to lose the
competitive advantage resulting from these trade secrets.
Other key risks the Company has identified include:
Although we invest significant resources in information technology measures, if breached, we may
incur significant legal and financial exposure. Security breaches expose us to a risk of loss of this
information, litigation, and potential liability. Our security measures may also be breached due to
employee error, malfeasance, system errors or vulnerabilities, or otherwise.
The international operations expose the Group to additional risks that could harm our business,
operating results, and financial condition. Changes in local political, economic, regulatory, tax,
social, and labor conditions, may adversely harm our business.
We rely on highly skilled personnel and, if we are unable to retain or motivate key personnel, hire
qualified personnel, or maintain our corporate culture, we may not be able to successfully execute
our business plans. Our performance largely depends on the talents and efforts of highly skilled
individuals. Our future success depends on our continuing ability to identify, hire, develop,
motivate, and retain highly skilled personnel for all areas of our organisation. Competition for
qualified employees in our industry is intense. In addition, our compensation arrangements, such
as our equity award programs, may not always be successful in attracting new employees and
retaining and motivating our existing employees. Our continued ability to execute on our strategies
effectively depends on our ability to attract new employees and to retain and motivate our existing
employees.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS
It is expected that the Group will further develop its BrainChip Studio and related software products and will
progress the development of its AKIDA Neuromorphic Processor Unit product.
SHARE ISSUES
The following share issues of the Company were completed during the financial year and to the date of this
report:
40,000,000 shares issued on 5 June 2017 at an issue price of A$0.15 per share pursuant to a
private placement to institutional and sophisticated investors raising A$6 million;
1,000,000 shares issued on 29 September 2017 and 500,000 shares issued on 7 November 2017
on conversion of Class B and C Performance Rights, milestones of which had been attained and
announced previously, and
119,380,063 shares issued on 7 November 2017 at an issue price of A$0.18 per share pursuant to
a private placement to institutional and sophisticated investors raising A$21.5 million.
BrainChip Holdings Ltd
2017 Annual Report
6
Directors’ Report
SHARE OPTIONS
As at the date of this report, there were 198,950,000 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:
(a) Unlisted options issued to Employees pursuant to the Company’s Long Term Incentive Plan:
1,000,000 options exercisable at A$0.33 per share before 16 February 2022, issued on 16 February
2017 (forfeited during 2017);
100,000 options exercisable at A$0.32 per share before 16 February 2022, issued on 16 February
2017;
20,000,000 options exercisable at A$0.275 per share before 31 March 2022, issued on 31 March
2017. 12,000,000 of these options have specific performance criteria linked to the attainment of the
options;
27,000,000 options exercisable at A$0.16 per share, issued on 11 August 2017. 25% of the options
vest on each anniversary date of the offer date (9 August 2017) so long as continuous service is
provided and expire five years from the issue date;
500,000 options exercisable at A$0.17 per share before 14 December 2022, issued on 14 December
2017;
5,500,000 options exercisable at A$0.185 per share before 14 December 2022, issued on 14
December 2017, and
5,100,000 options exercisable at A$0.19 per share before 13 March 2028, issued on 13 March 2018.
(b) Unlisted options issued to Consultants pursuant to the Company’s Long Term Incentive Plan:
6,000,000 unlisted options exercisable at A$0.32 per share issued on 16 February 2017. 50% of the
options vested immediately and expire on 16 February 2022 and 50% vested at 31 December 2017
and expire on 31 December 2022;
500,000 options exercisable at A$0.225 per share before 14 December 2022, issued on 14
December 2017;
400,000 options exercisable at A$0.195 per share before 14 December 2022, issued on 14
December 2017; and
2,000,000 options exercisable at A$0.19 per share before 13 March 2028, issued on 13 March 2018.
1,300,000 options exercisable at A$0.22 per share before 13 March 2028, issued on 13 March 2018.
(c) Unlisted options issued to Directors on 8 June 2017 as approved by shareholders on 31 May 2017:
8,000,000 options exercisable at A$0.185 per share. 25% of the options vest on each anniversary
date of the offer date (31 January 2017) so long as continuous service is provided and expire five
years from each vesting date; and
7,000,000 unlisted options exercisable at A$0.245 per share. 25% of the options vest on each
anniversary date of the offer date (1 February 2017) so long as continuous service is provided and
expire five years from each vesting date.
(d) Unlisted options issued to Directors pursuant to Listing Rule 10.11 and exception 10.12(6):
8,000,000 options exercisable at A$0.165 per share on 10 July 2017. 25% of the options vest on
each anniversary date of the offer date (7 July 2017) so long as continuous service is provided and
expire five years from each vesting date.
(e) Unlisted options issued to institutional and sophisticated investors 5 June 2017 per Listing Rule 7.1:
20,000,000 unlisted options exercisable at A$0.23 per share before 31 May 2020 issued on 5 June
2017 as free attaching options as part of the Placement to institutional and sophisticated investors.
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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:
4,000,000 unlisted options issued to an employee on 22 December 2016 exercisable at A$0.24
per share before 22 December 2021; and
1,000,000 unlisted options issued to an employee on 16 February 2017 exercisable at A$0.33 per
share before 16 February 2022.
BrainChip Holdings Ltd
2017 Annual Report
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Directors’ Report
PERFORMANCE RIGHTS
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As at the date of this report, there were 56,500,000 Performance Rights on issue.
The following Performance Rights were issued under the Company’s Long Term Incentive Plan during the
financial year and to the date of this report:
500,000 Class B Performance Rights to employees on 31 March 2017;
1,000,000 Class D Performance Rights to employees on 31 March 2017; and
500,000 Class B Performance Rights to employees on 11 August 2017.
The following Performance Rights, the milestones of which had been attained and announced previously,
were converted during the financial year:
1,000,000 Class B Performance Rights on 29 September 2017; and
500,000 Class C Performance Rights on 7 November 2017.
SIGNIFICANT EVENTS AFTER THE BALANCE DATE
Subsequent to the reporting period, in January 2018, the Company and Gaming Partners International
Corporation (“GPI”) entered into a licensing, development and revenue sharing agreement related to the
joint development of video analytic products for worldwide deployment in casino currency security, game
table operations and player behaviour applications. The terms of the agreement provide for a total of
US$500,000 in license fees, a non-recurring engineering fee of US$100,000 for products developed under
the agreement, and a long-term revenue sharing for the sale of the developed technology.
On 16 March 2018 the Company requested a waiver of Listing Rule 6.23.3 from the ASX to permit the
Company to seek shareholder approval to extend the expiration dates of 45,800,000 unquoted options
from between three to five years after the date of grant to ten years after the date of grant. If ASX grants
the waiver the Company will seek shareholder approval for the extension of the expiration dates at its
Annual General Meeting.
No other 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.
ENVIRONMENTAL REGULATION AND PERFORMANCE
The consolidated entity is not subject to any significant environmental regulation under Australian
Commonwealth of State Law.
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 2017
Corporate Governance Statement dated 28 March 2018 released to the ASX and posted on the Company
website which outlines the Group’s approach to corporate governance and sets out the key charters and
polices of the Group.
BrainChip Holdings Ltd
2017 Annual Report
8
Directors’ Report
INFORMATION ON DIRECTORS
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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 as a member on the Company’s Audit Committee and Remuneration 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 Chief Executive Officer
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. 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 in the past three years has held a public company directorship as President and Chief
Executive Officer (CEO) of NYSE-listed Exar Corporation and as a non-executive director of NASDAQ-
listed Quantum Corporation.
Peter van der Made – Executive Director (Appointed 10 September 2015, resigned 1 January 2018)
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.
Mr van der Made has held no other public company directorships in the past three years.
Julie H. Stein, BA, MA, MBA, NACD Leadership Fellow – Non-Executive Director (Appointed 15
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,
holds a Certificate in Cyber Security Management from the Software Engineering Institute of Carnegie
Mellon University and she also holds a Certificate from Stanford University Directors’ College. Regarding
work in the boardroom, Ms Stein sits on the Audit Committee serving the International Board of the not-for-
profit JDRF International organisation. Ms Stein also serves as the Chair of the Company’s Audit
Committee and is a Member of the Company’s Remuneration Committee.
Ms Stein has held no other public company directorships in the past three years.
BrainChip Holdings Ltd
2017 Annual Report
9
Directors’ Report
INFORMATION ON DIRECTORS (Continued)
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Names, qualifications, experience and special responsibilities (continued)
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 served as a member on the Company’s Audit Committee during the year
until 31 August 2017.
Dr Osseiran has held no other public company directorships in the past three years.
Emmanuel Hernandez – BSC, CPA, MBA - Non-Executive Director (Appointed 7 July 2017)
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Mr. Hernandez is a highly regarded Silicon Valley technology executive with over 40 years of operating and
board member experience. His professional resume includes key roles with some of Silicon Valley's largest
and most successful technology companies including National Semiconductor (acquired by Texas
Instruments in 2012), Cypress Semiconductor and ON Semiconductor (NASDAQ: ON).
Mr. Hernandez began his career with National Semiconductor where he served in various finance capacities
between 1976-1993. Subsequently, he joined Cypress Semiconductor where he served as EVP Finance and
Administration and Chief Financial Officer (“CFO”) between 1993-2004. Following Cypress, Mr. Hernandez
joined SunPower Corporation where he served as CFO between 2005-2008. Mr. Hernandez's executive
successes have led him to be a highly sought after operating consultant and board member including having
been an operating Partner at Khosla Ventures, a prominent Silicon Valley venture capital firm.
Mr. Hernandez is currently a Director of ON Semiconductor having been appointed at the beginning in 2002.
Other previous board service includes SunEdison, Aruba Networks, an enterprise networking company
acquired by Hewlett Packard Enterprise in 2015, EnStorage, Inc., a private company that develops flow
battery/storage technology for the renewable energy industry, Soraa, Inc., a private company that is
developing LED and laser technology and Integration Associates Incorporated which was acquired by Silicon
Labs in 2008. Mr Hernandez is Chair of the Company’s Remuneration Committee and also serves as a
member of the Audit Committee.
Mr Hernandez held the following directorships during the past 3 years:
- ON Semiconductor Corp.; Audit Committee Chair, Governance & Nominating Committee member – 20
November 2002 to present
- SunEdison, Inc.; Executive Chairman, Audit Committee member – 12 May 2009 to 29 December 2017
- Aruba Networks, Inc – Audit Committee Chair - 3 July 2006 to 19 May 2015
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2017 Annual Report
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Directors’ Report
COMPANY SECRETARIES
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Naomi Dolmatoff, BCom (Finance), AGIA, ACIS - (Appointed 6 October 2017)
Ms Dolmatoff is an experienced Company Secretary employed with Company Matters Pty Ltd, a company
that provides company secretarial and corporate governance services to a range of ASX listed, private and
not-for-profit clients. Naomi has worked with ASX listed entities in the financial services and mining and
resources industries. Naomi holds a Bachelor of Commerce (Finance) with distinction from Curtin
University and a Graduate Diploma in Applied Corporate Governance. Ms Dolmatoff is also an Associate of
both The Governance Institute of Australia and The Institute of Chartered Secretaries and Administrators
(UK).
Mark Pitts, BBus FCA GAICD - (Appointed 9 January 2017, resigned 6 October 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 the corporate advisory firm Endeavour Corporate providing company secretarial
support, financial services, governance and compliance advice to a number of public companies.
Nerida Schmidt, BCom, CPA, CSA, FFin (Appointed 14 December 2015, resigned 9 January 2017)
Ms Schmidt holds a Bachelor of Commerce from the University of Western Australia, is a Certified
Practicing 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.
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
the Company were:
Director
E Bolto (3)
L DiNardo
Fully Paid
Ordinary
Shares
-
-
P Van der Made (1)
161,305,508
Options over
Ordinary Shares
Performance
Rights
7,900,000
50,000,000
-
8,000,000
6,000,000
8,000,000
-
2,000,000
19,500,000
-
900,000
-
-
8,438,500
-
J Stein
A Osseiran (2)
E Hernandez
Total
169,744,008
79,900,000
22,400,000
(1) 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 600,000 Class B 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(d). Mr van der Made
resigned as a director on 1 January 2018 but was included above for disclosure purposes.
(2) Held by Adam Osseiran and Rebecca Osseiran-Moisson ATF the Osseiran Family Trust.
(3) 4,000,000 unlisted options are held by Eric Lindsay and Kerry Anne Well ATF Bolto Superannuation Fund.
BrainChip Holdings Ltd
2017 Annual Report
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Directors’ Report
DIRECTORS’ MEETINGS
The number of meetings of directors (including meetings of committees of directors) held during the year
and the number of meetings attended by each director was as follows:
Directors Meetings
Audit Committee
Meetings (1)
Remuneration
Committee
Meetings (1)
Eligible
to
attend
Attended
Eligible
to
attend
Attended
Eligible
to
attend
Attended
6
6
6
6
6
2
6
6
5
6
6
2
5
-
-
5
3
2
5
-
-
5
3
2
2
-
-
2
-
2
2
-
-
2
-
2
E Bolto
L DiNardo
P van der Made
J Stein
A Osseiran
E Hernandez
(1) Directors who are not members of the Audit Committee or Remuneration Committee may attend meetings of
the Committees.
Committee Membership
The Board maintained an Audit Committee and established a Remuneration Committee during the year.
The membership of each of the Audit Committee and Remuneration Committee is set out below:
Audit Committee
J Stein (Chair)
E Bolto
A Osseiran (member until 31 August 2017)
E Hernandez (member commencing 31 August 2017)
Remuneration Committee
E Hernandez (Chair)
E Bolto
J Stein
REMUNERATION REPORT (Audited)
This remuneration report for the year ended 31 December 2017 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.
Introduction
The remuneration report is presented under the following sections:
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2. Remuneration governance
3. Non-executive Director remuneration arrangements
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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 (“KMP”)
BrainChip Holdings Ltd
2017 Annual Report
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Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
1.
