l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
Annual Report
2018
Corporate Directory
Board of Directors
Stephe Wilks (Non-Executive Director and Chair)
Louis DiNardo (Executive Director and Chief Executive Officer)
Julie H. Stein (Non-Executive Director, Audit & Governance Committee Chair)
Emmanuel T. Hernandez (Non-Executive Director, Remuneration & Nomination Committee
Chair)
l
y
n
o
e
s
u
a
n
o
s
r
e
p
r
o
F
Adam Osseiran (Non-Executive Director)
Steven Liebeskind (Non-Executive Director)
Company Secretary
Kim Clark
Registered Office
Level 12, 225 George St. Sydney NSW 2000 Australia
Telephone: +61 2 8016 2841
Facsimile: +61 2 9279 0664
l
Postal Address
PO Box 3993, Sydney NSW 2001 Australia
Website
http://www.brainchipinc.com
Auditors
Ernst & Young
Ernst & Young Building, 11 Mounts Bay Road, Perth WA 6000
Telephone: +61 8 9429 2222 Facsimile: +61 8 9429 2436
Share Registry
Computershare Investor Services Pty Ltd
Yarra Falls, 452 Johnston Street, Abbotsford VIC 3067
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 Centre, 20 Bridge St, Sydney NSW 2000
Code: BRN
ABN: 64 151 159 812
2
4
28
29
30
31
32
33
68
69
73
Contents
Letter from the CEO
Directors’ Report
l
y
n
o
e
s
u
Auditor’s Independence Declaration
Consolidated Statement of Profit or Loss and Comprehensive Income for the Year ended 31
December 2018
Consolidated Statement of Financial Position as at 31 December 2018
Consolidated Statement of Cash Flows for the Year ended 31 December 2018
Consolidated Statement of Changes in Equity for the Year ended 31 December 2018
Notes to the Consolidated Financial Statements for the Year ended 31 December 2018
Directors’ Declaration
Independent Audit Report
l
Additional Shareholder Information as at 28 February 2019
a
n
o
s
r
e
p
r
o
F
Letter from the CEO
To our Valued Shareholders,
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
During financial year ending 31 December 2018, BrainChip made significant strides in furthering our primary
goal of establishing the Company as the leading neuromorphic computing company.
Neuromorphic computing is the implementation in silicon, of biologically inspired processing to achieve very
fast, low-power learning. Our strategy from the onset, has been to leverage BrainChip’s leading edge
competency in Spiking Neural Networks (SNN) to provide an integrated circuit device that addresses the high-
growth Artificial Intelligence (AI) market. BrainChip’s AkidaTM Neuromorphic System-on-Chip (NSoC)
embodies over a decade of research and development by the Company’s founder, Peter van der Made and
the hard work of the Company’s engineering teams in Aliso Viejo, California and Toulouse, France. The name
Akida comes from the Greek word for “spike”.
Throughout 2018 the Company refined its strategy to exploit the attributes of an SNN and be selective
regarding the Company’s go-to-market strategy.
Specifically, the Company has determined that SNNs are particularly well-
suited for “Edge” applications where low-power, high performance and small
size are paramount. Edge applications include Surveillance Cameras, Vision
Guided Robotics and Advanced Driver Assisted Systems (ADAS), and the
Industrial Internet-of-Things (IoT). These are all high growth, large volume
markets.
As a first of kind its device, Akida is a complete Neuromorphic-System-on-Chip (NSoC) that meets the key
requirements of these markets. Akida has been designed to implement native SNNs and the conversion of
existing Convolutional Neural Networks (CNNS) to SNNs. This significant advantage allows customers to take
advantage of SNN low-power, high speed and small size with their existing intellectual property. The
conversion of existing CNNs to an SNN can improve overall system performance for customers and time-to-
market for BrainChip.
The 2018 release of the Akida Development Environment (ADE) introduced customers to the tools and design
flow of Akida. The ADE allows customers to develop applications and simulate performance in parallel with
device development and production. By working with early access customers and providing the market with
visibility into the Akida architecture, the Company has honed product definition.
Significant efforts in 2018 have culminated in the recent execution of a Memorandum of Understanding
between BrainChip and a world class development and device manufacturing partner. With the formation of
this relationship, the Company is well-positioned to progress the development and manufacturing of the device
in the coming year and enjoy the benefits of being first to market with a revolutionary technology solution for
AI Edge.
2018 also proved to be a challenging year for the Company’s effort to market the BrainChip Studio software
solution. Through cycles of learning, it became apparent that the strategy of addressing both end-users and
Original Equipment Manufacturers (OEMs) was not efficient. In particular, the financial and opportunity cost of
engaging end-users, who are slow to adopt and deploy new technology, was much greater than expected.
This realisation led the Company to restructure its effort, refine its go-to-market strategy with respect to
BrainChip Studio and focus exclusively on marketing to select OEMs that serve end-users.
In 2019, as the Company progresses through development and manufacturing, and to the sales and marketing
of Akida, the Company’s investment in human capital is one of its most valuable assets. BrainChip has
recruited and retained exceptional talent and is led by a team of executives with approximately 200 combined
years of successful experience in the semiconductor industry. In addition, the AI Edge market is large with
forecasts indicating continued high growth. The Company’s strategy is well-defined and reflects this
opportunity. Most importantly, customers are receptive to the Akida technology and the potential of Akida
improving the performance of their product.
BrainChip Holdings Ltd
2018 Annual Report
2
Letter from the CEO
In conclusion, with virtually all of the Company’s efforts focused on the introduction and sales of Akida,
BrainChip is well positioned to fulfil its vision as the leading neuromorphic computing company and address
the high growth opportunities in the AI Edge market with a compelling solution for complex problems.
Sincerely,
l
y
n
o
Louis DiNardo
Executive Director and Chief Executive Officer
BrainChip Holdings Ltd
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2018 Annual Report
3
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 2018.
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:
Stephe Wilks
Louis DiNardo
Julie H. Stein
Emmanuel Hernandez
Adam Osseiran
Steve Liebeskind
Eric (Mick) Bolto
Peter van der Made
Non-Executive Director and Chair (appointed 11 February 2019)
Executive Director; Chair (appointed 1 May 2018, resigned 11 February
2019)
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director (appointed 1 May 2018)
Non-Executive Director and Chair (resigned 1 May 2018)
Executive Director (resigned 1 January 2018)
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:
Kim Clark
Julian Rockett
Naomi Dolmatoff
appointed 1 December 2018
appointed 25 May 2018 (resigned 1 December 2018)
resigned 25 May 2018
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
In January 2018, the Company and Gaming Partners International Corporation (“GPI”) entered into a
licensing, development and revenue sharing agreement (Joint Development and License 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. The companies
are working towards execution of a Commercial Agreement with GPI in accordance with the current Joint
Development and License Agreement. The Commercial Agreement has not been signed, pending additional
integration with GPI and its partners.
In February 2019, the Company implemented a restructuring and cost reduction plan. The estimated
reduction is 10% to 15% of total planned spending. The plan includes elimination of expenses associated
with BrainChip Studio end-user sales, including a reduction in workforce and a focus on BrainChip Studio
Original Equipment Manufacturer (OEM) engagements. In addition, certain key management personnel have
agreed to accept a temporary reduction in their salaries.
In March 2019, the Company executed a Memorandum of Understanding with Socionext Americas to
develop and manufacture the AkidaTM Neuromorphic System-on-Chip (NSoC). The companies will negotiate
a definitive agreement to deliver a physical Akida device. The agreement is expected to be finalised within
the coming months while the parties begin preliminary work.
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
PRINCIPAL ACTIVITIES
The principal activity of the Group is the development of software and hardware accelerated solutions for
advanced artificial intelligence (AI) and machine learning applications with a primary focus on the
development of its Akida Neuromorphic Processor Unit hardware product.
EMPLOYEES
The Group employed 33 employees at 31 December 2018 (2017: 26).
BrainChip Holdings Ltd
2018 Annual Report
4
Directors’ Report
DIVIDENDS
No dividends have been paid or declared by the Company during the financial year or up to the date of this
report.
REVIEW OF OPERATIONS
Overview
The financial results of the Group are presented in US dollars, unless otherwise referenced.
The Group made a net loss after income tax for the year ended 31 December 2018 of $16,523,186 (2017:
$13,774,013).