Introduction
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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)
P van der Made
J Stein
A Osseiran
E Hernandez
Non-Executive Chairman
Executive Director & Chief
Executive Officer
Executive Director & Chief
Technical Officer
Non-Executive Director
Non-Executive Director
Non-Executive Director
Other Key Management Personnel
A Mankar
R Benton (2)
R Beachler (3)
N Drossler (4)
H DoDuy (5)
Chief Operating Officer
Chief Financial Officer
Senior Vice President of
Marketing and Business
Development
VP Finance & Administration
President: BrainChip SAS
3 August 2015
30 September 2016
10 September 2015
14 November 2016
10 September 2015
7 July 2017
1 October 2014
9 August 2017
5 March 2017
-
-
-
-
-
-
-
-
-
9 December 2016
1 September 2016
5 May 2017
22 December 2017
(1) Mr DiNardo was appointed as a director of BrainChip on 9 December 2016.
(2) Mr Benton was appointed Chief Financial Officer of BrainChip Holding on 20 October 2017 which follows Mr
Benton’s appointment as Chief Financial Officer of BrainChip’s subsidiary, BrainChip Inc. on 9 August 2017
(3) Mr Beachler was appointed Senior Vice President of Marketing and Business Development on 5 March 2017.
(4) Ms Drossler resigned as VP Finance & Administration on 5 May 2017.
(5) Mr DoDuy resigned as President of BrainChip SAS on 22 December 2017.
Subsequent to the end of the year, the following changes in KMP occurred:
- Mr Peter van der Made resigned as an executive director effective 1 January 2018. He remains in
his role as Chief Technical Officer and pursuant to his role, the Company continues to consider Mr
van der Made as a KMP.
BrainChip Holdings Ltd
2017 Annual Report
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Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
2. Remuneration governance
Remuneration Committee
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During the period, the Board established a Remuneration Committee whose purpose is to assist the Board
in establishing policies and practices which enable the Group to attract capable directors and employees
and reward employees fairly and responsibly. The Remuneration Committee is specifically tasked with
reviewing and making recommendations to the Board in respect of the Group’s remuneration policies,
short-term and long-term incentives and equity remuneration. The Remuneration Committee is also
responsible for overseeing the succession planning of the Chief Executive Officer and other executives and
assessing the appropriateness of the nature and amount of remuneration of non-executive directors and
executives on a periodic basis.
Remuneration approval process
The Board approves, subject to a recommendation from the Remuneration Committee the remuneration
arrangements of the non-executive Directors, executive directors and executives and all awards made
under the Company’s Long Term Incentive Plan (LTIP) which was approved by shareholders in the general
meeting on 30 July 2015. Aggregate fees paid to non-executive directors is paid within the total
remuneration fee pool approved by shareholders.
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.
To this end, the Company embodies the following principles in its remuneration framework:
Attract, motivate, and retain quality LTIP participants; and
Provide incentives which allow LTIP participants to share the rewards of the success of the
Company and align their interests with that of shareholders.
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 for non-executive directors 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 was at the Company’s 2017
Annual General Meeting, held on 31 May 2017, where shareholders approved an aggregate fee pool of
A$400,000 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 and the Remuneration Committee Chair each receive an additional fee of A$15,000 per
year.
BrainChip Holdings Ltd
2017 Annual Report
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Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
4. Executive remuneration arrangements
Remuneration Policy
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The Company recognises that if it is to achieve its goals, it must recruit and retain the right people.
Although it is not the only factor, remuneration is a key factor in determining the Company’s ability to
compete for human resources. In doing so, the Company aims to reward executives and staff with a level
and mix of remuneration commensurate with their position and responsibilities within the Company and to
link remuneration to the creation of shareholder value.
Share based rewards are used in our long-term incentive plans to encourage executives to focus on the
creation of enduring value for investors and as a means to retain key contributors for the long term. Fixed
pay conditions are designed to attract and retain top talent in a competitive environment, considering the
capability and experience of individual executives.
Structure
Remuneration consists of the following key elements:
Fixed remuneration (base salary and superannuation); and
Variable remuneration (share options and performance rights).
Fixed Remuneration
Executive contracts of employment do not include any guaranteed base pay increase. Fixed remuneration
is reviewed annually by the Board. The process consists of a review of the Company, business unit and
individual performance, relevant comparative remuneration internally and externally and, where
appropriate, external advice independent of management. No external advice was provided in the current
or prior years.
Variable Remuneration
Cash Bonuses
Executive contracts of certain employees include cash bonuses on such terms and conditions as
determined from time to time by the Board. As at the date of this report, no terms and conditions have been
set by the Board and no cash bonuses have been awarded.
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 directors, executives and employees (including
consultants) in a manner that aligns remuneration with the creation of shareholder wealth. As such, issues
under these plans are made to directors, executives and employees who are able to influence the
generation of shareholder wealth and thus have an impact on the Consolidated Entity’s performance.
Issues to directors, executives and employees are made under the LTIP, PRP and DOOP and are
delivered in the form of share options and/or performance rights. The number of options and/or
performance rights issued is determined by the policy set by the Board upon recommendation by the
Remuneration Committee and is based on each director’s, executive’s and employee’s role and position
with the Group.
The share options and performance rights will vest over periods as determined by the Board and directors,
executives and employees 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 will generally automatically lapse and be forfeited. Where a participant ceases
employment after the vesting but before the exercise of their share options and/or performance rights,
unless the participant has been terminated for cause (when their options or performance rights will
immediately lapse), the share options and/or performance rights may generally be exercised by the
participant within a period after cessation of employment prescribed either under the applicable Plan or
offer documentation or a longer period as determined by the Board and any option and/or performance
right not exercised within such period will automatically lapse and be forfeited.
BrainChip Holdings Ltd
2017 Annual Report
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Mr
DiNardo:
Tranche 1
Mr
DiNardo:
Tranche 2
Mr
DiNardo:
Tranche 3
TOTAL
Mr
Beachler:
Tranche 1
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
The Board has full discretion in approving specified performance criteria linked with options and
performance rights granted to KMP with the intention to align the interests of management with that of
shareholders and reward the execution of corporate strategies that are expected to increase shareholder
wealth.
Options and performance rights with linked performance criteria were issued in 2016 to the CEO, Mr
DiNardo, as approved by the Board. 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:
Year Options
awarded
during
the year
Grant
Date
Vesting
criteria
Fair
value
per
option
^
Total Fair
Value
Exercise
price per
option
Expiry
date
Options
vested
during
the year
Options
lapsed
during
the year
Number
US$
US$
US$
Number Number
2016 21,000,000 28/09/2016
2017 6,000,000
16/02/2017
2017 12,000,000 05/03/2017
refer table
below
refer table
below
$0.064
1,334,151
$0.172
30/09/2021
$0.175
1,050,104
$0.173
30/09/2021
$0.166
1,995,992
$0.209
31/03/2022
-
-
-
-
-
-
^ 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
15,000,000
28/09/2016
6,000,000
28/09/2016
6,000,000
16/02/2017
27,000,000
6,000,000
5/03/2017
Mr
Beachler:
Tranche 2
6,000,000
5/03/2017
TOTAL
12,000,000
Upon the Company raising funds
necessary to attain Milestone 4 of the
Share Purchase Agreement dated 10
September 2015
25% over 4 year
period from
achievement of the
performance criteria.
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 A$500,000 in accordance with an
agreed timetable
25% over 4 year
period from
achievement of
the performance
criteria.
Commercial introduction of the PCle
SNAPvision solution. “Introduction”
means a fully qualified card with all
supporting collateral material including
a User’s Manual.
25% over 4 year
period from
achievement of
the performance
criteria.
Completion of an approved marketing
plan for 2017/2018, as certified by the
Board
Commercial introduction of the PCle
SNAPvision solution. “Introduction”
means a fully qualified card with all
supporting collateral material including
a User’s Manual.
25% over 4 year
period from
achievement of
the performance
criteria.
25% over 4 year
period from
achievement of
the performance
criteria.
Expiry
date
30/09/2021
30/09/2021
30/09/2021
31/03/2022
31/03/2022
BrainChip Holdings Ltd
2017 Annual Report
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J Stein
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
5. Options and performance rights granted as part of remuneration (continued)
(a) Options and performance rights with linked performance criteria (continued)
Details of Performance Rights over ordinary shares in the Company provided as remuneration to each
KMP, of which there are performance conditions linked which are still to be attained, are set out in the table
below:
Class D Performance Rights
Year
Performance
rights awarded
during the year
(Number)
Grant
Date
Fair value per
performance
right at grant
date
(US$)
2016
2,000,000
28/09/2016
$0.080
Performance criteria
Number
vested
The announcement to the ASX by
BrainChip of an unconditional binding
licensing agreement that has an
obligation to pay a license fee of
A$500,000 in accordance with an
agreed timetable (Milestone 4).
The announcement to the ASX by
BrainChip of an unconditional binding
licensing agreement that has an
obligation to pay a license fee of
A$500,000 in accordance with an
agreed timetable (Milestone 4).
-
-
R Beachler
2017
1,000,000
5/03/2017
$0.209
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(b) Options and performance rights with no linked performance criteria
Options were also issued to KMP with no performance criteria however included a service condition of a 4-
year vesting period from the date of issue of the options to encourage the retention of staff. Details of these
Options over ordinary shares in the Company are set out in the table below:
Year
2016
2017
2017
2017
Options
awarded
during the
year
Number
23,000,000
750,000
750,000
750,000
750,000
1,000,000
1,000,000
1,000,000
1,000,000
2,000,000
2,000,000
2,000,000
2,000,000
2,000,000
2,000,000
2,000,000
2,000,000
27,000,000
8,000,000
Grant
Date
End of
Vesting
Period
Fair
value
per
option
^
Total Fair
Value
Exercise
price
per
option
Expiry
date
Options
vested
during
the year
Options
lapsed
during
the year
US$
US$
US$
Number Number
28/09/2016 30/09/2020
31/05/2017 01/02/2018
31/05/2017 01/02/2019
31/05/2017 01/02/2020
31/05/2017 01/02/2021
31/05/2017 01/02/2018
31/05/2017 01/02/2019
31/05/2017 01/02/2020
31/05/2017 01/02/2021
31/05/2017 31/01/2018
31/05/2017 31/01/2019
31/05/2017 31/01/2020
31/05/2017 31/01/2021
7/07/2017 07/07/2018
7/07/2017 07/07/2019
7/07/2017 07/07/2020
7/07/2017 07/07/2021
10/08/2017 10/08/2021
05/03/2017 21/03/2021
$0.064
$0.112
$0.118
$0.123
$0.127
$0.112
$0.118
$0.123
$0.127
$0.116
$0.121
$0.125
$0.128
$0.101
$0.106
$0.109
$0.111
$0.101
$0.166
1,461,607
84,349
88,817
92,169
94,962
112,465
118,423
122,892
126,616
232,278
242,700
250,145
256,101
201,987
209,581
215,655
211,730
2,715,254
1,330,662
$0.172
$0.182
$0.182
$0.182
$0.182
$0.182
$0.182
$0.182
$0.182
$0.138
$0.138
$0.138
$0.138
$0.125
$0.125
$0.125
$0.125
$0.127
$0.209
30/09/2021 5,750,000
-
01/02/2023
-
01/02/2024
-
01/02/2025
-
01/02/2026
-
01/02/2023
-
01/02/2024
-
01/02/2025
-
01/02/2026
-
31/01/2023
-
31/01/2024
-
31/01/2025
-
31/01/2026
-
7/07/2023
-
7/07/2024
-
7/07/2025
-
7/07/2026
-
10/08/2022
-
31/03/2022
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
E Hernandez 2017
R Benton
R Beachler
2017
2017
^ For details on valuation of the options, including models and assumptions used, please refer to Note 23.
BrainChip Holdings Ltd
2017 Annual Report
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Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
5. Options and performance rights granted as part of remuneration (continued)
(b) Options and performance rights with no linked performance criteria (continued)
Details of Performance Rights over ordinary shares in the Company provided as remuneration to each
KMP, of which there are no performance conditions however included a service condition of 1-year vesting
period from the date of issue of the performance rights to encourage the retention of staff, are set out in the
tables below:
Class B Performance Rights
Year Performance rights
Grant Date
awarded during
the year
(Number)
2017
2017
500,000
500,000
9/08/2017
5/03/2017
Fair value per
performance right at grant
date
Expiry Date
Number
vested
(US$)
$0.131
$0.209
9/08/2021
31/03/2021
-
-
R Benton
R Beachler
6. Company performance and the link to remuneration
The actual remuneration earned by executives and non-executives during 2017 is set out in section 7 of
this report. Shareholders can see the remuneration earned and the value ascribed to share based
payments which were vesting 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.
In 2017, Mr Beachler also received options in the Company with specific performance criteria as noted in
section 5 above.
BrainChip’s 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 offered to participants.
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 four
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
2017
$0.185
$0.144
1.59
1.77
Restated (2)
2016
$0.28
$0.202
0.69
0.38
2015
$0.26
$0.189
8.43
0.25
2014 (1)
-
-
0.14
(3.77)
(1) Note: BrainChip’s subsidiary, BrainChip Inc. commenced operations in 2014 therefore no prior periods have been
reported.
(2) 2016 results have been restated after the finalisation of the fair value of the acquisition of BrainChip SAS.
BrainChip Holdings Ltd
2017 Annual Report
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Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
7. Executive contractual arrangements
Details for executive contractual arrangements for KMP are detailed below:
Name
Title
Term of agreement Open agreement with no fixed term
Details
Louis DiNardo
Chief Executive Officer and Managing Director
Termination
Base fee of US$400,000 plus benefits under health and welfare benefit
plans, practices, policies and programs provided by BrainChip Inc.
Terminated at any time with or without cause or notice by either himself or
BrainChip Inc. 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.
Name
Title
Term of agreement Open agreement with no fixed term
Details
Peter van der Made
Chief Technical Officer and Executive Director
Base fee of US$300,000 plus benefits under health and welfare benefit
plans, practices, policies and programs provided by BrainChip Inc.
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. No bonuses have been paid to
date.
Terminated at any time with or without cause or notice by either himself or
BrainChip Inc. Mr van der Made 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.
Name
Title
Term of agreement Open agreement with no fixed term
Details
Anil Mankar
Chief Operating Officer
Base fee of US$300,000 plus benefits under health and welfare benefit
plans, practices, policies and programs provided by BrainChip Inc.
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. No bonuses have been paid to date.
Terminated at any time with or without cause or notice by either himself or
BrainChip Inc. Mr Mankar is entitled to 24 months’ severance pay upon
termination by BrainChip Inc. at any time without cause. The amount is
payable over 24 months from the date of termination.
Termination
Termination
Name
Title
Term of agreement Open agreement with no fixed term
Details
Ryan Benton
Chief Financial Officer
Termination
Base fee of US$300,000 plus benefits under health and welfare benefit
plans, practices, policies and programs provided by BrainChip Inc.
Terminated at any time with or without cause or notice by either himself or
BrainChip Inc. Mr Benton 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.
BrainChip Holdings Ltd
2017 Annual Report
19
Directors’ Report
Name
Title
Term of agreement Open agreement with no fixed term
Details
Robert Beachler
Senior Vice President of Marketing and Business Development
Base fee of US$300,000 plus benefits under health and welfare benefit
plans, practices, policies and programs provided by BrainChip Inc.
Terminated at any time with or without cause or notice by either himself or
BrainChip Inc. Mr Beachler 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.
Termination
Name
Title
Term of agreement Open agreement with no fixed term
Details
Cossette Drossler (ceased as KMP on 5 May 2017)
VP Finance & Administration
Termination
Base fee of US$200,000 plus benefits under health and welfare benefit
plans, practices, policies and programs provided by BrainChip Inc.
Ms Drossler and BrainChip entered into a Separation Agreement, effective
12 May 2017, being an involuntary termination without cause whereby Ms
Drossler received US$100,000 plus health and welfare benefits over 6
months.
Name
Title
Term of agreement Open agreement with no fixed term
Details
Hung DoDuy (ceased as KMP on 22 December 2017)
President, BrainChip SAS
Termination
Base fee of €120,000 plus benefits under health and welfare benefit plans,
practices, policies and programs provided by BrainChip SAS.
On 22 December 2017, Mr DoDuy resigned from the Group and entered
into a Separation Agreement with BrainChip, the terms of which included
the payment of €50,000 over 8 months to 1 September 2018 and a twelve-
month non-compete indemnity in lieu of his original employment terms.
There are no other formalised KMP employment agreements.
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Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
7.
Executive contractual arrangements (continued)
Remuneration of KMP
2017
Non-Executive Directors
E Bolto (1)
J Stein (2)
A Osseiran
E Hernandez (3)
Executive Directors
L DiNardo
P van der Made
Other Key Management
Personnel
A Mankar
R Benton (4)
R Beachler (5)
N Drossler (6)
H DoDuy (7)
Totals
Short Term
Post-
Employment
Salary and
Fees (8)
US$
Annual
leave
US$
Super-
annuation
US$
Share-
based
Payment
Options
US$
Termin-
ation
Total
%
Perform
-ance
related
US$
US$
100,002
111,541
38,463
22,457
-
-
-
-
429,531
312,127
19,999
(4,806)
-
-
-
-
-
167,143
458,441
222,857
210,456
1,810,816
-
-
-
-
-
-
-
267,145
569,982
261,320
232,913
63%
80%
85%
90%
2,260,346
307,321
80%
-
312,127
136,855
266,160
86,863
145,407
6,346
2,075
6,656
(703)
29,071
-
-
-
-
78,500
-
579,701
1,623,250
(13,038)
-
-
-
-
111,504
69,391
318,473
718,631
1,896,066
184,626
322,369
-
81%
86%
-
-
1,961,533
58,638
78,500
5,059,626
180,895
7,339,192
(1) Short term remuneration for Mr Bolto includes consulting fees of $38,462 (refer section 9).
(2) Short term remuneration for Ms Stein includes consulting fees of $61,540 (refer section 9).
(3) Mr Hernandez was appointed as non-executive director on 7 July 2017.
(4) Mr Benton was appointed Chief Financial Officer of BrainChip on 20 October 2017 which follows Mr Benton’s
appointment as Chief Financial Officer of BrainChip’s subsidiary, BrainChip Inc. on 9 August 2017.
(5) Mr Beachler was appointed Senior Vice President of Marketing and Business Development on 5 March 2017.
(6) Ms Drossler resigned as VP Finance and Administration 5 May 2017 and ceased as KMP on that date.
(7) Mr DoDuy resigned as President of BrainChip SAS on 22 December 2017 and ceased as KMP on that date.
(8) No bonuses were awarded to any KMP during the year.
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2017 Annual Report
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Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
7.
Executive contractual arrangements (continued)
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Remuneration of KMP
2016
Non-Executive Directors
E Bolto (1)
J Stein (2)
A Osseiran
N Rinaldi (3)
Executive Directors
L DiNardo (4)
P van der Made
Other Key
Management
Personnel
A Mankar
N Drossler (5)
H DoDuy (6)
Totals
Short Term
Post-
Employment
Salary and
Fees (7)
US$
Annual
leave
US$
Super-
annuation
US$
Share-
based
Payment
Options
US$
Termin-
ation
Total
%
Perform
-ance
related
US$
US$
85,439
12,255
37,147
46,433
-
-
-
-
105,893
216,745
5,946
6,731
216,745
12,241
43,350
10,577
703
792
776,248
24,749
-
-
-
-
-
-
-
-
-
-
-
-
-
-
307,261
-
-
13,038
-
-
-
-
-
-
-
-
-
-
85,439
12,255
37,147
46,433
-
-
-
-
419,100
223,476
73%
-
227,322
25,982
44,142
-
50%
-
320,299
-
1,121,296
(1) Fees paid to Mr Bolto include consulting fees of $25,291 (refer section 9).
(2) Ms Stein was appointed as non-executive director on 14 November 2016. Short term remuneration includes consulting
fees of $7,226 (refer section 9).
of $15,475 (refer section 9).
(3) Mr Rinaldi resigned as a non-executive director on 14 November 2016. Short term remuneration includes consulting fees
(4) 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.
(5) 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 US$25,000 for the period 11 November to 9 December 2016. Ms
Drossler resigned and ceased to be KMP on 5 May 2017.
(6) Mr DoDuy is the President of BrainChip SAS and became a KMP of BrainChip upon the acquisition of BrainChip SAS on 1
September 2016. Mr DoDuy resigned and ceased to be KMP on 22 December 2017.
(7) No bonuses were awarded to any KMP during the year ended 31 December 2016.
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Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
8. Equity Instruments Disclosure
Shareholdings of KMP (including nominees)
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Shares held in BrainChip Holdings by KMP are summarised as follows:
Balance held at
1 January 2017
Acquired
Conversion
of
Performance
Rights
Exercise of
options
Net change
other
Balance held at
31 December
2017
Directors
E Bolto
L DiNardo
P van der Made (1)
J Stein
A Osseiran (2)
E Hernandez
Other KMPs
A Mankar (3)
R Benton
R Beachler
N Drossler
H DoDuy (4)
Total
-
-
161,305,508
-
8,438,500
-
109,135,000
-
-
-
5,030,685
283,909,693
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(5,030,685)
(5,030,685)
-
-
161,305,508
-
8,438,500
-
109,135,000
-
-
-
-
278,879,008
(1) Of these, 145,174,957 fully paid ordinary shares are subject to voluntary escrow until 18 June 2018.
(2)
Fully paid ordinary shares are held by Adam Osseiran and Rebecca Osseiran-Moisson ATF the Osseiran
Family Trust.
Fully paid ordinary shares are held by Merrill Lynch (Australia) Nominees Pty Ltd. Of these, 98,415,000 fully
paid ordinary shares are subject to voluntary escrow until 18 June 2018.
(3)
(4) Mr DoDuy ceased to be KMP upon his resignation from BrainChip SAS, effective 22 December 2017.
Options holdings of Key Management Personnel (including nominees)
Options granted to KMP 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
2017
Granted as
remuneration Exercised
Net change
other
Balance at end
of period 31
December 2017
Vested and
not
exercisable
Vested and
exercisable
Directors
E Bolto (2)
L DiNardo
P van der
Made
J Stein
A Osseiran
E Hernandez
Other KMPs
A Mankar
R Benton
R Beachler
N Drossler
(1)
H DoDuy
Total
4,900,000
50,000,000
3,000,000
-
-
-
2,000,000
-
-
8,000,000
4,000,000
8,000,000
-
-
-
-
27,000,000
20,000,000
4,000,000
-
60,900,000
-
-
70,000,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7,900,000
50,000,000
-
8,000,000
6,000,000
8,000,000
-
27,000,000
20,000,000
(4,000,000)
-
(4,000,000)
-
-
126,900,000
-
-
-
-
-
-
-
-
-
-
-
-
4,900,000
5,750,000
-
-
2,000,000
-
-
-
-
-
-
12,650,000
(1) Ms Drossler resigned as VP Finance and Administration and ceased to be KMP on 5 May 2017 and her options that
were previously granted in 2016 were forfeited upon resignation.
(2) The opening balance for Mr Bolto has been corrected in the current year to 4,900,000 from 5,000,000.
BrainChip Holdings Ltd
2017 Annual Report
23
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
8. Equity Instruments Disclosure (continued)
Performance Rights held by KMP (including nominees)
The table below discloses the number of Performance Rights held by KMP that were granted and vested
during the year as remuneration. No performance rights lapsed during the year.
Balance at
beginning
of period 1
January
2017
Acquired
Exercised
Directors
-
E Bolto
2,000,000
L DiNardo
P van der Made 19,500,000
-
J Stein
900,000
A Osseiran
E Hernandez
-
Other KMPs
A Mankar
R Benton
R Beachler
N Drossler
H DoDuy
Total
17,250,000
-
-
-
-
39,650,000
-
-
-
-
-
-
-
500,000
1,500,000
-
-
2,000,000
Balance at
end of
period 31
December
2017
-
2,000,000
19,500,000
-
900,000
-
17,250,000
500,000
1,500,000
-
-
41,650,000
-
-
-
-
-
-
-
-
-
-
-
-
Vested and
not
exercisable
Vested and
exercisable
Value of
performance
rights
exercised
US$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,000,000
-
-
-
-
-
-
-
-
6,000,000
-
-
-
-
-
-
-
-
-
-
-
-
-
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(d).
9. Other transactions and balances with KMP
Mr. Bolto and Ms. Stein each have a consulting agreement with the Company for ad hoc services as
requested by the CEO from time to time, effective from 1 December 2016 at a rate of A$10,000 per month
during active assignments, usually payable within 30 days of recognition. 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. Fees paid during the year to Mr. Bolto totaled $38,462 (2016: $25,291) and to Ms. Stein
totaled $61,540 (2016: $7,226). As at 31 December 2017 consulting fees were payable to Mr. Bolto of $Nil
(2016: $25,291) and to Ms. Stein of $Nil (2016: $7,226).
In the prior year consulting services were provided by Mr Rinaldi up to 31 March 2016 at a rate of A$50,000
per annum. Total fees paid in excess of Mr Rinaldi’s Non-Executive fees totalled $15,475.
No further transactions with other Key management personnel have been incurred, other than reported above.
End of Audited Remuneration Report.
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BrainChip Holdings Ltd
2017 Annual Report
24
Directors’ Report
INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS
During the financial year, the Company paid a premium in respect to a contract of insurance to insure
directors and officers of the Company and related bodies corporate against those liabilities for which
insurance is permitted under section 199B of the Corporations Act 2001. Disclosure of the nature of the
liabilities and the amount of the premium is prohibited under the conditions of the contract of insurance.
INDEMNIFICATION OF AUDITORS
To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of
the terms of its audit engagement agreement against claims by third parties arising from the audit (for an
unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial
year.
AUDITOR INDEPENDENCE
The Directors received the Independence Declaration, as set out on page 29, from Ernst & Young.
NON-AUDIT SERVICES
The following non-audit services were provided by the entity’s auditor, Ernst & Young. The Directors are
satisfied that the provision of non-audit services is compatible with the general standard of independence for
auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service
provided means that auditor independence was not compromised.
Ernst & Young received or are due to receive the following amounts for the provision of non-audit services to
BrainChip Holdings:
Tax compliance services
2017
US$
-
2016
US$
25,260
Signed in accordance with a resolution of the Directors.
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E L (Mick) Bolto
Chairman
Perth, 28 March 2018
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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 2017, 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
28 March 2018
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A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
PT:CT:BRAINCHIP:026
Consolidated Statement of Profit or Loss and Other Comprehensive
Income for the year ended 31 December 2017
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Continuing operations
Revenue
Research & development expenses
Administration and other expenses
Amortisation of intangible assets
Share based payment expense
Operating Loss
Finance income
Finance expense
Loss from continuing operations before income tax
Income tax expense
Note
31 December
2017
$US
Restated
31 December
2016
$US
269,496
149,284
5(a)
5(b)
23(a)
6(a)
6(b)
8(c)
(1,153,697)
(4,996,259)
(1,108,423)
(6,941,360)
(13,930,243)
(867,359)
(2,556,319)
(441,796)
(1,075,382)
(4,791,572)
128,480
(622)
16,975
(72,950)
(13,802,385)
(4,847,547)
-
-
Loss from continuing operations after income tax
(13,802,385)
(4,847,547)
Gain/(loss) from discontinued operations after tax
30
28,372
(250,555)
Net loss for the period
(13,774,013)
(5,098,102)
Other comprehensive loss
Other comprehensive income not to be reclassified to profit or loss
in subsequent periods (net of tax):
Remeasurement (losses)/gains 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
(1,515)
362
76,142
74,627
5,414
5,776
Total comprehensive loss for the period, net of tax
(13,699,386)
(5,092,326)
US cents per
share
US cents per
share
Loss per share from continuing operations attributable to
ordinary equity holders of the Company
Basic and diluted loss per share
(1.59)
(0.66)
Loss per share from discontinued operations attributable to
ordinary equity holders of the Company
Basic and diluted loss per share
(0.00)
(0.03)
Loss per share attributable to ordinary equity holders of the
Company
Basic and diluted loss per share
9
(1.59)
(0.69)
The above statement of comprehensive income should be read in conjunction with the accompanying notes.