Revenues for the year ended 31 December 2018 of $947,989 increased 252% over the $269,496 in the
same period a year ago. This increase was largely attributable to revenues recognised in the current year
from the GPI agreement.
Total expenses for the year ended 31 December 2018 of $17,601,775 increased 24% from $14,199,739
incurred in the year ended 31 December 2017. This increase was attributable to:
1) Research & development (R&D) expenses of $3,969,304 for the current period increased 80%, or
$1,763,565 from a year ago. R&D costs comprise the employee and other costs and amortisation of
capitalised R&D intangible assets. R&D costs increased due to:
a) an increase in the number of technical staff employed for the full financial year in 2018;
b)
the expensing of such costs related to new projects still considered research;
c) an increase in the amortisation expense of the capitalised intangible assets; and
d)
the write off of capitalised costs related to the Studio project in accordance with the Group’s policies.
2) Selling & marketing (S&M) expenses of $1,465,475 for the current period increased 188%, or $957,592
from a year ago. The increase in S&M expenses reflects the growth in personnel costs including two
contracting sale personnel and related costs including such costs as trade show and customer demos,
to showcase our products, and travel expenses;
3) General & administrative (G&A) expenses of $4,861,194 for the current period increased 7% overall, or
$316,437 from the same period a year ago which is a result of:
a)
increased legal and other professional consultants;
b) a reduction in employee costs related to the resignation of the CFO, Mr Ryan Benton in September
2018 without replacement during the year; and the resignation of the managing director of BrainChip
SAS in the prior year; and
c)
increased travel expenses related to business development and investor relations activities; and
4) Share-based payment expense of $7,305,802 for the current period increased 5%, or $364,442 from the
same period a year ago. Share-based payments expense represents the current period expense for
options, restricted stock units and performance rights issued to directors, employees and consultants,
offset by the value of options that have been forfeited during the year.
At the end of the year the Group had consolidated net assets of $8,879,309 (2017: $18,066,470), including
cash and cash equivalents of $7,543,326 (31 December 2017: $16,049,330).
Overall there has been an increase in the amount of cash outflows used in operating activities to $7,203,204
(2017: $6,074,542) as noted in the Consolidated Statement of Cash Flows, which reflects the continued
focus on attaining the business milestones and strategies of the Group.
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2018 Annual Report
5
Directors’ Report
REVIEW OF OPERATIONS (Continued)
Operational Highlights
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
The Company has developed a revolutionary new spiking neural network (SNN) technology that can learn
autonomously, evolve and associate information just like the human brain. The technology is proprietary,
fast, completely digital and consumes very low power.
The Company is developing an integrated circuit that addresses the high-performance and high-volume
requirements in AI systems at the edge (AI Edge). AI Edge is a rapidly growing market where intelligence is
exploited at the point of acquiring data rather than data being transferred to a central processing core in a
data centre or in the cloud for analysis and action.
BrainChip’s integrated circuit is being developed under the brand Akida, which provides the benefit of small
size, low-power and autonomous learning, as well as on-device deep learning for existing data sets of known
objects or patterns in data. Development progressed significantly during 2018, with some highlights set out
below.
During 2018, the Company achieved a number of key milestones including:
Akida Product Development
The most significant achievements of the Company in 2018 relate to the substantial advancements in the
development of Akida. Major highlights are described below and resulted in a broad provisional patent filing
with the US patent office. The provisional patent will lead to multiple utility patents filed in multiple
jurisdictions.
In July 2018, BrainChip announced the Akida Development Environment (ADE). The development
environment is a complete artificial intelligence framework for the revolutionary Akida Neuromorphic System-
on-Chip (NSoC). The ADE supports the development of AI Edge products. The ADE includes the Akida
execution engine, the necessary data-to-spike converters, and a “model zoo” of spiking neural network
applications, as well as conversion of existing Convolutional Neural Networks (CNN) to SNN.
In September 2018, BrainChip announced the Akida architecture for the Company’s Neuromorphic System-
on-Chip (NSoC). The availability of the Akida architecture to a wide array of potential customers is a
significant milestone in the advancement of the Akida design because the most important part of product
definition and execution is customer feedback. This feedback allows the Company to incorporate important
features as it furthers the chip development.
In October 2018, BrainChip acquired a license to a cybersecurity technology that uses a native SNN, rather
than a CNN to SNN conversion, from the University of Thrace in Greece. The acquisition of this license was
valuable because cybersecurity represents a large potential market for the application of Akida. Importantly,
the native SNN framework of the licensed technology can be implemented efficiently on Akida. This
technology has the potential to demonstrate the low-power, high-accuracy nature of Akida in cybersecurity
applications.
BrainChip Studio - Original Equipment Manufacturers engagements
Throughout 2018 the Company engaged with end-users to gain a better understanding of their needs and
development process. This revealed challenges in addressing many small customers with limited resources
and long internal development cycles. This understanding supports the Company’s decision to focus on an
OEM sales model that provides broad reach and efficiencies in sales expenses.
The Company’s success with OEM partners is highly dependent on the OEM’s success in marketing their
own platform. A number of OEM engagements were announced during the year and are highlighted below.
In January 2018, BrainChip and Gaming Partners International (GPI) signed a Licensing and Development
Agreement. This agreement provided for the integration of the Company’s pattern recognition technology
with GPI’s Automated Table System (ATSTM). GPI is a leading OEM provider of equipment to the global
gaming industry.
In June 2018, BrainChip’s visual analytics product was demonstrated in Macau with the GPI ATSTM. This
was a significant event because global leaders in the gaming industry were provided private demonstrations
of the system.
In March 2018, BrainChip and Quantum Corporation demonstrated the interoperability of BrainChip Studio
with the StorNext File System. This OEM interoperability shows the Company’s ability to search large
amounts of video at a significant cost advantage over existing solutions for surveillance and media &
entertainment.
BrainChip Holdings Ltd
2018 Annual Report
6
Directors’ Report
REVIEW OF OPERATIONS (Continued)
Operational Highlights (continued)
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Risk
In April 2018, the Company signed an agreement with Veritone to integrate BrainChip Studio as a cognitive
engine within Veritone’s aiWare. aiWare is a cloud-based system that provides a variety of video analytic
tools for large scale online searching. This agreement was a significant advancement in the Company’s
strategy for BrainChip Studio because it represented the first opportunity for this product to be used in an
OEM cloud-based solution.
In April 2018, the Company released BrainChip Studio AI-powered video analytic software which added
auto-rotated models, Linux support and an Applications Programming Interface (API) for easier system
integration with OEM providers.
Investor and Trade Show Presentations
In addition to advancements in technology and product development, visibility to investors and customers
regarding the Company’s progress is critical to the Company’s success. In 2018 the Company attended a
number of trade shows and investor conferences to discuss the Company’s progress. Several highlights
from 2018 are indicated below.
In March 2018, BrainChip attended the 30th Annual ROTH Conference. The ROTH Conference is a leading,
invitation only, technology conference in the United States. BrainChip’s participation in this conference was
an important achievement as it represented the Company’s first introduction to the US technology investor
market.
In March 2018, BrainChip was showcased at the London Security and Counter Terrorism Exposition where
a large number of European law enforcement agencies were provided live demonstrations of BrainChip
Studio. This interaction generated significant exposure for the Company and led to a number of field trials.
In September 2018, BrainChip presented at the TechKnow Invest Roadshow in Sydney and Melbourne,
Australia. Presenting at this conference was important because this venue provided the Company with
significant exposure to the Australian investor market.
In November 2018, BrainChip presented at the AI Edge Summit where the Company showcased the
effectiveness of Akida in edge applications for vision in advanced driver assistance systems (ADAS), vision
guided robotics and surveillance. These large volume applications require low-power and small size, both
of which are features that Akida is uniquely positioned to provide.
Factors that may impact the Company’s 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:
(cid:120) Risks of delays in new product development as the Company develops advanced products include:
internal development, development by partners and integration of the technology with third party
providers of intellectual property
(cid:120) Risks of delays in new product introduction as the Company commercialises advanced products
include: wafer fabrication, assembly of products and test operations.
(cid:120) Risks of delays in sales and marketing of new products include: recruitment and retention of the
highly skilled and experienced human resources
(cid:120) Risks of delays in customer adoption of new products include: adequate training and education,
collateral materials, application engineering and customer support.