BrainChip Holdings Ltd
2017 Annual Report
27
Consolidated Statement of Financial Position
As at 31 December 2017
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CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Inventory
Other assets
Total current assets
NON-CURRENT ASSETS
Plant and equipment
Intangible assets and goodwill
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
2017
$US
Restated
31 December
2016
$US
10
11
12
13
14
15
17
18
16
17
19
16,049,330
358,975
20,563
333,600
16,762,468
192,307
2,814,027
41,512
3,047,846
19,810,314
1,160,337
-
-
208,129
3,593,951
385,477
1,435
306,119
4,286,982
140,209
2,432,319
33,689
2,606,217
6,893,199
630,387
220,562
287,507
102,770
1,368,466
1,241,226
236,342
139,036
375,378
277,232
108,123
385,355
1,743,844
1,626,581
18,066,470
5,266,618
20(a)
21
21
21
22
53,570,901
10,733,454
81,556
247,872
(46,567,313)
34,013,023
3,792,094
5,414
247,872
(32,791,785)
18,066,470
5,266,618
The above statement of financial position should be read in conjunction with the accompanying notes.
BrainChip Holdings Ltd
2017 Annual Report
28
Consolidated Statement of Cash Flows
For the year ended 31 December 2017
CASH FLOWS USED IN OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Grants received from third parties
R&D credits received from third parties
Other income
Note
31 December
2017
US$
31 December
2016
US$
312,131
(6,602,048)
23,846
-
15,916
170,393
5,220
48,953
(3,449,312)
16,975
(10,602)
68,533
-
11,427
Net cash flows used in operating activities
10
(6,074,542)
(3,314,026)
CASH FLOWS USED IN 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
Proceeds from sale of royalty interests
Cash disposed on sale of subsidiaries
Advance to BrainChip SAS prior to Acquisition
Acquisition of a subsidiary, net of overdraft/cash acquired
(125,118)
-
(229,176)
(543,389)
-
32,289
-
-
-
(88,544)
(254,541)
(1,688)
(106,782)
493,337
-
48,256
(139,554)
(667,786)
29(a)
29(c)
Net cash flows used in investing activities
(865,394)
(717,302)
CASH FLOWS FROM FINANCING ACTIVITIES
Receipts from the issue of shares
Payment of share issue costs
Loans to third parties
Repayment of loans to third parties
Loans repaid to shareholders
Net cash flows from financing activities
30(b)
20,888,073
(1,330,195)
-
(308,281)
-
7,035,885
(445,401)
(54,000)
(237,458)
(5,268)
19,249,597
6,293,758
Net increase in cash and cash equivalents
12,309,661
2,262,430
Net foreign exchange differences
Cash at the beginning of the financial period
145,718
3,593,951
(62,348)
1,393,869
Cash and cash equivalents at the end of the period
10
16,049,330
3,593,951
The above cash flow statement should be read in conjunction with the accompanying notes.
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BrainChip Holdings Ltd
2017 Annual Report
29
Consolidated Statement of Changes in Equity
For the year ended 31 December 2017
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Contributed
equity
US$
Share based
payment
reserve
US$
Other
reserves
US$
Foreign
currency
reserve
US$
At 1 January 2016
27,266,878
1,939,902
247,872
Loss for the year
Other comprehensive
income
Total comprehensive
loss for the period
-
-
-
Issue of share capital
7,974,326
Share issue costs
(1,228,181)
-
-
-
-
Forfeit of options
Share-based payment
-
-
(24,037)
1,876,229
-
-
-
-
-
-
Accumulated
losses
US$
Total equity
US$
(27,718,082)
1,736,570
(5,098,102)
(5,098,102)
-
-
5,414
362
5,776
5,414
(5,097,740)
(5,092,326)
-
-
-
-
-
-
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
(32,791,785)
5,266,618
Contributed
equity
US$
Share based
payment
reserve
US$
Other
reserves
US$
Foreign
currency
reserve
US$
Accumulated
losses
US$
Total equity
US$
At 1 January 2017
34,013,023
3,792,094
247,872
5,414
(32,791,785)
5,266,618
Loss for the year
Other comprehensive loss
Total comprehensive
loss for the period
-
-
-
Issue of share capital
20,888,073
Share issue costs
(1,330,195)
-
-
-
-
-
Share-based payment
-
6,941,360
-
-
-
-
-
-
-
(13,774,013)
(13,774,013)
76,142
(1,515)
74,627
76,142
(13,775,528)
(13,699,386)
-
-
-
-
-
-
20,888,073
(1,330,195)
6,941,360
At 31 December 2017
53,570,901 10,733,454
247,872
81,556
(46,567,313)
18,066,470
BrainChip Holdings Ltd
2017 Annual Report
30
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
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 2017 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 12, 680 George Street, Sydney NSW 2000, 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 all new and amended Accounting Standards and Interpretations, which are
effective for annual periods beginning 1 January 2017. Although these new and amended standards and
Interpretations applied for the first time in 2017, they did not have a material impact on the annual consolidated
financial statements of the Group.
Reference Title
Summary
AASB
2016-2
AASB
2016-1
AASB
2017-2
Amendments to Australian
Accounting Standards –
Disclosure Initiative:
Amendments to AASB 107
Amendments to Australian
Accounting Standards –
Recognition of Deferred
Tax Assets for Unrealised
Losses.
Amendments to Australian
Accounting Standards –
Further Annual
Improvements 2014-2016
Cycle.
The amendments require entities to provide disclosure of changes in their liabilities
arising from financing activities, including both changes arising from cash flows and
non-cash changes (such as foreign exchange gains or losses).
This Standard makes amendments to AASB 112 Income Taxes to clarify the
accounting for deferred tax assets for unrealised losses on debt instruments
measured at fair value.
This Standard clarifies the scope of AASB 12 Disclosure of Interests in Other Entities
by specifying that the disclosure requirements apply to an entity’s interests in other
entities that are classified as held for sale or discontinued operations in accordance
with AASB 5 Non-current Assets Held for Sale and Discontinued Operations.
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BrainChip Holdings Ltd
2017 Annual Report
31
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(b) Statement of compliance
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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 2017. Unless otherwise
stated, the Group has yet to fully assess the impact of these Standards and Interpretations when applied in future
periods.
Reference
Title
Summary
Application
date of
standard*
Application
date for Group
Impact on
Group
The Group
does not
foresee any
significant
impact to the
net profit and
net asset as
a result of
applying this
new
accounting
standard.
AASB 9
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Financial
Instruments
AASB 9 replaces AASB 139 Financial Instruments:
Recognition and Measurement.
1 January
2018
1 January
2018
Except for certain trade receivables, an entity initially
measures a financial asset at its fair value plus, in the
case of a financial asset not at fair value through
profit or loss (FVTPL), transaction costs.
Debt instruments are subsequently measured at
FVTPL, amortised cost, or fair value through other
comprehensive income (FVOCI), on the basis of their
contractual cash flows and the business model under
which the debt instruments are held.
There is a fair value option (FVO) that allows
financial assets on initial recognition to be designated
as FVTPL if that eliminates or significantly reduces
an accounting mismatch.
Equity instruments are generally measured at
FVTPL. However, entities have an irrevocable option
on an instrument-by-instrument basis to present
changes in the fair value of non-trading instruments
in other comprehensive income (OCI) without
subsequent reclassification to profit or loss.
For financial liabilities designated as FVTPL using
the FVO, the amount of change in the fair value of
such financial liabilities that is attributable to changes
in credit risk must be presented in OCI. The
remainder of the change in fair value is presented in
profit or loss, unless presentation in OCI of the fair
value change in respect of the liability’s credit risk
would create or enlarge an accounting mismatch in
profit or loss.
All other AASB 139 classification and measurement
requirements for financial liabilities have been carried
forward into AASB 9, including the embedded
derivative separation rules and the criteria for using
the FVO.
The incurred credit loss model in AASB 139 has
been replaced with an expected credit loss model in
AASB 9.
The requirements for hedge accounting have been
amended to more closely align hedge accounting
with risk management, establish a more principle-
based approach to hedge accounting and address
inconsistencies in the hedge accounting model in
AASB 139.
BrainChip Holdings Ltd
2017 Annual Report
32
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
Reference
Title
Summary
Application
date of
standard*
Application
date for Group
Impact on
Group
AASB 15
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1 January
2018
1 January
2018
1 January
2019
1 January
2019
The Group
has
performed
an
assessment
which
indicates that
the
application of
this standard
will not have
a material
impact on
transition for
the Group.
The Group
does not
foresee any
significant
impact to the
net profit nor
net assets as
a result of
applying this
new
accounting
standard.
The Group
has not yet
elected an
adoption
methodology.
Revenue from
Contracts with
Customers
Leases
AASB 15 replaces all existing revenue requirements
in Australian Accounting Standards (AASB 111
Construction Contracts, AASB 118 Revenue, AASB
Interpretation 13 Customer Loyalty Programmes,
AASB Interpretation 15 Agreements for the
Construction of Real Estate, AASB Interpretation 18
Transfers of Assets from Customers and AASB
Interpretation 131 Revenue – Barter Transactions
Involving Advertising Services) and applies to all
revenue arising from contracts with customers,
unless the contracts are in the scope of other
standards, such as AASB 117 Leases (or AASB 16
Leases, once applied).
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 an entity expects
to be entitled in exchange for those goods or
services. An entity recognises revenue in accordance
with the core principle by applying the following
steps:
(a) Step 1: Identify the contract(s) with a customer
(b) Step 2: Identify the performance obligations in
the contract
(c) Step 3: Determine the transaction price
(d) Step 4: Allocate the transaction price to the
performance obligations in the contract
(e) Step 5: Recognise revenue when (or as) the
entity satisfies a performance obligation
AASB 16 requires lessees to account for all leases
under a single on-balance sheet model in a similar
way to finance leases under AASB 117 Leases. The
standard includes two recognition exemptions for
lessees – leases of ’low-value’ assets (e.g., personal
computers) and short-term leases (i.e., leases with a
lease term of 12 months or less). At the
commencement date of a lease, a lessee will
recognise a liability to make lease payments (i.e., the
lease liability) and an asset representing the right to
use the underlying asset during the lease term (i.e.,
the right-of-use asset).
Lessees will be required to separately recognise the
interest expense on the lease liability and the
depreciation expense on the right-of-use asset.
Lessees will be required to remeasure the lease
liability upon the occurrence of certain events (e.g., a
change in the lease term, a change in future lease
payments resulting from a change in an index or rate
used to determine those payments). The lessee will
generally recognise the amount of the
remeasurement of the lease liability as an adjustment
to the right-of-use asset.
Lessor accounting is substantially unchanged from
today’s accounting under AASB 117. Lessors will
continue to classify all leases using the same
classification principle as in AASB 117 and
distinguish between two types of leases: operating
and finance leases.
BrainChip Holdings Ltd
2017 Annual Report
33
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
Reference
Title
Summary
Application
date of
standard*
Application
date for Group
Impact on
Group
AASB 2016-
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Interpretation
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Not yet
issued by the
AASB
AASB
Interpretation
23, and
relevant
amending
standards
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*
‡
Amendments
to Australian
Accounting
Standards –
Classification
and
Measurement
of Share-
based
Payment
Transactions
[AASB 2]
Foreign
Currency
Transactions
and Advance
Consideration
Annual
Improvements
to IFRS
Standards
2015-2017
Cycle‡
Uncertainty
over Income
Tax
Treatments
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
The Interpretation clarifies that in determining the
spot exchange rate to use on initial recognition of the
related asset, expense or income (or part of it) on the
derecognition of a non-monetary asset or non-
monetary liability relating to advance consideration,
the date of the transaction is the date on which an
entity initially recognises the non-monetary asset or
non-monetary liability arising from the advance
consideration. If there are multiple payments or
receipts in advance, then the entity must determine a
date of the transaction for each payment or receipt of
advance consideration.
The amendments clarify certain requirements in:
IFRS 3 Business Combinations and IFRS 11
Joint Arrangements - previously held interest in
a joint operation
IAS 12 Income Taxes - income tax
consequences of payments on financial
instruments classified as equity
IAS 23 Borrowing Costs - borrowing costs
eligible for capitalisation.
The Interpretation clarifies the application of the
recognition and measurement criteria in AASB 112
Income Taxes when there is uncertainty over income
tax treatments. The Interpretation specifically
addresses the following:
Whether an entity considers uncertain tax
treatments separately
The assumptions an entity makes about the
examination of tax treatments by taxation
authorities
How an entity determines taxable profit (tax
loss), tax bases, unused tax losses, unused tax
credits and tax rates
How an entity considers changes in facts and
circumstances.
1 January
2018
1 January
2018
1 January
2018
1 January
2018
1 January
2019
1 January
2019
1 January
2019
1 January
2019
The Group
does not
foresee any
significant
impact to the
net profit nor
net assets as
a result of
applying this
new
accounting
standard.
The Group
does not
foresee any
significant
impact to the
net profit nor
net assets as
a result of
applying this
new
accounting
standard.
The Group
has not yet
accessed the
impact of
applying this
new
accounting
standard.
The Group
has not yet
accessed the
impact of
applying this
new
accounting
standard.
Designates the beginning of the applicable annual reporting period unless otherwise stated.
The IASB issued the amending Standard on 12 December 2017.