The Company’s performance and success is dependent upon the ability to effectively identify, protect and
defend its intellectual property through patents or trade secrets. Some of the risks related to this include:
(cid:120) Risks of intellectual property or other claims, which are costly to defend, could result in significant
damage awards, and could limit the Company’s ability to use certain technologies in the future.
(cid:120) Risks of successful intellectual property infringement claims are successful that may have an
adverse effect on our business, consolidated financial position, results of operations, or cash flows.
(cid:120) Risks of intellectual property infringement protection of the Company’s patents, trademarks, trade
secrets, copyrights may not be available or feasible in every country in which our products and
services could be distributed.
(cid:120) Risks of intellectual property protection efforts to protect proprietary rights may not be sufficient or
effective.
BrainChip Holdings Ltd
2018 Annual Report
7
Directors’ Report
REVIEW OF OPERATIONS (Continued)
Risk (continued)
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
(cid:120) Risks of intellectual property that may not have adequate patent or copyright protection for certain
innovations, that the scope of the protection will be insufficient or that an issued patent may be
deemed invalid or unenforceable
(cid:120) Risks that intellectual property held as trade secrets could be compromised by outside parties, or by
our employee
Other key risks the Company has identified include:
(cid:120) Risks of an information technology breach that may result in litigation, and potential liability
(cid:120) Risks of international operations exposure that could harm our business, operating results, and
financial condition including: changes in local political, economic, regulatory, tax, social, and labor
conditions, may adversely harm our business
(cid:120) Risks of human resources recruitment and retention of skilled personnel, motivate and reward key
personnel, maintain the Company’s corporate culture to successfully execute the Company’s
business plans.
(cid:120) Risks of competition addressing the Company’s markets and customers with advanced products with
similar or better performance.
SIGNIFICANT EVENTS AFTER THE BALANCE DATE
In January 2019, the Company partnered with SoftCryptum to deliver BrainChip Studio’s AI-powered video
analytics to government agencies in European countries.
On 11 February 2019, Mr Stephe Wilks was appointed as Non-Executive Director and Chair of the Board of
Directors.
In February 2019, the Company expanded the distribution network of BrainChip Studio in Europe with the
engagement of Novo Technologies in Greece and Cypress.
In March 2019, the Company appointed Roger Levinson as Chief Operating Officer. Mr Levinson will be
responsible for all aspects of operations including ASIC manufacturing which includes wafer fabrication,
product engineering, assembly and test operations, and customer service.
In March 2019, the Company appointed Ken Scarince as Vice President of Finance, Controller. Mr Scarince
will be responsible for all aspects of finance, including general accounting, tax, audit, treasury, compliance
and financial planning. Mr Scarince replaces the Company’s former CFO who left in August 2018.
In March 2019, the Company accepted the resignation of Julie H. Stein as Non-executive director. The
resignation is effective 1 April 2019. Ms Stein served on the board since November 2016.
In March 2019, the Company executed a Memorandum of Understanding with Socionext Americas to
develop and manufacture the Akida Neuromorphic System-on-Chip (NSoC). The companies will negotiate
a definitive agreement to deliver a physical Akida device. The agreement is expected to be finalised within
the coming months while the parties begin preliminary work.
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 Group, the results of those operations, or the state of affairs
of the Group in subsequent financial years.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS
It is expected that the Group will further develop the Akida Neuromorphic System-on-Chip (NSoC).
ENVIRONMENTAL REGULATION AND PERFORMANCE
The Group is not subject to any significant environmental regulation under Australian Commonwealth of State
Law.
BrainChip Holdings Ltd
2018 Annual Report
8
Directors’ Report
SHARE ISSUES
The following share issues of the Company were completed during the financial year and to the date of this
report:
l
y
n
o
(cid:120) 15,000,000 shares issued on 8 June 2018 to Mr Louis DiNardo. The shares are reported as a share-
based payment and valued at US$0.104 (A$0.14) per share-based on the share price at the date of
approval by shareholders (AGM);
(cid:120) 49,500,000 shares issued on 9 October 2018 and 6,000,000 shares issued on 18 October 2018 on
conversion of Class D and C Performance Rights (respectively), milestones of which had been
attained;
(cid:120) 10,000,000 shares issued on 9 October 2018 to the Trustee of the BrainChip Long Term Incentive
Plan Trust at nil value, available for the conversion of vested equity instruments by participants; and
(cid:120) 303,030 shares issued on 21 December 2018 to a third party for the performance of services over a
12 month period.
SHARE OPTIONS
As at the date of this report, there were 136,200,000 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 whilst the options remain
unexercised.
11,400,000 options were issued, and 39,500,000 options were forfeited, lapsed or cancelled during the
financial year and to the date of this report, comprising the following:
l
(a) Unlisted options issued to Employees pursuant to the Company’s Long Term Incentive Plan:
(cid:120) 5,100,000 options exercisable at A$0.19 per share before 13 March 2028, issued on 13 March 2018;
(cid:120) 800,000 options exercisable at A$0.22 per share before 13 March 2028, issued on 13 March 2018;
(cid:120) 500,000 options exercisable at A$0.18 per share, on or before 8 June 2028, issued on 8 June 2018;
(cid:120) 600,000 options exercisable at A$0.14 per share before 16 June 2028, issued on 16 June 2018;
(cid:120) 500,000 options exercisable at A$0.145 per share before 17 July 2028, issued on 17 July 2018, and
(cid:120) 400,000 options exercisable at A$0.14 per share before 5 October 2028, issued on 21 December
2018.
(b) Unlisted options issued to Consultants pursuant to the Company’s Long Term Incentive Plan:
(cid:120) 2,000,000 unlisted options exercisable at A$0.19 per share issued on 13 March 2018, expiring 13
March 2028. 25% of the options vested 30 April 2018; 25% vested 30 September 2018 and 50% vest
on 13 February 2019;
(cid:120) 500,000 options exercisable at A$0.22 per share before 13 March 2028, issued on 13 March 2018;
(cid:120) 1,000,000 options exercisable at A$0.155 per share on or before 8 June 2028, issued on 8 June 2018.
(c) Unlisted options forfeited during and since the end of the financial year:
(cid:120) 20,750,000 unlisted options issued to an employee on 11 August 2017 due to cessation of
employment;
(cid:120) 500,000 unlisted options issued to a consultant on 14 December 2017 due to termination of contract;
(d) Unlisted options lapsed during and since the end of the financial year:
(cid:120) 6,250,000 unlisted options issued to an employee on 11 August 2017 due to cessation of employment;
(cid:120) 11,000,000 unlisted options issued to directors expired on 4 December 2018
(cid:120) 500,000 unlisted options issued to a consultant on 13 March 2018 due to termination of contract on
26 March 2019.
(e) Unlisted options cancelled during and since the end of the financial year:
(cid:120) 500,000 unlisted options issued to a consultant on 21 December 2015 due to termination of contract.
No options were converted to shares in BrainChip Holdings during and since the end of the financial year.
BrainChip Holdings Ltd
2018 Annual Report
9
e
s
u
a
n
o
s
r
e
p
r
o
F
Directors’ Report
PERFORMANCE RIGHTS
As at the date of this report, there were 8,500,000 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:
(cid:120) 1,000,000 Class B Performance Rights to employees on 8 June 2018; and
(cid:120) 15,000,000 Class E Performance Rights to Mr Louis DiNardo on 8 June 2018.
The following Performance Rights, the milestones of which had been attained and announced previously,
vested during the financial year:
(cid:120) 1,000,000 Class B Performance Rights on 15 October 2018;
(cid:120) 6,000,000 Class C Performance Rights on 18 October 2018;
(cid:120) 49,500,000 Class D Performance Rights on 9 October 2018; and
(cid:120) 7,500,000 Class E Performance Rights on 8 December 2018.
RESTRICTED STOCK UNITS
As at the date of this report, there were 4,050,000 Restricted Stock Units (“RSU”) on issue.
The following restricted stock units were issued during the financial period and to the date of this report
pursuant to the Company’s Long Term Incentive Plan:
(cid:120) 2,950,000 Restricted Stock Units were issued to employees on 8 June 2018;
(cid:120) 50,000 Restricted Stock Units were issued to a contractor on 18 July 2018;
(cid:120) 650,000 Restricted Stock Units were issued to employees on 21 December 2018 and
(cid:120) 400,000 Restricted Stock Units were issued to employees on 18 January 2019 (200,000 was granted
on 19 November 2018).