BrainChip Holdings Ltd
2017 Annual Report
34
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Basis of consolidation
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(d) Business combination
The consolidated financial statements comprise the financial statements of the parent entity and its subsidiaries
('the Consolidated Entity') as at 31 December each year. Control is achieved when the Consolidated Entity is
exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those
returns through its power over the investee. Specifically, the Consolidated Entity controls an investee if and only if
the Consolidated Entity has:
Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the
investee)
Exposure, or rights, to variable returns from its involvement with the investee, and
The ability to use its power over the investee to affect its returns
When the Consolidated Entity has less than a majority of the voting or similar rights of an investee, the
Consolidated Entity considers all relevant facts and circumstances in assessing whether it has power over an
investee, including:
The contractual arrangement with the other vote holders of the investee
Rights arising from other contractual arrangements
The Consolidated Entity’s voting rights and potential voting rights
The Consolidated Entity re-assesses whether or not it controls an investee if facts and circumstances indicate that
there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the
Consolidated Entity obtains control over the subsidiary and ceases when the Consolidated Entity loses control of
the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are
included in the statement of comprehensive income from the date the Consolidated Entity gains control until the
date the Consolidated Entity ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the equity holders of the parent
of the Consolidated Entity and to the non-controlling interests, even if this results in the non-controlling interests
having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring
their accounting policies into line with the Consolidated Entity’s accounting policies. All intra-Consolidated Entity
assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the
Consolidated Entity are eliminated in full on consolidation.
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as
the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of
any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure
the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable
net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate
classification and designation in accordance with the contractual terms, economic circumstances and pertinent
conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the
acquiree. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the
acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within
the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with the
changes in fair value recognised in the statement of profit or loss.
Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the
amount recognised for non-controlling interests) and any previous interest held over the net identifiable assets
acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate
consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all
of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the
acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the
aggregate consideration transferred, then the gain is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of
impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of
the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other
assets or liabilities of the acquiree are assigned to those units.
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.
BrainChip Holdings Ltd
2017 Annual Report
35
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(e) Foreign currency translation
(i) Functional and presentation currency
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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 BrainChip SAS 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.
(h) Trade and other receivables
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.
BrainChip Holdings Ltd
2017 Annual Report
36
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(i) Property, plant and equipment
Plant and equipment is stated at historical cost less accumulated depreciation.
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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.
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.
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.
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; and
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.
BrainChip Holdings Ltd
2017 Annual Report
37
(k) Research and development costs
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(k) Research and development costs (continued)
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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; and
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
(l) Trade and other payables
Trade payables and other payables are carried at amortised cost and are not discounted due to their short-term
nature. 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.
(m) 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
2017 Annual Report
38
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(n) Provisions
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(o)
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.
(p) Share-based payment transactions
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The Consolidated Entity provides benefits to employees (including Directors) in the form of share-based payment
transactions, whereby employees render services in exchange for shares or rights over shares (equity-settled
transactions).
The Consolidated Entity has three plans in place that provides these benefits.
(i) The Long Term Incentive Plan (“LTIP”) provides benefits to all employees including Directors. The terms of the
share options are as determined by the Board. Terms of the LTIP were included in the Notice of General
Meeting lodged with the ASX 30 June 2015 and approved by shareholders on 30 July 2015.
(ii) The Performance Rights Plan (“PRP”) provides for the granting of performance rights to senior executives and
other staff members of the Consolidated Entity. The terms of the performance rights are as determined by the
Board. Terms of the PRP were included in the Notice of General Meeting lodged with the ASX on 30 June 2015
and approved by shareholders on 30 July 2015.
(iii) The Directors and Officers Option Plan (“DOOP”) provides for the granting of options to the Board members of
the Consolidated Entity in accordance with guidelines established by the Board of the Company. Terms of the
DOOP were included in the Prospectus dated 10 December 2015 lodged with ASX. A copy of the DOOP terms
was also provided in the Notice of Meeting lodged with the ASX on 3 November 2015 and approved by
shareholders on 4 December 2015.
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
2017 Annual Report
39
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(p) Share-based payment transactions (continued)
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If the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had
not been modified. An additional expense is recognised for any modification that increases the total fair value of
the share-based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of
modification.
If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense
not yet recognised for the award is recognised immediately. However, if a new award is substituted for the
cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new
award are treated as if they were a modification of the original award, as described in the previous paragraph.
Share-based payments to non-employees are measured at the fair value of goods or services received or the fair
value of the equity instruments issued if it is determined the fair value of the goods or services cannot be reliably
measured and are recorded at the date the goods or services are received.
The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of
earnings per share.
(q) Employee benefits
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(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 on the defined benefit liability for the period by
applying the discount rate used to measure the net defined benefit obligation. 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.
(r) Revenue
(s) Government grants
Revenue is recognised to the extent that it is probable that 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.
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.
BrainChip Holdings Ltd
2017 Annual Report
40
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(t)
Income tax
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The income tax expense or credit for the period is the tax payable on the current period’s taxable income based
on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities
attributable to temporary differences and to unused tax losses.
Deferred income tax is provided for using the full liability, balance sheet method.
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 deferred income tax assets 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.
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.
BrainChip Holdings Ltd
2017 Annual Report
41
(u) Other taxes
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(v) Earnings per share
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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.
3. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
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The preparation of the financial statements requires management to make judgements, estimates and assumptions
that affect the reported amounts in the financial statements. Management continually evaluates its judgements and
estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its
judgements and estimates on historical experience and on other various factors it believes to be reasonable under
the circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily
apparent from other sources.
Management has identified the following critical accounting policies for which significant judgements, estimates and
assumptions are made. Actual results may differ from these estimates under different assumptions and conditions
and may materially affect financial results or the financial position reported in future periods.
Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial
statements.
(i) Significant accounting 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.
Goodwill
Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for
impairment, or more frequently if events or changes in circumstances indicate that it might be impaired and is
carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and
are not subsequently reversed.
BrainChip Holdings Ltd
2017 Annual Report
42
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
3. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (Continued)
Impairment of goodwill
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4.
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The Group is organised into one operating segment, being the technological development of designs that can be
licensed to Original equipment manufacturer 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. As such,
BrainChip has only one cash generating unit and, therefore goodwill has been allocated to, and the impairment
testing is performed at, the consolidated level. The recoverable amount of goodwill has been assessed utilising
fair value less cost of disposal, using a market comparison approach based on the market capitalisation of the
Group at balance sheet date. This approach was supported by external sources of information, being recent
transactions within the semiconductor industry that have provided evidence that fair value exceeds market
capitalisation (i.e. purchase consideration exceeds market capitalisation), as well as internal information including
the high liquidity of the Group’s shares.
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 2017, the carrying amount of capitalised development costs was $1,135,132 (2016:
$1,491,930).
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 acquisition of a new entity is a business combination or
an asset acquisition. 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.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Overview
This note presents information about the Consolidated Entity’s exposure to credit, liquidity and market risks, its
objectives, policies and processes for measuring and managing risk, and the management of capital.
The Consolidated Entity does not use any form of derivatives as it is not at a level of exposure that requires the use
of derivatives to hedge its exposure. Exposure limits are reviewed by management on a continuous basis. The
Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative
purposes.
The Board of Directors has overall responsibility for the establishment and oversight of the risk management
framework. Management monitors and manages the financial risks relating to the operations of the Group through
regular reviews of the risks.
Credit risk
Credit risk is the risk of financial loss to the Consolidated Entity if a customer or counterparty to a financial
instrument fails to meet its contractual obligations and arises principally from the Group’s cash and cash
equivalents and receivables from customers.
Presently, the Group undertakes technology development activities in the USA 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.
BrainChip Holdings Ltd
2017 Annual Report
43
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
4.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
Trade and other receivables
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The Group operates primarily in technology development and has trade receivables. 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
2016
2017
US$
US$
Note
10
11
16,049,330
81,138
3,593,951
111,372
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.
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
US$
US$
1,160,337
236,342
1,396,679
1,160,337
243,603
1,403,940
1,132,617
-
1,132,617
27,720
-
27,720
630,387
497,794
1,128,181
630,387
501,279
1,131,666
630,387
124,477
754,864
-
96,085
96,085
-
243,603
243,603
-
280,717
280,717
31 December 2017
Trade and other payables
Financial liabilities
31 December 2016
Trade and other payables
Financial liabilities
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, 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 legal parent, BrainChip Holdings,
holds cash balances in AUD and in the prior year the Madagascan subsidiaries (divested November 2016)
operated cash balances denominated in Madagascan Ariary (MGA). As a result of this, the Consolidated Entity’s
statement of financial position can be affected by movements in the USD/AUD exchange rate (and for 2016, the
USD/MGA exchange rate) when translating to the USD functional currency.
In respect of other monetary assets and liabilities denominated in foreign currencies (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 balance sheet date was negligible.
BrainChip Holdings Ltd
2017 Annual Report
44
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
4.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
Interest rate risk
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.
The Consolidated Entity’s exposure to interest rate risk at the balance sheet date was negligible.
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 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 $53,570,901 and other equity reserves of
$247,872 at 31 December 2017 (2016: $34,013,023 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 2017, 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.
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BrainChip Holdings Ltd
2017 Annual Report
45
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
5.
EXPENSES
(a) Research & development expenses
Executive salaries
Wages and salaries
Grants received
Other expenses
Total research & development expenses
(b) Administration and other expenses
Non-executive director fees
Executive director and other KMP salaries
Wages and salaries
Acquisition related transaction costs
Legal and professional fees
Travel and accommodation expenses
Depreciation of plant & equipment
Office rent
Administration expenses
Total administration expenses
6.
FINANCE INCOME AND EXPENSES
(a) Finance income
Interest received
Foreign exchange gain
Total finance income
(b) Finance expense
Interest expense
Foreign exchange loss
Total finance expense
2017
US$
Restated
2016
US$
95,836
1,277,694
(326,137)
106,304
1,153,697
272,463
1,844,530
359,589
-
1,380,086
391,721
75,792
218,136
453,942
4,996,259
29,784
98,696
128,480
622
-
622
-
885,147
(42,903)
25,115
867,359
183,338
617,659
90,917
113,030
1,004,057
109,871
24,979
108,558
303,910
2,556,319
16,975
-
16,975
10,602
62,348
72,950
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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.
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BrainChip Holdings Ltd
2017 Annual Report
46
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
8.
INCOME TAX
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(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
2017
US$
2016
US$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Accounting loss before tax
13,774,013
5,098,102
At statutory income tax rate of 27.5% (2016: 28.5%)
(3,787,854)
(1,452,959)
Non-deductible (income) / expenses
Effect of lower/(higher) taxation rates of foreign subsidiaries
Other
Unrecognised tax losses and deferred income tax assets
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
Deferred State Tax deduction
Other
Not recognised
Net deferred tax liability
Deferred tax income/ (expense)
(e) Unrecognised losses
1,883,943
(862,944)
(272,245)
3,039,100
526,313
(123, 948)
-
1,050,594
-
0%
-
0%
Consolidated Statement of
financial position
2017
46,734
4,381,352
-
1,688,584
26,926
(254,391)
403,612
(6,292,817)
-
-
2016
40,726
2,193,951
128,220
1,114,947
(396,209)
(130,691)
34,923
(2,985,867)
-
-
At 31 December 2017, there are unrecognised losses of $4,381,352 (tax effected), for the Consolidated Entity
(2016: $2,193,951 (tax effected)).
BrainChip Holdings Ltd
2017 Annual Report
47
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
9.
LOSS PER SHARE
2017
US$
2016
US$
Net loss attributable to ordinary equity holders
(13,774,013)
(5,098,102)
Net loss attributable to ordinary shareholders for diluted earnings per share
(13,774,013)
(5,098,102)
Basic and diluted loss per share (US cents per share)
(1.59)
(0.69)
Weighted average number of ordinary shares for basic loss per share (3)
Effect of the dilution of share options and performance rights (1) (2)
Weighted average number of ordinary shares adjusted for the effect of
dilution
863,653,555
-
736,635,076
-
863,653,555
736,635,076
(1) At 31 December 2017, the Company had on issue 190,550,000 (2016: 91,550,000) share options that are
excluded from the calculation of diluted loss per share for the current period. The options are either
contingency issuable potential ordinary shares or considered anti-dilutive as their inclusion reduced the loss
per share however these options may be dilutive in the future.
(2) At 31 December 2017, the Company had on issue 56,500,000 (2016: 56,000,000) performance rights that
are excluded from the calculation of diluted loss per share for the current period. The performance rights are
contingently issuable at the balance sheet date and have therefore been excluded from diluted earnings per
share.
(3) Weighted average number of ordinary shares has been adjusted for all periods presented by a factor of
approximately 1.02 as a result of a rights issue to institutional and sophisticated investors in November 2017.
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
Exploration and evaluation expenditure written off
Impairment of receivable
Impairment of loan to third party
Gain on deconsolidation of subsidiaries
Other income classified as investing
Foreign exchange (gain)/loss
Working capital adjustments:
Decrease/(increase) in trade and other receivables
Increase in inventory
Decrease/(increase) in prepayments
(Increase)/decrease in other assets
(Decrease)/increase in financial liabilities
Increase/(decrease) in defined benefits plan
Increase in employee provisions
(Decrease)/increase in trade and other payables
Net cash used in operating activities
2017
US$
2016
US$
16,049,330
16,049,330
3,593,951
3,593,951
(13,774,013)
(5,098,102)
75,792
1,108,423
6,941,360
-
-
-
-
(32,289)
(98,696)
121,645
(19,128)
6,898
(135,952)
(287,507)
29,398
105,360
(115,833)
(6,074,542)
24,979
441,796
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
38,916
(3,314,026)
BrainChip Holdings Ltd
2017 Annual Report
48
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
11. TRADE AND OTHER RECEIVABLES
CURRENT
Trade receivables
Research tax credit (1)
Other receivables
2017
US$
2016
US$
81,138
269,537
8,300
358,975
111,372
174,395
99,710
385,477
(1) BrainChip SAS 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
Prepayments
Interest receivable
13. PLANT & EQUIPMENT
Plant and equipment
2017
US$
2016
US$
236,081
91,580
5,939
333,600
207,642
98,477
-
306,119
Plant and equipment – Gross carrying value at cost
Accumulated depreciation
Net carrying amount
301,846
(109,539)
192,307
205,890
(65,681)
140,209
Movement in plant and equipment
At 1 January net of accumulated depreciation
Additions
Plant and equipment from Acquisition of BrainChip SAS
Depreciation charge for the year
Net foreign exchange movements
At 31 December net of accumulated depreciation
140,209
125,119
-
(75,792)
2,771
192,307
65,381
88,544
11,875
(24,979)
(612)
140,209
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BrainChip Holdings Ltd
2017 Annual Report
49
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
14.
INTANGIBLE ASSETS AND GOODWILL
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Patents and licenses (a)
Capitalised research & development costs (b)
Goodwill (c)
(a) Patents and licenses with finite useful life – at cost
Accumulated amortisation
Movement in patents
At 1 January
Additions
Fair value of additions upon BrainChip SAS acquisition
Amortisation
Net foreign exchange movements
At 31 December
(b) Capitalised research & development costs
Accumulated amortisation
Movement in capitalised research & development costs
At 1 January
Fair value of additions upon BrainChip SAS acquisition
Additions
Amortisation
Net foreign exchange movements
At 31 December
2017
US$
Restated
2016
US$
773,437
1,135,132
905,458
2,814,027
34,931
1,491,930
905,458
2,432,319
841,869
(68,432)
773,437
34,931
795,747
-
(60,538)
3,297
773,437
2,738,355
(1,603,223)
1,135,132
1,491,930
-
543,389
(1,047,885)
147,698
1,135,132
41,787
(6,856)
34,931
31,704
1,688
5,175
(3,384)
(252)
34,931
1,827,745
(335,815)
1,491,930
-
1,894,825
106,782
(438,411)
(71,266)
1,491,930
(c) Goodwill
Goodwill was recognised in the prior year after finalisation of the fair value of the purchase of BrainChip SAS.
There were no other transactions to 31 December 2017.
As at 31 December 2017, the Group performed an impairment assessment based on the fair value less cost of
disposal (Level 2 in the fair value hierarchy) to confirm the recoverability of the Group’s net assets. Based on
the Group’s assessment, the estimated recoverable amount was sufficient to recover the consolidated net
assets at 31 December 2017. Assumptions used within the Group’s fair value less cost of disposal
determination included the Group’s share price of A$0.185 at 31 December 2017 and the foreign exchange rate
of $0.78 AUD/USD at 31 December 2017.
15. TRADE AND OTHER PAYABLES
CURRENT
Trade creditors and accruals
VAT and other taxes payable to foreign authorities
16. EMPLOYEE BENEFITS LIABILITIES
Provision for annual leave
The nature of the provision is described in note 2(q).
2017
US$
2016
US$
1,119,627
40,710
1,160,337
524,630
105,757
630,387
2017
US$
2016
US$
208,129
208,129
102,770
102,770
BrainChip Holdings Ltd
2017 Annual Report
50
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
17. FINANCIAL LIABILITIES
Current
Advances from third parties (a)
Non-Current
Advances from third parties (b)
(a) Reconciliation of financial liabilities – current (1)
Opening balance
Advances from third parties upon acquisition of BrainChip SAS
Repayment of advance from third parties
Interest charged on advances
Foreign exchange movements
(b) Reconciliation of financial liabilities – non-current
Opening balance
Advances from third parties upon acquisition of BrainChip SAS
Repayment of advances from third parties
Advances received from third parties
Interest charged on advances
Foreign exchange movements
2017
US$
2016
US$
-
-
236,342
236,342
220,562
-
(239,016)
2,779
15,675
-
277,232
-
(72,600)
1,284
30,426
236,342
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 advances 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
2017
US$
2016
US$
Deferred income in relation to research & development projects (1)
-
287,507
(a) Reconciliation of other liabilities
Opening balance
Deferred income from third parties upon acquisition of BrainChip SAS
Grant revenue released to the statement of profit and loss
Foreign exchange movement
287,507
-
(309,943)
22,436
-
-
343,652
(37,847)
(18,298)
287,507
(1) Deferred income relates to grants acquired from third parties before all attached conditions have been
complied with. Deferred income has been recognised on a systematic basis over the periods that the
related research and development costs are expensed.
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BrainChip Holdings Ltd
2017 Annual Report
51
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
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19. DEFINED BENEFIT PLAN
2017
US$
2016
US$
Net employee defined benefit liabilities
139,036
108,123
BrainChip SAS has a defined benefit pension plan which is governed by the employment laws of France.
Pension plans that are 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.
Movement in net defined benefit liability
At 1 January
Defined benefit plan upon acquisition of BrainChip SAS
Included in profit or loss
Current service costs
Finance costs
Included in OCI
Actuarial losses/(gains)
Foreign exchange movement
At 31 December
Defined benefit obligation
2017
US$
2016
US$
108,123
-
12,833
1,901
1,370
14,809
139,036
-
110,433
3,762
557
(410)
(6,219)
108,123
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)
1.3%
1.5%
45.0%
1.0%
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 (+/-1% movement)
Future salary growth (+/-1.0 % movement)
Increase
US$
Decrease
US$
21,233
(17,174)
(16,772)
21,269
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
2017 Annual Report
52
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
20. CONTRIBUTED EQUITY
(a) Ordinary Shares
Issued and fully paid
(b) Movements in ordinary shares on issue
At 1 January 2016
Conversion of Performance Rights April 2016 (1)
Issue of shares, April 2016 (2)
Issue of shares pursuant to Acquisition of BrainChip SAS (3)
Issue of shares pursuant to prospectus dated 1 September 2016 (4)
Issue of shares pursuant to private placement (5)
Conversion of Performance Rights December 2016 (1)
Share issue costs incurred
At 31 December 2016
At 1 January 2017
Issue of shares pursuant to private placement (6)
Conversion of Performance Rights – refer Note 20(d)
Issue of shares pursuant to private placement (7)
Conversion of Performance Rights – refer Note 20(d)
Share issue costs incurred
At 31 December 2017
2017
US$
2016
US$
53,570,901
34,013,023
Number
670,875,252
35,500,000
27,169,586
10,405,488
100
29,750,000
34,500,000
-
US$
27,266,878
-
2,964,681
938,442
11
4,071,192
-
(1,228,181)
808,200,426
34,013,023
808,200,426
40,000,000
1,000,000
119,380,063
500,000
-
34,013,023
4,597,620
-
16,290,453
-
(1,330,195)
969,080,489
53,570,901
(1) 35,500,000 and 34,500,000 Performance Rights were converted to shares in BrainChip on 8 April 2016
and 22 December 2016 respectively, the milestones of which had been attained.
(2) 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.
(3) 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 BrainChip SAS.
(4) 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.
(5) 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$5,335,000.
(6) On 5 June 2017, 40,000,000 shares were issued at an issue price of A$0.15 per share pursuant to a
private placement to institutional and sophisticated investors raising A$6,000,000.
(7) On 7 November 2017, 119,380,063 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$21,488,411.
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BrainChip Holdings Ltd
2017 Annual Report
53
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
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 movements
Class B Performance Rights (1)
Class C Performance Rights (1)
Class D Performance Rights (1)
Opening
balance
1 January
2017
1,000,000
6,500,000
48,500,000
Converted (2)
Allocated
(1,000,000)
(500,000)
-
1,000,000
-
1,000,000
Closing
balance
31 December
2017
1,000,000
6,000,000
49,500,000
56,000,000
(1,500,000)
2,000,000
56,500,000
(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) 1,000,000 Class B Performance Rights and 500,000 Class C Performance Rights were converted to shares
in BrainChip Holdings on 29 September 2017 and 7 November 2017 respectively, the milestones of which
had been previously attained. Both parcels of performance rights had been issued to employees from the
unallocated pool held at 31 December 2015.
The performance rights have the following milestones attached to them:
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 A$500,000 (Milestone 4).
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BrainChip Holdings Ltd
2017 Annual Report
54
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
20. CONTRIBUTED EQUITY (continued)
(e) Options on issue
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Unissued ordinary shares of the Company under option at 31 December 2017 are as follows:
Type
Expiry Date
Exercise
Price (US$)
Number of
options
Options issued as part consideration as part of the Acquisition
Unlisted (1)
Options issued to shareholders
Unlisted (2)
Options issued as share based payments
Unlisted – refer Note 23(c)
10/09/2019
0.112
6,250,000
31/05/2020
0.171
20,000,000
Various
Various
164,300,000
Total
190,550,000
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) 20,000,000 options were issued as free attaching options to shares issued to sophisticated investors under
a Placement on 5 June 2017.
21. RESERVES
CONSOLIDATED
At 1 January 2016
Forfeit of options
Share based payments
Foreign translation of foreign operations
At 31 December 2016
At 1 January 2017
Share based payments
Foreign translation of foreign operations
At 31 December 2017
Nature and purpose of reserves
Share based payment reserve
Foreign
currency
reserve
Share
based
payment
reserve
Other
equity
reserve
Total
US$
-
5,414
5,414
US$
1,939,902
(24,037)
1,876,229
-
3,792,094
US$
247,872
-
-
-
247,872
US$
2,187,774
(24,037)
1,876,229
5,414
4,045,380
3,792,094
5,414
6,941,360
-
76,142
-
81,556 10,733,454
247,872
-
-
4,045,380
6,941,360
76,142
247,872 11,062,882
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 Ltd 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.
BrainChip Holdings Ltd
2017 Annual Report
55
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
22. ACCUMULATED LOSSES
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At 1 January
Forfeit of options issued to employee in the prior year
Re-measurement (losses)/gains on defined benefit plans
Net loss in current period attributable to members of the Company
At 31 December
23.
SHARE-BASED PAYMENTS
(a) Recognised share-based payment expenses
Performance Rights issued to employees
Options issued to directors, employees and contractors
Recognised in statement of profit or loss
Options issued to consultants as share issue costs
Recognised in statement of financial position
2017
US$
Restated
2016
US$
(32,791,785)
-
(1,515)
(13,774,013)
(46,567,313)
(27,718,082)
24,037
362
(5,098,102)
(32,791,785)
2017
US$
2016
US$
559,516
6,381,844
6,941,360
-
6,941,360
157,877
917,505
1,075,382
800,847
1,876,229
A Performance Rights Plan and a Long Term Incentive Plan were approved by Shareholders on 30 July 2015.
A Directors’ and Officers’ Option Plan was approved by shareholders on 4 December 2015.
Performance Rights Plan
Awards under the PRP are made in order to retain key Directors, employees (including officers) 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 objective of the LTIP is to attract and retain 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 DOOP was established 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 closing trading price of the Company’s
ordinary listed shares on the Friday following the invitation being issued, will have an expiry date of not later
than five years after the date of issue or vesting, and will vest at such times as the Board with the advice of
the Remuneration Committee may specify in the applicable invitation.
BrainChip Holdings Ltd
2017 Annual Report
56
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
23. SHARE-BASED PAYMENTS (continued)
(b) Performance Rights issued to employees
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The following table summarises the movement in Performance Rights issued to employees:
Opening
balance
1 January
2017
1,000,000
500,000
2,000,000
3,500,000
Issued
during the
year (1)
Converted
during the
year
1,000,000
-
1,000,000
2,000,000
(1,000,000)
(500,000)
-
(1,500,000)
Closing
balance
31
December
2017
1,000,000
-
3,000,000
4,000,000
Class B Performance Rights
Class C Performance Rights
Class D Performance Rights
(1) Refer Note 20(d)
(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 2017 are as follows:
Type
Grant Date
Expiry Date
Unlisted (2)
Unlisted (3)
Unlisted (4)
Unlisted (1)
Unlisted (5)
Unlisted (6)
Unlisted (6)
Unlisted (7)
Unlisted (1)
Unlisted (8)
Unlisted (8)
Unlisted (9)
Unlisted (9)
Unlisted (9)
Unlisted (10)
Unlisted (10)
Unlisted (10)
Unlisted (10)
Unlisted (11)
Unlisted (11)
Unlisted (11)
Unlisted (11)
Unlisted (12)
Unlisted (12)
Unlisted (12)
Unlisted (12)
Unlisted (1)
Unlisted (1)
Unlisted (1)
Unlisted (1)
Unlisted (1)
Unlisted (1)
Total
4/12/2015
4/12/2015
4/12/2015
22/01/2016
28/09/2016
8/07/2016
7/10/2016
01/11/2016
27/01/2017
30/01/2017
30/01/2017
05/03/2017
05/03/2017
05/03/2017
31/05/2017
31/05/2017
31/05/2017
31/05/2017
31/05/2017
31/05/2017
31/05/2017
31/05/2017
7/07/2017
7/07/2017
7/07/2017
7/07/2017
10/08/2017
28/11/2017
28/11/2017
28/11/2017
28/11/2017
1/12/2017
30/11/2018
21/12/2020
21/12/2020
01/02/2021
30/09/2021
10/10/2021
10/10/2021
01/11/2019
16/02/2022
16/02/2022
31/12/2022
31/03/2022
31/03/2022
31/03/2022
31/01/2023
31/01/2024
31/01/2025
31/01/2026
01/02/2023
01/02/2024
01/02/2025
01/02/2026
7/07/2023
7/07/2024
7/07/2025
7/07/2026
10/08/2022
14/12/2022
14/12/2022
14/12/2022
14/12/2022
14/12/2022
Exercise
Price (US$)
0.161
0.258
0.172
0.165
0.172
0.113
0.205
0.137
0.242
0.241
0.241
0.209
0.209
0.209
0.138
0.138
0.138
0.138
0.182
0.182
0.182
0.182
0.125
0.125
0.125
0.125
0.127
0.136
0.141
0.171
0.148
0.140
Vested at
Number of
options
year end
11,000,000 11,000,000
250,000
2,775,000
375,000
5,750,000
1,000,000
500,000
7,000,000
-
3,000,000
3,000,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
250,000
5,550,000
1,500,000
50,000,000
4,000,000
2,000,000
7,000,000
100,000
3,000,000
3,000,000
8,000,000
6,000,000
6,000,000
2,000,000
2,000,000
2,000,000
2,000,000
1,750,000
1,750,000
1,750,000
1,750,000
2,000,000
2,000,000
2,000,000
2,000,000
27,000,000
500,000
5,300,000
500,000
400,000
200,000
164,300,000 34,650,000
BrainChip Holdings Ltd
2017 Annual Report
57
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
23. SHARE-BASED PAYMENTS (continued)
(1) Options issued to employees which vest equally over a 4-year period on each anniversary of the grant
date.