No Restricted Stock Units were converted during the year and to the date of this report.
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 2018 Corporate
Governance Statement dated 27 March 2019 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.
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2018 Annual Report
10
Directors’ Report
INFORMATION ON DIRECTORS
Names, qualifications, experience and special responsibilities
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Stephe Wilks – Non-Executive Director and Chair (Appointed 11 February 2019)
Mr Wilks joined the board in February of 2019 and currently serves as Non-Executive Director of ASX listed
companies (noted below) and Non-Executive Director and Chair of Interactive Pty Ltd, Australia’s largest
private IT services company. In addition, he was founder and Managing Director of XYZed, where he
developed and managed Australia’s first competitive broadband wholesaler, having earlier worked for Optus,
British Telecom, and Hong Kong Telecom advising on public affairs, regulatory and government issues.
Mr Wilks is a graduate of Macquarie University with Science and Law degrees and received his advanced
degree from the University of Sydney in Law and Tax.
Other directorships:
- Non-Executive Director of BluGlass Limited (ASX: BLG) (May 2018 – present);
- Non-Executive Director of DataDot Technology Limited (ASX: DDT) (February 2018 – present).
Louis DiNardo, BA – Executive Director (Appointed 9 December 2016), Chair for period 1 May 2018 to 11
February 2019 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-Chair 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.
Other directorships in the past 3 years:
- Non-Executive Director of Quantum Corporation (NYSE: QTM) (June 2014 – November 2016).
Julie H. Stein, BA, MA, MBA, NACD Leadership Fellow – Non-Executive Director (Appointed 14
November 2016), Lead Independent Director for the period 20 June 2018 to 11 February 2019.
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 organization. Ms Stein also serves as the Chair of the Company’s Audit & Governance
Committee, was appointed the Lead Independent Director from 20 June 2018 to 11 February 2019 and is a
Member of the Company’s Remuneration & Nomination Committee.
Other directorships in the past 3 years: Nil.
BrainChip Holdings Ltd
2018 Annual Report
11
Directors’ Report
INFORMATION ON DIRECTORS (Continued)
Names, qualifications, experience and special responsibilities (continued)
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
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 serves as a member on the Company’s Remuneration & Nomination Committee effective from 1
May 2018.
Other directorships in the past 3 years: Nil.
Emmanuel Hernandez – BSC, CPA, MBA - Non-Executive Director (Appointed 7 July 2017)
Mr. Hernandez is a highly regarded Silicon Valley technology executive with a broad experience of >40 years
in the Semiconductor industry, >12 years in the Renewable Energy industry and >10 years in the
Communications and Networking industry and cumulative public and private board experience of >16 years.
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 (NASDAQ: CY) and ON Semiconductor (NASDAQ: ON). Mr. Hernandez served in various
finance capacities at National Semi between 1976-1993, then joined Cypress Semi where he served as Chief
Financial Officer (“CFO”) between 1993-2004. Mr. Hernandez then joined SunPower Corp 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 serving as an operating Partner at Khosla Ventures, a
prominent Silicon Valley venture capital firm.
Mr. Hernandez has been a Director of ON Semiconductor since 2002. Other previous board service includes
SunEdison (renewable energy), Aruba Networks, (enterprise networking) acquired by Hewlett Packard
Enterprise in 2015, EnStorage, Inc., (flow battery/storage technology) and Soraa, Inc., (LED and laser
technology). Mr Hernandez is Chair of the Company’s Remuneration & Nomination Committee and also
serves as a member of the Audit & Governance Committee.
Other directorships in the past 3 years:
- ON Semiconductor Corp.; Audit Committee Chair, Governance & Nominating Committee member – 20
November 2002 to present
- SunEdison, Inc.; Executive Chair, Audit Committee member – 12 May 2009 to 29 December 2017
Steve Liebeskind, B Comm, CA ANZ– Non-Executive Director (Appointed 1 May 2018)
Mr. Liebeskind is an experienced front line operational manager with a broad set of skills developed from his
time working with Ernst & Young in Australia and Canada. He has held positions of Advisor, CEO and COO
for high growth companies in the telecommunications, technology and financial services sector. Mr
Liebeskind is a founding principal of Sydney Capital Partners a boutique corporate advisory firm. Mr
Liebeskind is a member of the Company’s Audit & Governance Committee effective from 1 May 2018.
Other directorships in the past 3 years: Nil.
BrainChip Holdings Ltd
2018 Annual Report
12
l
y
n
o
e
s
u
a
n
o
s
r
e
p
Directors’ Report
INFORMATION ON DIRECTORS (Continued)
Names, qualifications, experience and special responsibilities (continued)
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.
Other directorships in the past 3 years: Nil.
Eric (Mick) Bolto, LLB BA FAICD – Non-Executive Director and Chair (Appointed 3 August 2015; resigned
1 May 2018)
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 served
as a member on the Company’s Audit & Governance Committee and Remuneration & Nomination Committee
up to his resignation.
Other directorships in the past 3 years: Nil.
l
COMPANY SECRETARIES
Kim Clark (Appointed 1 December 2018)
Ms Clark is an experienced business professional with 22 years’ experience in the Banking and Finance
industries and 6 years as a Company Secretary (in-house) of an ASX300 company. Her experience includes
debt and capital raising, risk management, mergers and acquisitions, compliance and governance. Ms Clark
currently acts as Company Secretary to various ASX listed and unlisted companies in Australia and is the
Head of Corporate Services for Boardroom Pty Limited’s Queensland office.
Julian Rockett B. Arts, LLB, GDLP - (Appointed 25 May 2018, resigned 1 December 2018)
Mr Rockett background is as a Corporate Lawyer and Company Secretary. His legal background includes
advising on IPOs, M&A, RTOs and capital raising for ASX listed companies. His corporate secretarial
experience for ASX companies includes representing fin-tech, medical technology, logistics, equity,
resources, mining, building, energy as well as media.
Naomi Dolmatoff, BCom (Finance), AGIA, ACIS - (Appointed 6 October 2017, resigned 25 May 2018)
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).
r
o
F
BrainChip Holdings Ltd
2018 Annual Report
13
Directors’ Report
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:
l
y
n
o
e
s
u
l
Director
S Wilks
L DiNardo
J Stein
A Osseiran (1)
E Hernandez
S Liebeskind (2)
Total
Fully Paid
Ordinary
Shares
Options over
Ordinary Shares
Performance
Rights
-
-
-
11,779,361
50,000,000
7,500,000
-
9,338,500
-
11,649,242
8,000,000
4,000,000
8,000,000
6,000,000
-
-
-
-
32,767,103
76,000,000
7,500,000
(1) Held by Adam Osseiran and Rebecca Osseiran-Moisson ATF the Osseiran Family Trust.
(2) Equity instruments associated with Mr Liebeskind comprise:
(i) 2,310,742 fully paid ordinary shares held in the name of Crossfield Intech Nominees Pty Ltd;
(ii) 9,338,500 fully paid ordinary shares and 3,000,000 options held in the name of Crossfield Intech
Nominees Pty Ltd as trustee for the Liebeskind Family Superfund;
(iii) 3,000,000 options owned directly by Mr Liebeskind.
a
n
o
s
r
e
p
r
o
F
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 & Governance
Committee Meetings
(1)
Remuneration &
Nomination Committee
Meetings (1)
Eligible
to attend
Attended
Eligible to
attend
Attended
Eligible to
attend
Attended
S Wilks
L DiNardo
J Stein
A Osseiran
E Hernandez
S Liebeskind
P van der Made
E Bolto
n/a
7
7
7
7
5
n/a
2
n/a
7
7
7
7
5
n/a
2
n/a
n/a
8
n/a
8
4
-
4
n/a
n/a
8
n/a
8
4
-
4
n/a
n/a
8
2
8
n/a
-
4
n/a
n/a
7
2
8
n/a
-
4
(1) Directors who are not members of the Audit & Governance Committee or Remuneration & Nomination
Committee may be invited to attend meetings of the Committees.
Committee Membership
The Board maintained an Audit & Governance Committee and established a Remuneration & Nomination
Committee during the year. The membership of each Committee is set out below:
Audit & Governance Committee
Remuneration & Nomination Committee
J Stein (Chair)
E Hernandez
E Hernandez (Chair)
J Stein
S Liebeskind (member commencing 1 May 2018)
A Osseiran (member commencing 1 May 2018)
E Bolto (member ceasing 1 May 2018)
E Bolto (member ceasing 1 May 2018)
BrainChip Holdings Ltd
2018 Annual Report
14
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Directors’ Report
REMUNERATION REPORT (Audited)
This remuneration report for the year ended 31 December 2018 outlines the remuneration arrangements of
the Group 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.
The remuneration report is presented under the following sections:
Introduction
l
1.
2. Remuneration governance
3. Non-executive Director remuneration arrangements
4. Executive remuneration arrangements
5. Options and performance rights granted as part of remuneration
6. Company performance and the link to remuneration
7. Executive contractual arrangements
8. Equity instruments disclosures
9. Other transactions and balances with Key Management Personnel (“KMP”)
1.
Introduction
The Remuneration Report details the remuneration arrangements for Key Management Personnel (“KMP”)
who are defined as those persons having authority and responsibility for planning, directing and controlling
the major activities of the Group, 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 Group.
Details of KMP of the Group are set out below:
Key Management Personnel
Name
Position
Date of appointment
Date of resignation
Directors
L DiNardo (1)
J Stein (2)
A Osseiran
E Hernandez
S Liebeskind
P van der Made (3)
Executive Director, Chair &
Chief Executive Officer
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Executive Director & Chief
Technical Officer
Non-Executive Chair
E Bolto
Other Key Management Personnel
A Mankar
P van der Made (3)
R Beachler
Chief Development Officer
Chief Technical Officer
Senior Vice President of
Marketing and Business
Development
Chief Financial Officer
R Benton
30 September 2016
-
14 November 2016
10 September 2015
7 July 2017
1 May 2018
10 September 2015
-
-
-
-
1 January 2018
3 August 2015
1 May 2018
1 October 2014
10 September 2015
5 March 2017
-
-
-
9 August 2017
14 September 2018
(1) Mr DiNardo was appointed Chair from 1 May 2018 until 11 February 2019.
(2) Ms Stein was appointed Lead Independent Director from 20 February 2018 until 11 February 2019.
(3) Mr van der Made resigned from the Board of Directors effective 1 January 2018 however continues to be
reported as a Key Management Personnel.
Subsequent to the end of the year, the following changes in KMP occurred:
- Mr Stephe Wilks was appointed Non-Executive Director and Chair on 11 February 2019;
- Mr Roger Levinson was appointed Chief Operating Officer on 18 March 2019;
- Mr Ken Scarince was appointed Vice President, Finance on 11 March 2019;
- Ms Julie Stein will resign from the Board of Directors, effective 1 April 2019.
BrainChip Holdings Ltd
2018 Annual Report
15
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
2. Remuneration governance
Remuneration & Nomination Committee
l
y
n
o
The Remuneration & Nomination Committee operated throughout the year with the purpose of assisting the
Board in establishing the Group’s remuneration philosophy, guiding principles and practices and for
monitoring their effectiveness. The principal objective of the Company’s remuneration programs is to attract,
retain and motivate highly talented individuals who can deliver competitive results and financial returns to our
shareholders, while accomplishing both our short and long-term plans and goals. The Remuneration &
Nomination Committee is specifically tasked with reviewing and making recommendations to the Board in
respect of the Group’s remuneration policies, short and long-term incentives and equity remuneration,
including the structure and amount of remuneration of executives and non-executive directors. The
Remuneration & Nomination Committee is also responsible for overseeing the succession planning of the
Chief Executive Officer and other top executives.
Remuneration approval process
The Board approves, subject to a recommendation from the Remuneration & Nomination Committee the
remuneration arrangements of the non-executive Directors, executive directors and executives and all
awards made under the Company’s 2018 Long Term Incentive Plan (LTIP). Aggregate fees paid to non-
executive directors are paid within the total remuneration fee pool approved by shareholders.
e
s
u
Remuneration Strategy
The remuneration strategy of the Group is evolving towards the following core principles:
l
a
n
o
s
r
e
p
r
o
F
(cid:120) Alignment with Shareholder Interests. The Group’s current use of equity as part of its remuneration
structure enhances alignment between executives’ interests with those of our shareholders.
Achievement of the Group’s objectives are aimed at creating shareholder value, thus directly benefiting
executives and non-executive directors as well.
(cid:120) Pay for Performance. The Group has not instituted a cash bonus or variable remuneration program
since its inception but achieving or exceeding expected results and performance will be a necessary
condition for our executives to realise targeted levels of remuneration, particularly with respect to
variable pay and long-term incentives.
(cid:120) Market or Peer Company Comparison. The Company’s remuneration program must be competitive with
those of our peer companies in order to attract and retain our executives. As a general rule, we target
the market median (50th percentile) though we may deviate, up or down, from the median from time to
time, due to a variety of factors. The Remuneration & Nomination Committee is not planning to
recommend significant changes to its remuneration programs until the Company achieves significant
progress in Akida-related developments.
(cid:120) Retention. The Company’s remuneration program is designed to attract and retain highly talented
individuals critical to our success by providing programs with retentive features. The Group’s current
use of equity, which is an acceptable methodology internationally, as part of its remuneration structure
includes performance and/or time-based vesting in order to retain our executives. Achieving our
objectives should lead to creation of shareholder value which would benefit executives and non-
executive directors as their equity grants vest over time. Vested shares do not have value until exercise
prices are exceeded thereby raising shareholder value over time.
(cid:120) Separate Remuneration Structures. In accordance with best practice corporate governance, the
structure of executive and non-executive directors’ remuneration is separate and distinct.
(cid:120) Risk Analysis. The Remuneration & Nomination Committee considers the potential for unacceptable
risk-taking in its remuneration design. We believe that the design of our executive remuneration does
not unduly incentivize our executives to take actions that may conflict with the long-term best interests
of the Company and its shareholders. Specifically, the Company provides executives with an
appropriate mix of pay elements between cash and equity, with compensation not overly weighted
towards any one remuneration component.
BrainChip Holdings Ltd
2018 Annual Report
16
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
2. Remuneration governance (continued)
Adoption of 2017 AGM Remuneration Report
l
y
n
o
At the 2017 AGM (held in May 2018), some 25.04% of shareholders voted against the adoption of the
Company’s Remuneration Report. Since that time, the Remuneration Committee has continued to review
the approach taken to the Company’s overall remuneration, and its appropriateness to the Company’s
circumstances. The Remuneration Committee formed the view that the principal concern of Shareholders at
the previous AGM was the various awards to the CEO, and the Company has not proposed any additional
awards to the CEO in the current financial year, beyond those already approved by Shareholders. Outside
that issue, the Company believes that the appropriate balance has been struck in the current remuneration
arrangements as set out in this Report.
3. Non-executive director remuneration arrangements
e
s
u
l
a
n
o
s
r
e
p
r
o
F
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, highest ethical standard and
broad experience, whilst incurring a cost which is competitive.
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 2018
Annual General Meeting, held on 10 May 2018, where shareholders approved an aggregate fee pool of
A$600,000 per year.
Structure
The remuneration of non-executive directors consists of cash and participation in the Group’s LTIP by way
of an initial grant of options at the Board’s discretion and subject to approval by shareholders.
With effect from 1 June 2018, each non-executive member of the Board received a base fee of A$100,000
per year. The Audit & Governance Committee Chair and the Remuneration & Nomination Committee Chair
each received a fee of A$50,000 per year and each member of those Committees received A$20,000 per
year. The Lead Independent Director also received A$20,000 per year.
In conjunction with Mr. Wilks’ appointment on 11 February 2019, the director fee compensation was reduced
with each non-executive director receiving a base fee of A$90,000 per year. Committee Chairs receive a fee
of A$25,000 per year, while Committee members receive a fee of A$10,000 per year. The Non-Executive
Chair receives an additional fee of A$60,000 per year.
The total remuneration received by each director during the reporting period is disclosed in Section 7.
4. Executive remuneration arrangements
Remuneration Policy
The Company recognises that if it is to be successful in a relatively nascent industry with its pioneering
technology, it must recruit and retain highly talented individuals. Considering the stage of our technology
and business development, these individuals also bear the incremental risk of joining an early stage public
Company. Although it is not the only factor, remuneration plays a key part in determining the Company’s
ability to compete for human resources and retain executives, particularly in the technical fields. In doing so,
the Remuneration & Nomination Committee, the Board and management aim to design competitive
remuneration programs commensurate with executives’ positions, responsibilities and experience, and
incentivize them to drive towards the achievement of the Company’s short and long-term objectives.