(2) 11,000,000 unlisted options exercisable at A$0.225 per share on or before 30 November 2018 were issued
to Directors on 11 December 2015 pursuant to the Company’s DOOP as approved by shareholders on 4
December 2015.
(3) 250,000 unlisted options were issued to consultants on 21 December 2015. The options are exercisable at
A$0.36 per share before 21 December 2020.
(4) 5,550,000 unlisted options were issued to employees and consultants on 21 December 2015. The options
are exercisable at A$0.24 per share before 21 December 2020.
(5) 50,000,000 unlisted options were issued to the CEO, Lou DiNardo, on 30 September 2016. 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. The options vest equally over a 4-year
period after attainment of the performance criteria and are exercisable before 30 November 2021.
(6) 6,000,000 unlisted options were issued to employees on 10 October 2016. These options vest equally
over a 4-year period and, after vesting, are exercisable before 10 October 2021.
(7) 7,000,000 unlisted options were issued on 1 November 2016 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 i.e.
$0.27 (based on 30 day VWAP) for 30 consecutive trading days, are exercisable before 1 November 2019.
(8) 6,000,000 unlisted options issued to consultants on 16 February 2017. 50% of these options vested
immediately and expire on 16 February 2022. 50% will vest on 31 December 2017 as long as continuous
service is provided and expire 31 December 2022.
(9) 20,000,000 unlisted options were issued to employees on 31 March 2017. 8,000,000 of these options vest
equally over a 4-year period as long as continuous service is provided. 12,000,000 of these options vest
equally over a 4-year period subject to the employee achieving various operational KPIs as determined by
the Board, and continuous services. After vesting, all options expire 31 March 2022.
(10) 8,000,000 unlisted options were issued to Directors of which 25% of the options vest on each anniversary
date of the offer date (31 January 2017) so long as continuous service is provided and expire five years
from each vesting date.
(11) 7,000,000 unlisted options were issued to Directors of which 25% of the options vest on each anniversary
date of the offer date (1 February 2017) so long as continuous service is provided and expire five years
from each vesting date.
(12) 8,000,000 unlisted options were issued to Directors of which 25% of the options vest on each anniversary
date of the offer date (7 July 2017) so long as continuous service is provided and expire five years from
each vesting date.
(d) Options forfeited
The following options were forfeited during the period due to cessation of employment :
4,000,000 unlisted options issued to employees on 22 December 2016;
1,000,000 unlisted options issued to employees on 16 February 2017.
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2017 Annual Report
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
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23. SHARE-BASED PAYMENTS (continued)
(e) 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
Outstanding at 31 December
Exercisable (vested and unrestricted)
at 31 December
2017
WAEP
(US$)
0.160
0.163
(0.194)
0.161
2017
Number
85,300,000
84,000,000
(5,000,000)
164,300,000
34,650,000
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
The weighted average remaining contractual life for the share options outstanding at 31 December 2017 is 4.40
years (2016: 4.18 years).
The weighted average fair value of options granted during the year was US$0.11 (2016: US$0.09)
The range of exercise prices for options outstanding at the end of the year was US$0.11 to US$0.26 (2016:
US$0.11 to US$0.26)
(f) 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 during the year ended 31 December 2017:
Number of
options
100,000
1,000,000
20,000,000
27,000,000
500,000
5,300,000
3,000,000
3,000,000
500,000
400,000
200,000
2,000,000
2,000,000
2,000,000
2,000,000
1,750,000
1,750,000
1,750,000
1,750,000
2,000,000
2,000,000
2,000,000
2,000,000
Fair value at
measurement
date
$US
0.193
0.198
0.166
0.131
0.100
0.101
0.192
0.201
0.097
0.100
0.101
0.116
0.121
0.125
0.128
0.112
0.118
0.123
0.127
0.101
0.106
0.109
0.111
Share price
at Grant
Date
US$
0.242
0.249
0.209
0.127
0.136
0.141
0.241
0.241
0.141
0.141
0.140
0.142
0.142
0.142
0.142
0.142
0.142
0.142
0.142
0.121
0.121
0.121
0.121
Exercise
price
US$
0.242
0.249
0.209
0.127
0.136
0.141
0.241
0.241
0.171
0.148
0.140
0.138
0.138
0.138
0.138
0.182
0.182
0.182
0.182
0.125
0.125
0.125
0.125
Expected
volatility
(%)
110
110
110
110
92.4
92.4
110
110
92.4
92.4
92.4
110
110
110
110
110
110
110
110
110
110
110
110
Risk-free
interest rate
(%)
2.28
2.32
2.32
2.23
2.26
2.26
2.24
2.35
2.26
2.26
2.26
2.06
2.16
2.26
2.35
2.06
2.16
2.26
2.35
2.33
2.41
2.49
2.57
Expected
life of
options in
years
5.1
5.1
5.1
5.1
5.4
5.1
5.1
5.9
5.1
5.1
5.1
5.7
6.7
7.7
8.7
5.7
6.7
7.7
8.7
6.0
7.0
8.0
9.0
Employee
Consultants
Director
Director
Director
The expected dividend yield for all options granted during the period was nil. 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.
BrainChip Holdings Ltd
2017 Annual Report
59
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
23. SHARE-BASED PAYMENTS (continued)
(g) Performance rights pricing model
The fair value of the performance rights granted under the LTIP is estimated as at the date of grant using the
share price at the date of grant. The following table lists the inputs to the models used for the valuation of
performance rights during the year ended 31 December 2017:
Number of
performance rights
Employee
500,000
1,000,000
500,000
Grant date
$US
9/08/2017
5/03/2017
5/03/2017
Fair value at
grant date
$US
0.131
0.209
0.209
Expiry Date
9/08/2021
31/03/2021
31/03/2021
24. COMMITMENTS
Operating lease commitments - Company as lessee
Office lease
Up to one year
Two to five years
2017
US$
2016
US$
147,756
321,994
469,750
120,311
116,376
236,687
25. CONTINGENT ASSETS AND LIABILITIES
The Consolidated Entity had no contingent assets or liabilities at 31 December 2017 (31 December 2016: $Nil).
26. EVENTS AFTER THE BALANCE SHEET DATE
In January 2018, the Company and Gaming Partners International Corporation (“GPI”) entered into a licensing,
development and revenue sharing agreement related to the joint development of video analytic products for
worldwide deployment in casino currency security, game table operations and player behaviour applications. The
terms of the agreement provide for a total of US$500,000 in license fees, a non-recurring engineering fee of
US$100,000 for products developed under the agreement, and long-term revenue sharing for the sale of the
developed technology.
On 16 March 2018 the Company requested a waiver of Listing Rule 6.23.3 from the ASX to permit the Company
to seek shareholder approval to extend the expiration dates of 45,800,000 unquoted options from between three
to five years after the date of grant to ten years after the date of grant. If ASX grants the waiver the Company will
seek shareholder approval for the extension of the expiration dates at its Annual General Meeting.
No other matters or circumstances have arisen since the end of the financial year which significantly affected or
may significantly affect the operations of the Consolidated Entity, the results of those operations, or the state of
affairs of the Consolidated Entity in subsequent financial years.
BrainChip Holdings Ltd
2017 Annual Report
60
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
27. AUDITOR'S REMUNERATION
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Amounts received or due to be receivable by Ernst & Young (Australia) for:
An audit or review of the financial reports of the entity
Non-audit services – tax compliance
Amounts received or due and receivable by non-Ernst & Young audit firms
for:
An audit or review of the financial report of the entity
2017
US$
2016
US$
102,560
-
102,560
64,242
25,260
89,502
17,455
17,455
16,073
16,073
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28. OPERATING SEGMENTS
For management purposes, the Group is organised into one main operating segment, focused on the
technological development of designs that can be licensed to Original Equipment Manufacturer (“OEM”)
Customers, End Users and System Integrators 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 subsidiaries: France based subsidiary BrainChip SAS and USA
based subsidiary, BrainChip Inc. Effective 29 December 2017, the Group was reorganised such that BrainChip
SAS became a wholly-owned subsidiary of BrainChip Inc.
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
The following customers accounted for more than 10% of revenues:
Customer A
Customer B
Customer C
Total
Non-current assets
USA
Europe
2017
US$
Restated
2016
US$
24,565
244,931
269,496
89,807
76,529
28,392
194,728
4,912
144,372
149,284
75,860
-
26,822
102,682
1,117,018
1,930,828
3,047,846
174,153
2,432,064
2,606,217
BrainChip Holdings Ltd
2017 Annual Report
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
29. ACQUISTION OF BRAINCHIP SAS
On 1 September 2016, BrainChip Holdings Ltd completed the acquisition of BrainChip SAS (formerly Spikenet
Technology SAS), a France based Artificial Intelligence company pursuant to a Share Sale Agreement dated 25
August 2016.
Finalisation of the acquisition accounting was completed in 2017, and comparative information has been
restated as if the accounting for the business combination had been finalised at the acquisition date. As a result,
intangible assets have decreased by $905,458 and Goodwill has increased by a corresponding amount. In
addition, following the assessment of the useful lives of the intangible assets, additional amortisation of
$242,486 was recognised for the year ended 31 December 2016. This increased the Group loss for the year
ended 31 December 2016 by an equivalent amount.
(a) Purchase Consideration
BrainChip Holdings Ltd shares issued
Share price of A$0.12 being the share price of BrainChip Holdings
on 1 September 2016
Fair value of shares issued
Cash paid - €529,598
Loan from BrainChip Holdings Ltd
Purchase consideration
(b) Fair value of assets and liabilities acquired
Trade and other receivables
Inventories
Grants receivable
Other current assets
Property plant and equipment
Intangible assets
Goodwill
Non-current other assets
Overdraft facility acquired
Trade and other payables
Financial liabilities - current
Financial liabilities - non-current
Employee benefits liabilities
Other liabilities
Defined benefit plan
Net assets acquired
Provisional
fair value at
acquisition
date reported
at 31
December
2016
US$
Fair value at
acquisition
date restated
during 2017
US$
10,405,488
10,405,488
0.09
938,442
590,226
139,554
1,668,222
0.09
938,442
590,226
139,554
1,668,222
255,116
151
221,837
34,403
11,875
1,900,000
905,458
21,924
(77,560)
(365,754)
(490,933)
(247,053)
(47,157)
(343,652)
(110,433)
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, BrainChip SAS contributed $149,284 of revenue and $512,118 loss before tax
from continuing operations to the Group in the prior year. If the combination had taken place at the beginning of
2016, revenue from continuing operations would have been $358,007 and loss before tax from continuing
operations for the Group would have been $6,293,181.
The fair value of trade and other receivables is $255,116. None of the trade and other receivables have been
impaired and it is expected that the full contractual amounts can be collected.
Goodwill represents the difference between the aggregate of the fair values of the net identifiable assets and the
cost of the acquisition. Goodwill accounts for intangible assets of the business not separately recognised on the
balance sheet including the assembled workforce of highly technical, experienced personnel; established
geographic presence in France, an important market for the Group’s products; and favourable government
relations in France. Goodwill also accounts for the fair value of expected synergies specific to the combination
of BrainChip and BrainChip SAS including the synergies derived from combining two technical teams with
extremely scarce expertise in Spiking Neural Networks technology.
BrainChip Holdings Ltd
2017 Annual Report
62
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
29. ACQUISTION OF BRAINCHIP SAS (continued)
(c) Analysis of cash flow on acquisition
Transaction costs of the acquisition (included in cash flows from operating
activities)
Acquisition of subsidiary, net of overdraft acquired (included in cash flows
from investing activities)
Transaction costs attributable to issuance of shares (included in cash flows
from financing activities, net of tax)
Net cash flow on acquisition
30. DISCONTINUED OPERATION
Sale of ORRI and dissolution of subsidiaries 2017 (a)
Sale and dissolution of subsidiaries 2016 (b)
Net gain/(loss) from discontinued operations after tax
31 December
2016
US$
31 December
2016
US$
(80,566)
(80,566)
(667,786)
(667,786)
(4,644)
(752,996)
(4,644)
(752,996)
2017
US$
28,372
-
28,372
2016
US$
474
(251,029)
(250,555)
(a) Sale of ORRI and dissolution of subsidiaries 2017:
During 2017, BrainChip dissolved three wholly owned subsidiaries (refer Note
31(a)) and sold an interest in an overriding royalty interest agreement (“ORRI”) to
a third party.
(i) Financial performance
Other revenues – oil & gas royalties
Other revenues – sale of interest in overriding royalty interest
General & administrative expenses
Operating gain from discontinued operations
Income tax expense
Operating gain attributable to discontinued operations after tax
Gain on dissolution of subsidiaries
Income tax expense
Gain on dissolution of subsidiaries after tax
Net gain attributable to discontinued operations
(ii) Cash flow information.
Net cash outflow from operating activities
Net cash inflow from investing activities
Net increase in cash generated by the disposal
(b) Sale and dissolution of subsidiaries 2016:
5,220
32,289
(9,137)
28,372
-
28,372
-
-
28,372
28,372
(3,917)
32,289
28,372
9,801
-
(9,327)
474
-
474
-
-
474
474
472
-
472
On 21 December 2016, Blue Sky Corporation, a wholly owned subsidiary in the Group, was sold to a third party
for A$1. The transaction resulted in the disposal of Blue Sky Corporation and its wholly owned subsidiaries and
released BrainChip from any future exploration lease commitments. The Group also dissolved two US
subsidiaries, Eternal Resources (USA) LLC and Eternal Resources (USA) Inc. after assigning an overriding
royalty interest agreement from Eternal Resources (USA) LLC to BrainChip Inc., which subsequently sold the
agreement to a third party in 2017 (refer Note 30(a) above).