Structure
Remuneration consists of the following key elements:
(cid:120) Fixed remuneration (base salary and superannuation); and
(cid:120) Variable remuneration (share options and performance rights).
BrainChip Holdings Ltd
2018 Annual Report
17
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
4. Executive remuneration arrangements (continued)
Fixed Remuneration
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
The fixed pay element of the Company’s remuneration program for executives are designed to attract and
retain top talent in a competitive environment, taking into consideration the role, responsibilities, capabilities
and experience of individual executives. In 2018 executives received a fixed base pay and their contracts do
not include any guaranteed base pay increases. Fixed remuneration is reviewed annually by the Board. This
process consists of a review of the Company’s results, individual performance, relevant comparative
remuneration internally and externally.
Variable Remuneration
Cash Bonuses
Some executive contracts include a provision for cash bonuses on such terms and conditions as may be
determined from time to time by the Board. As at the date of this report, no bonus program has been set by
the Board and no cash bonuses have been awarded. The Remuneration & Nomination Committee has no
current plans to recommend a bonus program until the Company achieves substantial Akida-related
progress.
2018 and 2015 Long Term Incentive Plan (LTIP) Performance Rights Plan (PRP) and Directors’ and Officers’
Option Plan (DOOP)
The granting of options and Performance Rights is a critical element of the Company’s remuneration program
for executives as it aligns their interests directly with that the Company. The realisation of value from these
equity grants over time, are highly dependent on the success of the Company. As a result, equity grants
incentivise our executives to drive towards achievement of our short and long-term objectives.
The Group does not currently grant options, Performance Rights or RSUs to executives on an annual or re-
fresh basis. The market internationally incentivises executives with annual and refresh scenarios. The
Remuneration & Nomination Committee will monitor the remuneration program of the Group, particularly
from a retention standpoint, but has no current plans to recommend significant changes to our remuneration
program until the Company achieves substantial Akida-related progress.
The 2018 Long Term Incentive Plan (LTIP) was adopted by shareholders on 10 May 2018. The Company
had share options and performance rights that were issued under the plans current at the time of offer
(Performance Rights Plan, 2015 Long Term Incentive Plan and Directors and Officers Option Plan) however
all new awards post 10 May 2018 have been issued under the 2018 LTIP.
The objective of the 2018 LTIP is to attract and retain key employees and consultants. It is considered that
the LTIP, through the issue of shares, share options, performance rights and restricted stock units (“LTIP
equity instruments”), will provide eligible participants with opportunity to participate in the future growth of the
Company. Share 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.
LTIP equity instruments issued to eligible participants are made under the 2018 LTIP and have historically
been issued in accordance with the 2015 LTIP, PRP and DOOP. The number of LTIP equity instruments
issued is determined by the policy set by the Board upon recommendation by the Remuneration &
Nomination Committee and is based on each eligible participant’s role and position within the Group.
The LTIP equity instruments will vest over periods as determined by the Board and eligible participants are
able to exercise or convert the LTIP equity instruments any time after vesting and before the expiry date.
Where an eligible participant ceases employment prior to the vesting of their LTIP equity instrument, the LTIP
equity instrument will generally automatically lapse and be forfeited. Where an eligible participant ceases
employment after the vesting but before the exercise of their LTIP equity instrument, unless the eligible
participant has been terminated for cause (when their LTIP equity instrument will immediately lapse), the
LTIP equity instrument may generally be exercised by the eligible 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. Any LTIP equity instruments not exercised within such period will automatically
lapse and be forfeited.
BrainChip Holdings Ltd
2018 Annual Report
18
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
5. Options and performance rights granted as part of remuneration
(a) Options and performance rights linked to performance criteria
The Board has full discretion in approving specified performance criteria linked with options 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 linked to performance criteria were issued in 2016 to the CEO, Mr DiNardo,
as approved by the Board and Shareholders. 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.
No options over ordinary shares or performance rights with performance criteria were issued during 2018.
There are no unsatisfied performance criteria linked to options and performance rights at year end.
Details of options over ordinary shares in the Company provided as remuneration with linked performance
conditions in the prior years are as follows:
Year Options
awarded
during the
year
Number
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
l
L DiNardo 2016 21,000,000 28/09/2016
2017 6,000,000 16/02/2017
R Beachler 2017 12,000,000 05/03/2017
US$
US$
US$
Number
Number
refer table
below
refer table
below
$0.064 1,334,151
$0.172 30/09/2021 3,750,000
$0.175 1,050,104
$0.173 30/09/2021 1,500,000
$0.166 1,995,992
$0.209 31/03/2022 3,000,000
-
-
-
The performance criteria of the above Options issued in prior years 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
28/09/2016
27,000,000
6,000,000
5/03/2017
Upon the Company raising funds
necessary to attain Milestone 4 of the
Share Purchase Agreement dated 10
September 2015
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$500,000 in accordance with an agreed
timetable
Commercial introduction of the PCle
SNAPvision solution. “Introduction”
means a fully qualified card with all
supporting collateral material including a
User’s Manual.
Expiry
date
30/09/2021
30/09/2021
25% over 4 year
period from
achievement of the
performance criteria.
25% over 4 year
period from
achievement of the
performance criteria.
25% over 4 year
period from
achievement of the
performance criteria.
30/09/2021
l
y
n
o
e
s
u
Directors
a
n
o
s
r
e
p
r
o
F
Mr
DiNardo:
Tranche 1
Mr
DiNardo:
Tranche 2
Mr
DiNardo:
Tranche 3
TOTAL
Mr
Beachler:
Tranche 1
Mr
Beachler:
Tranche 2
6,000,000
5/03/2017
TOTAL
12,000,000
Completion of an approved marketing
plan for 2017/2018, as certified by the
Board
Commercial introduction of the PCle
SNAPvision solution. “Introduction”
means a fully qualified card with all
supporting collateral material including a
User’s Manual.
25% over 4 year
period from
achievement of the
performance criteria.
25% over 4 year
period from
achievement of the
performance criteria.
31/03/2022
31/03/2022
BrainChip Holdings Ltd
2018 Annual Report
19
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
L DiNardo
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
5. Options and performance rights granted as part of remuneration (continued)
(b) Options and performance rights with no linked performance criteria
Options were also issued to KMP with no performance criteria however included a service condition of a 4-
year vesting period from the date of issue of the options to encourage the retention of staff. Details of these
Options over ordinary shares in the Company (issued in prior years) are set out in the table below:
Year Options
awarded
during the
year
Number
Grant
Date
End of
Vesting
Period
Fair
value
per
option
^
Total Fair
Value
Exercise
price
per
option
Expiry
date
Options
vested
during
2018
Options
lapsed
during
2018
US$
US$
US$
Number Number
L DiNardo
A Osseiran 2015
A Osseiran 2017
2017
2016 23,000,000 28/09/2016 30/09/2020 $0.064 1,461,607
219,227
2,000,000 04/12/2015 11/12/2015 $0.110
112,465
1,000,000 31/05/2017 01/02/2018 $0.112
118,423
1,000,000 31/05/2017 01/02/2019 $0.118
122,892
1,000,000 31/05/2017 01/02/2020 $0.123
126,616
1,000,000 31/05/2017 01/02/2021 $0.127
232,278
2,000,000 31/05/2017 31/01/2018 $0.116
242,700
2,000,000 31/05/2017 31/01/2019 $0.121
250,145
2,000,000 31/05/2017 31/01/2020 $0.125
256,101
2,000,000 31/05/2017 31/01/2021 $0.128
201,987
7/07/2017 07/07/2018 $0.101
2,000,000
209,581
7/07/2017 07/07/2019 $0.106
2,000,000
215,655
7/07/2017 07/07/2020 $0.109
2,000,000
2,000,000
211,730
7/07/2017 07/07/2021 $0.111
8,000,000 05/03/2017 21/03/2021 $0.166 1,330,662
$0.172 30/09/2021 5,750,000
$0.161 30/11/2018
$0.182 01/02/2023 1,000,000
-
$0.182 01/02/2024
-
$0.182 01/02/2025
$0.182 01/02/2026
-
$0.138 31/01/2023 2,000,000
-
$0.138 31/01/2024
-
$0.138 31/01/2025
$0.138 31/01/2026
-
7/07/2023 2,000,000
$0.125
-
7/07/2024
$0.125
-
7/07/2025
$0.125
$0.125
-
7/07/2026
$0.209 31/03/2022 2,000,000
-
- 2,000,000
-
-
-
-
-
-
-
-
-
-
-
-
-
J Stein
E Hernandez 2017
R Beachler 2017
^ For details on valuation of the options issued in the current year, including models and assumptions used, please refer to
Note 24.
Details of Performance Rights over ordinary shares in the Company provided as remuneration to KMPs, of
which there are no performance conditions however included a service condition to encourage the retention
of staff, are set out in the table below:
Class E Performance Rights
Year Performance rights
Grant Date
awarded during
the year
(Number)
2018
15,000,000
10/5/2018
Fair value per
performance right
at grant date
(US$)
$0.104
Expiry Date
Number
converted
08/06/2028
7,500,000
BrainChip Holdings Ltd
2018 Annual Report
20
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
6. Company performance and the link to remuneration
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
The actual remuneration earned by executives and non-executive directors during 2018 is set out in section
7 of this report. Shareholders can see the remuneration earned and the value ascribed to share-based
payments which were vesting during the year. These share-based payment values were calculated at the
date of grant using the Black Scholes model and the costs are expensed over the vesting period.
Remuneration, in the form of share-based payments, awarded to executives has in the past been largely in
recognition of the service provided, however as outlined in section 5 of this report the award of options to
Mr DiNardo in 2016 was made with over half the award being subject to specific performance criteria. In
2017, Mr Beachler also received options in the Company with specific performance criteria as noted in section
5 above.
BrainChip’s 2018 LTIP gives the Board the ability to add performance criteria as appropriate to the specific
terms as and when options or performance rights are offered to participants. The granting of options and
performance rights is carried out to attain services and encourage retention and, is a performance incentive
which allows executives to share the rewards of the success of the Company.
The table below shows information on the Group’s earnings and movements in shareholder wealth for the
past five years up to and including the current financial year.
Net loss after tax US$ million
Closing share price AUD
Closing share price USD
Loss per share (US cents)
2018
2017
16.52
$0.105
$0.074
1.64
13.77
$0.185
$0.144
1.59
Restated (1)
2016
5.10
$0.28
$0.202
0.69
2015
27.36
$0.26
$0.189
8.43
2014
0.36
-
-
0.14
Net tangible assets US cents per share
(3.77)
(1) 2016 results have been restated after the finalisation of the fair value of the acquisition of BrainChip SAS.
1.77
0.25
0.68
0.38
No dividends were issued in the past five years including the current financial year.
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 Executive 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
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 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
BrainChip Holdings Ltd
2018 Annual Report
21
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
7. Executive contractual arrangements (continued)
Name
Title
Term of agreement Open agreement with no fixed term
Details
Anil Mankar
Chief Development Officer
l
y
n
o
e
s
u
a
n
o
s
r
e
p
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
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.
l
Termination
Name
Title
Term of agreement Open agreement with no fixed term
Details
Ryan Benton (ceased as KMP on 14 September 2018)
Chief Financial Officer
Termination
Base fee of US$300,000 plus benefits under health and welfare benefit plans,
practices, policies and programs provided by BrainChip Inc.
Terminated at any time with or without cause or notice by either himself or
BrainChip Inc. Mr Benton is entitled to 12 months’ severance pay upon
termination by BrainChip Inc. at any time without cause. The amount is payable
over 12 months from the date of termination.
There are no other formalised KMP employment agreements.
r
o
F
BrainChip Holdings Ltd
2018 Annual Report
22
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
7.
Executive contractual arrangements (continued)
Remuneration of KMP
2018
Non-Executive Directors
J Stein
A Osseiran
E Hernandez
S Liebeskind (1)
E Bolto (1)
Executive Directors
L DiNardo
Other Key Management
Personnel
A Mankar
P van der Made (2)
R Beachler
R Benton (3)
Totals
Short Term
Post-
Employment
Salary and
Fees (4)
US$
Annual
leave
US$
Super-
annuation
US$
Share-
based
Payment (5)
Equity
Instruments
US$
Termin-
ation
Total
Perform
-ance
related
US$
US$
%
102,732
67,660
94,042
55,246
19,871
-
-
-
-
-
-
-
-
-
-
287,805
141,360
335,488
-
37,457
-
-
-
-
-
390,537
209,020
429,530
55,246
57,328
-
-
-
-
-
405,897
12,516
-
3,826,121
-
4,244,534
15%
313,341
313,341
313,341
247,895
5,836
5,747
3,528
10,007
8,250
-
7,500
-
-
-
1,129,177
160,388
-
-
-
-
327,427
319,088
1,453,546
418,290
-
-
49%
8%
1,933,366
37,634
15,750
5,917,796
-
7,904,546
(1) Mr Bolto resigned, and Mr Liebeskind was appointed, as a non-executive director on 1 May 2018. The Board engaged
Mr Bolto as a consultant to the Company from 1 May 2018.
(2) Mr van der Made resigned as an executive director on 1 January 2018 however continues to be reported as a KMP in
his role as Chief Technology Officer.
(3) Mr Benton ceased to be KMP upon his resignation as CFO, effective 14 September 2018. The share-based payment
expense relates to 6,250,000 options which vested prior to his resignation.
(4) No bonuses were awarded to any KMP during the year.
(5) Share-based payment “remuneration” represents the current period expense in respect of options and performance
rights issued, offset by the value of options and performance rights that have been forfeited during the year.
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2018 Annual Report
23
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
-
-
-
-
-
-
-
167,143
458,441
222,857
210,456
429,531
312,127
19,999
(4,806)
-
-
1,810,816
-
-
-
-
-
-
-
267,145
569,982
261,320
232,913
-
-
-
-
2,260,346
307,321
63%
-
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
-
4%
68%
-
-
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.
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2018 Annual Report
24
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
8. Equity Instruments Disclosure
Shareholdings of KMP (including nominees)
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Shares held in BrainChip Holdings by KMP are summarised as follows:
Balance held
at
1 January
2018
Shares
issued as
remuneration
Conversion
of
Performance
Rights
Sale of shares
to satisfy US
Tax liability (1)
Acquired /
Disposed
Net change
other
Balance held
at
31 December
2018
Directors
L DiNardo
J Stein
A Osseiran (2)
E Hernandez
S Liebeskind
(3)
E Bolto (5)
Other KMPs
A Mankar (4)
P van der
Made
R Beachler
R Benton (6)
Total
-
-
8,438,500
-
-
-
-
-
-
-
-
-
15,000,000
-
-
-
9,500,000
-
900,000
-
(12,720,639)
-
-
-
-
-
-
-
11,779,361
-
9,338,500
-
109,135,000
(4,500,000)
-
17,250,000
-
-
900,000
-
-
-
-
10,749,242
-
11,649,242
-
-
121,885,000
161,305,508 (4,500,000)
-
-
278,879,008 (9,000,000)
-
-
- 19,500,000
1,500,000
-
500,000
-
50,050,000
15,000,000
-
(799,696)
(226,376)
-
-
(273,624)
(13,746,711) 10,475,618
176,305,508
700,304
-
331,657,915
(1) Shares sold on market by the employee and/or the BrainChip Long Term Incentive Plan Trustee to satisfy US tax
responsibilities.
(2) Shares held indirectly by Adam Osseiran and Rebecca Osseiran-Moisson ATF the Osseiran Family Trust.
(3) Shares held indirectly upon appointment as director comprise 2,310,742 fully paid shares in the name of Crossfield
Intech Nominees Pty Ltd and 8,438,500 fully paid shares via Crossfield Intech Nominees Pty Ltd as trustee for the
Liebeskind Family Superfund.
99,135,000 fully paid ordinary shares are held by Merrill Lynch (Australia) Nominees Pty Ltd on behalf of Mr
Mankar.
(4)
(5) Mr Bolto resigned as a director on 1 May 2018.
(6) Mr Benton ceased to be KMP upon his resignation as CFO, effective 14 September 2018.