BrainChip Holdings Ltd
2017 Annual Report
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2017
US$
2016
US$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
54,517
(157,990)
(120,281)
(54,000)
(277,754)
-
(277,754)
26,725
-
26,725
(251,029)
2016
US$
287,052
287,052
1
26,724
26,725
-
26,725
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
30. DISCONTINUED OPERATION (continued)
(i) Financial performance
Revenue from the sale of exploration tenements
Impairment of exploration expenses
Impairment of receivable from third parties
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
Net loss attributable to discontinued operations
(ii) Cash flow information for the period 1 January 2016 to 21
December 2016
2017
US$
Net cash inflow from investing activities
Net cash flow
Consideration received (A$1)
Carrying amount of net liabilities sold
Gain on disposal
Income tax expense
Gain on disposal after income tax
31. RELATED PARTY DISCLOSURES
(a) Subsidiaries
The consolidated financial statements include the financial statements of BrainChip Holdings and the
subsidiaries listed in the following table:
Name
Subsidiary companies of BrainChip Holdings Ltd
BrainChip Inc. (1)
BrainChip SAS (formerly Spikenet Technology SAS) (2)
Aziana Exploration Corporation (3)
Eternal Resources Pty Ltd (4)
Country of
incorporation
Beneficial interest
2017
2016
USA
France
British Virgin
Islands
Australia
100%
-
-
-
100%
100%
100%
100%
Subsidiary companies of BrainChip Inc.
BrainChip SAS (formerly Spikenet Technology SAS) (2)
France
100%
-
Subsidiary companies of Aziana Exploration
Corporation
Indian Ocean Minerals Investment Corporation (5)
Mauritius
-
100%
(1) BrainChip Holdings Ltd holds 100% of the shares of BrainChip Inc. effective from 10 September 2015.
(2) BrainChip SAS (formerly Spikenet Technology SAS) was acquired on 1 September 2016. Effective 29
December 2017, the Group was re-organised such that BrainChip SAS became a wholly-owned subsidiary
of BrainChip Inc.
(3) Aziana Exploration Corporation was dissolved on 29 November 2017.
(4) Eternal Resources Pty Ltd was dissolved on 16 February 2017.
(5) Indian Ocean Minerals Investment Corporation was dissolved on 31 March 2017.
BrainChip Holdings Ltd
2017 Annual Report
64
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
31. RELATED PARTY DISCLOSURES (continued)
(b) Ultimate legal parent
BrainChip Holdings Ltd is the ultimate parent entity.
(c) Key Management Personnel compensation
Total remuneration paid to KMP of the Group during the year are as
follows:
Short-term employee benefits (1) (2)
Short-term employee benefits capitalised to Intangible assets
Termination benefit (3)
Share-based payment
Consolidated Entity
2016
2017
US$
US$
800,997
1,936,098
-
162,573
180,895
-
320,299
5,059,626
7,339,192
1,121,296
(1) Mr. Bolto and Ms. Stein each have a consulting agreement with the Company for ad hoc services as
requested by the CEO from time to time effective from 1 December 2016 at a rate of A$10,000 per month
during active assignments, usually payable within 30 days of recognition. 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. Fees paid during the year to Mr. Bolto totalled $38,462 (2016: $25,291) and to Ms.
Stein totalled $61,540 (2016: $7,226). As at 31 December 2017 consulting fees were payable to Mr. Bolto
of $Nil (2016: $25,291) and to Ms. Stein of $Nil (2016: $7,226).
(2)
In the prior year consulting services were provided by Mr Rinaldi up to 31 March 2016 at a rate of
A$50,000 per annum. Total fees paid in excess of Mr Rinaldi’s Non-Executive fees totalled $15,475.
(3) Accrued termination salary payable to Mr DoDuy as at 31 December 2017 totalled $51,800 (2016: $Nil).
Related party transactions with KMPs of the Group are as follows:
At 31 December 2017, the Group accrued unclaimed travel expenses related to business travel incurred by
Mr Lou DiNardo of $56,000 (31 December 2016: $56,000), in accordance with normal payment terms.
(d) Transactions with other related parties
There were no transactions with other related parties.
(e) Loans to/from related parties
There were no outstanding loans arising to or from related parties (31December 2016: $Nil).
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BrainChip Holdings Ltd
2017 Annual Report
65
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
32. PARENT ENTITY INFORMATION
Information relating to BrainChip Holdings Ltd
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Issued capital
Other contributed equity
Accumulated losses
Share based payment reserve
Option premium reserve
Foreign currency translation reserve
Other reserves
Total shareholders’ equity
2017
US$
2016
US$
859,502
17,350,532
18,210,034
(143,564)
-
(143,564)
18,066,470
78,810,327
2,025,617
(94,596,627)
30,578,086
480,731
1,019,364
(251,028)
18,066,470
3,178,824
2,599,230
5,778,054
(268,948)
-
(268,948)
5,509,106
59,252,449
2,025,617
(80,494,371)
23,636,726
480,731
858,982
(251,028)
5,509,106
Net loss of the parent entity (1)
Total comprehensive loss of the parent entity
14,102,256
14,102,256
4,849,836
4,849,836
(1) At the reporting date investments and loans receivable from controlled entities net of provision for
impairment totalled $17,350,532. Impairment expense of $6,411,651 (2016: $4,698,615) was recognised
for the year ended 31 December 2017.
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
Nil
Contingent liabilities of the parent entity
Nil
Contractual commitments by the parent entity for the acquisition of property, plant or equipment
Nil
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BrainChip Holdings Ltd
2017 Annual Report
66
Directors’ Declaration
In accordance with a resolution of the Directors of BrainChip Holdings Ltd, I state that:
In the opinion of the Directors:
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(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 2017 and of their performance for the year ended on that date; and
complying with the Australian Accounting Standards (including the Australian Accounting
Interpretations) and Corporations Regulations 2001; and
the financial statements and notes also comply with International Financial Reporting Standards as
disclosed in note 2(b) and;
there are reasonable grounds to believe that the Company will be able to pay its debts as and when
they become due and payable; and
this declaration has been made after receiving the declarations required to be made to the Directors in
accordance with section 295A of the Corporations Act 2001 for the financial year ended 31 December
2017.
(b)
(c)
(d)
On behalf of the Board.
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E L (Mick) Bolto
Chairman
Perth, 28 March 2018
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2017 Annual Report
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Independent auditor's report to the members 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) and its subsidiaries
(collectively the Group), which comprises the consolidated statement of financial position as at 31
December 2017, the consolidated statement of profit or loss and other comprehensive income,
consolidated statement of changes in equity and consolidated statement of cash flows for the year then
ended, notes to the financial statements, including a summary of significant accounting policies, and the
directors' declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act
2001, including:
a)
giving a true and fair view of the consolidated financial position of the Group as at 31 December
2017 and of its consolidated financial performance for the year ended on that date; and
b)
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 auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting
Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the
Code) that are relevant to our audit of the financial report in Australia. We have also 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.
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 each matter below, our description of how our audit addressed the matter
is provided in that context.
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 matters below, provide the basis for our audit opinion on the accompanying
financial report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
PT:CT:BRAINCHIP:025
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Share-based payments
Why significant
How our audit addressed the key audit matter
As disclosed in Note 23 to the financial
statements, the Group has awarded significant
share-based payments to employees, directors
and consultants during the year, contributing to
a total share-based payment expense of
approximately US$6.9 million.
The valuation of share-based payments is
complex and involves the use of subjective
assumptions that have a material effect on the
financial statements. As such this matter has
been determined to be a key audit matter.
As part of our audit procedures, we assessed the
Group’s share based payment expense calculations
to ensure the balances were calculated in accordance
with the applicable Australian Accounting Standards.
We involved our valuation specialists to assess the
Group’s calculation of fair value of share-based
payments issued during the year, including the key
assumptions used.
We also assessed the adequacy of the disclosures
included in Note 23 to the financial statements,
including whether the classifications and disclosures
were presented in accordance with the applicable
Australian Accounting Standards.
Purchase price accounting
Why significant
How our audit addressed the key audit matter
As disclosed in Note 29 to the financial
statements, the Group finalised its purchase
price accounting for the acquisition of Spikenet
Technology (Spikenet) for $1.7 million. As a
business acquisition, Australian Accounting
Standards require the purchase price to be
allocated between the acquired assets and
liabilities, including in the recognition of tangible,
intangible assets and goodwill as applicable.
The principal areas of judgment in the Group's
purchase price allocation related to the valuation
of the intellectual property acquired. This matter
was determined to be a key audit matter as the
valuation of intangible assets is inherently
complex and judgmental.
We evaluated the Directors’ conclusion that
identifiable intangible assets were limited to
intellectual property. In addition, we considered the
tax effect accounting for the purchase price
accounting.
Using our valuation specialists, we inspected the
Group’s valuation analysis prepared by the Directors,
and used the work performed by the third party
valuation experts who assisted the Group.
We assessed the appropriateness of key assumptions
within management’s analysis including replacement
costs against executed employment contracts and
useful lives against industry peers.
We assessed whether the Group’s disclosures
regarding the acquisition and the estimation required
are appropriate and comply with relevant accounting
standards.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
PT:CT:BRAINCHIP:025
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Information other than the financial report and auditor’s report thereon
The directors are responsible for the other information. The other information comprises the information
included in the Company’s 2017 Annual Report, but does not include the financial report and our
auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon, with the exception of the Remuneration Report and
our related assurance opinion.
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 on 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.
Responsibilities of the directors 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 relating to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to 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 the 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 the 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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
PT:CT:BRAINCHIP:025
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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 Group’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 and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial report or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Group 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 financial report represents the underlying transactions and events in a
manner that achieves fair presentation.
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 audit of the remuneration report
Opinion on the remuneration report
We have audited the Remuneration Report included in the directors' report for the year ended 31
December 2017.
In our opinion, the Remuneration Report of BrainChip Holdings Limited for the year ended 31 December
2017, complies with section 300A of the Corporations Act 2001.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
PT:CT:BRAINCHIP:025
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
P Teale
Partner
Perth
28 March 2018
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A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
PT:CT:BRAINCHIP:025
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Additional Shareholder Information as at 13 March 2018
(a) Top 20 Quoted Shareholders
MR PETER AJ VAN DER MADE
MR ROBERT F MITRO
MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED
PERSHING AUSTRALIA NOMINEES PTY LTD
NERONA PTE LTD
CITICORP NOMINEES PTY LIMITED
METALS X LIMITED
MR PAUL GLENDON HUNTER
MR ANIL SHAMRAO MANKAR & MRS MEENA ANIL MANKAR
MS CRISTINA M MITRO
MS VELIA MITRO
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
CROSSFIELD INTECH NOMINEES PTY LTD
MR ADAM OSSEIRAN + MRS REBECCA OSSEIRAN-MOISSON
J P MORGAN NOMINEES AUSTRALIA LIMITED
NERONA PTE LTD
ZERO NOMINEES PTY LTD
HUNG {DO-DUY}
BNP PARIBAS NOMINEES PTY LTD
PETROLEUM MANAGEMENT INTERNATIONAL PTY LTD
%
Number of
shares
16.65
11.48
10.27
161,305,508
111,202,500
99,523,611
4.96
3.63
1.48
1.19
1.03
1.03
1.03
1.03
0.95
0.87
0.87
0.75
0.72
0.63
0.52
0.50
0.41
48,078,387
35,167,167
14,362,394
11,569,144
10,000,000
10,000,000
10,000,000
10,000,000
9,237,403
8,438,500
8,438,500
7,237,476
6,942,333
6,121,611
5,030,685
4,806,770
4,000,000
Total
60.00%
581,461,989
(b)
Distribution of quoted fully paid 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 and over
Total
Number of
share holders
Number of
shares
134
3,220
1,812
3,778
667
9,611
28,920
11,065,094
14,847,765
134,368,279
808,770,431
969,080,489
There are 1,262 holders with less than a marketable parcel of ordinary shares based on the Company’s closing
market price of $0.18 on 13 March 2018.
Distribution of unquoted options
There is 1 holder of Options who holds 100,000 Options and 83 holders who hold greater than 100,001 Options.
Distribution of unquoted performance rights
There are 10 holders who hold greater than 100,001 Performance Rights.
BrainChip Holdings Ltd
2017 Annual Report
73
Additional Shareholder Information as at 13 March 2018
(c) Substantial Shareholders
BRAINCHIP HOLDINGS LIMITED (1)
APAC RESOURCES LIMITED AND RELATED BODIES CORPORATE (2)
METALS X LIMITED AND ITS RELATED BODIES CORPORATE
MR PETER AJ VAN DER MADE
MR ROBERT F MITRO
ANIL SHAMRAO MANKAR AND MEENA ANIL MANKAR AS TRUSTEE
OF THE MANKAR FAMILY TRUST
NERONA PTE LTD
%
41.6%
8.08%
7.10%
19.88%
14.61%
15.10%
Number of
shares
403,241,351
59,276,889
52,088,889
126,805,508
93,202,500
109,135,000
5.73%
36,555,500
(1)
represents the number of votes subject to Voluntary Escrow Agreements
(2) APAC has indirect holdings through its interest in BNP Paribas Nominees Pty Ltd and Metals X Ltd.
(d) Voting Rights
The voting rights for each class of security on issue are:
Ordinary fully paid shares
Each ordinary shareholder is entitled to one vote for each share held.
Options
The holders of options have no rights to vote at a general meeting of the Company.
Performance Rights
The holders of performance rights have no rights to vote at a general meeting of the
Company.
(e) Unquoted Equity Securities
There are currently 198,950,000 unquoted Options on issue held by 84 option holders.
There are currently 56,500,000 unquoted Performance Rights on issue held by 11 performance right holders.
Holders of more than 20% of the total unquoted Performance Rights are as follows:
Holder Number % Held
PETER VAN DER MADE 19,500,000 35%
ANIL MANKAR 17,250,000 31%
(f) Restricted Securities
There are currently 403,241,351 fully paid ordinary shares that are held under voluntary escrow until 18
June 2018.
(g) Buy-back
There is currently no on-market buy-back activity.
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