Options holdings of Key Management Personnel (including nominees)
No options were granted to KMP during the current year. Refer to section 5 for options granted to KMP in
prior years. There were no alterations to the terms and conditions of options awarded as remuneration since
their award date. No options were exercised or lapsed during the current year.
Balance at
beginning of
period 1 January
2018
Granted
as
remuner-
ation
Exercised
Net change
other
Balance at end
of period 31
December
2018
Vested
and not
exercise-
able
Vested and
exercisable
Directors
L DiNardo
J Stein
A Osseiran (1)
E Hernandez
S Liebeskind (2)
E Bolto (3)
Other KMPs
A Mankar
P van der Made
R Beachler
R Benton (4)
50,000,000
8,000,000
6,000,000
8,000,000
-
7,900,000
-
-
20,000,000
27,000,000
Total
126,900,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(2,000,000)
-
6,000,000
(7,900,000)
-
-
-
(27,000,000)
50,000,000
8,000,000
4,000,000
8,000,000
6,000,000
-
-
-
20,000,000
-
- 16,750,000
2,000,000
-
1,000,000
-
2,000,000
-
6,000,000
-
-
-
-
-
-
-
-
-
5,000,000
-
- (30,900,000)
96,000,000
- 32,750,000
2,000,000 options held by Dr Osseiran lapsed during the year.
(1)
(2) Mr Liebeskind was appointed as a non-executive director on 1 May 2018. Mr Liebeskind held 3,000,000 options
directly and 3,000,000 indirectly via Crossfield Intech Nominees Pty Ltd as trustee for the Liebeskind Family
Superfund.
(3) Mr Bolto resigned as a director on 1 May 2018.
(4) Mr Benton ceased to be KMP upon his resignation as CFO, effective 14 September 2018, resulting in
20,750,000 unvested options being forfeited, and the lapsing of 6,250,000 vested options.
BrainChip Holdings Ltd
2018 Annual Report
25
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
8. Equity Instruments Disclosure (continued)
Performance Rights held by KMP (including nominees)
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
The table below discloses the number of Performance Rights held by KMP that were granted and vested
during the year. No performance rights lapsed during the year.
Balance at
beginning
of period 1
January
2018
Granted as
remuner-
ation
Exercised
Other
Balance at
end of
period 31
December
2018
Vested
and
exercise-
able
Value of
performance
rights
exercised
US$
Directors
L DiNardo (1) (2)
J Stein
A Osseiran (2)(6)
E Hernandez
S Liebeskind (2)
(3)(6)
E Bolto
Other KMPs
A Mankar (2)(6)
P van der
Made (2) (4) (6)
R Beachler (2) (5)
R Benton (5)
Total
2,000,000 15,000,000
-
-
-
-
900,000
-
(9,500,000)
-
(900,000)
-
-
-
-
-
7,500,000
-
-
-
-
-
-
-
(900,000)
-
900,000
-
17,250,000
-
(17,250,000)
19,500,000
1,500,000
500,000
-
-
-
41,650,000 15,000,000
(19,500,000)
(1,500,000)
(500,000)
(50,050,000)
-
-
-
-
900,000
-
-
-
-
-
-
7,500,000
-
-
-
-
-
-
-
-
-
-
-
2,080,667
-
85,823
-
85,823
-
-
1,644,936
1,859,493
139,298
43,940
5,939,980
(1)
(2)
(3)
(4)
(5)
(6)
Mr DiNardo was awarded 15,000,000 performance rights on 8 June 2018 as part of his remuneration.
7,500,000 performance rights vested on 8 December 2018 and were converted to fully paid shares on 20
December 2018. 7,500,000 performance rights will vest on 8 June 2019 subject to continuous service being
provided.
Upon the achievement of Milestone 4 on 9 October 2018, being the announcement on the ASX that BrainChip
had executed an unconditional binding licensing agreement that had an upfront payment of no less than
A$500,000, the Class D performance rights held by KMPs were converted to fully paid ordinary shares.
Mr Liebeskind was appointed as a non-executive director on 1 May 2018. Mr Liebeskind held 900,000 Class D
Performance Rights indirectly via Crossfield Intech Nominees Pty Ltd as trustee for Liebeskind Family Super
Fund.
6,000,000 Class C performance rights held by Mr van der Made were converted to fully paid ordinary shares
during the year.
1,000,000 and 500,000 Class B performance rights held by Mr Beachler and Mr Benton (respectively) were
converted to fully paid ordinary shares during the year.
Dr Osseiran, Mr Liebeskind, Mr Mankar and Mr van der Made exercised performance rights received in the
Acquisition of BrainChip Holdings in 2015. The exercise and value on exercise are disclosed due to their
position as a KMP.
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 21(e).
9. Other transactions and balances with KMP
In the prior year, Mr. Bolto and Ms. Stein each had a consulting agreement with the Company for ad hoc
services as requested by the CEO from time to time effective from 1 December 2016 through 31 August
2017 at a rate of A$10,000 per month during active assignments. 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.
The agreements were terminated effective from 31 August 2017. Fees paid during 2017 to Mr. Bolto totalled
$38,462 and to Ms. Stein totalled $61,540.
In the prior year, accrued termination salary payable as at 31 December 2017 to Mr DoDuy, a KMP at the
time of his resignation, totalled $51,800.
No further transactions with other Key management personnel have been incurred, other than reported
above.
End of Audited Remuneration Report.
BrainChip Holdings Ltd
2018 Annual Report
26
Directors’ Report
INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS
During the financial year, the Company paid a premium in respect to a contract of insurance to insure
directors and officers of the Company and related bodies corporate against those liabilities for which
insurance is permitted under section 199B of the Corporations Act 2001. Disclosure of the nature of the
liabilities and the amount of the premium is prohibited under the conditions of the contract of insurance.
INDEMNIFICATION OF AUDITORS
To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of
the terms of its audit engagement agreement against claims by third parties arising from the audit (for an
unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial
year.
The Directors received the Independence Declaration, as set out on page 28, from Ernst & Young.
AUDITOR INDEPENDENCE
NON-AUDIT SERVICES
No non-audit services were provided by the entity’s auditor, Ernst & Young during the current and the prior
year.
Signed in accordance with a resolution of the Directors.
Stephe Wilks
Stepeeeeeeeeeeeeeeee he Wilililililililillililllllkskkkkkkkkkkkkkkk
Chhhhhhhhhhhaaaaaaiaaaaaaaaaaa r
Chair
Sydneyeyeyeyeyeyeyyeyyyyy, AAAAAAAuAAAAAAA ststtttsttttttttttttralia, 27 Mar
Sydney, Australia, 27 March 2019
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2018 Annual Report
27
Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
Auditor’s Independence Declaration to the Directors of BrainChip
Holdings Ltd
As lead auditor for the audit of the financial report of BrainChip Holdings Ltd for the financial year ended
31 December 2018, 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
27 March 2019
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
PT:CT:BRN:035
Consolidated Statement of Profit or Loss and Other Comprehensive
Income for the year ended 31 December 2018
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Continuing operations
Revenue from contracts with customers
Research & development expenses
Selling & marketing expenses
General & administrative expenses
Share-based payment expense
Operating Loss
Finance income
Finance expense
Loss from continuing operations before income tax
Income tax expense
Loss from continuing operations after income tax
Gain from discontinued operations after tax
Note
31 December
2018
$US
31 December
2017
$US
5
947,989
269,496
6(a)
6(b)
6(c)
24(a)
7(a)
7(b)
9(c)
30
(3,969,304)
(1,465,475)
(4,861,194)
(7,305,802)
(2,205,739)
(507,883)
(4,544,757)
(6,941,360)
(16,653,786)
(13,930,243)
130,600
-
128,480
(622)
(16,523,186)
(13,802,385)
-
-
(16,523,186)
(13,802,385)
-
28,372
Net loss for the year
(16,523,186)
(13,774,013)
Other comprehensive income/(loss)
Other comprehensive income not to be reclassified to profit or loss
in subsequent periods (net of tax):
Remeasurement gains/(losses) on defined benefit plans
Items that may be reclassified subsequently to profit or loss (net of
tax):
Exchange differences on translation of foreign operations
Other comprehensive income for the year, net of tax
34,094
(1,515)
(1,030)
33,064
76,142
74,627
Total comprehensive loss for the year, net of tax
(16,490,122)
(13,699,386)
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
(1.64)
(1.59)
Gain per share from discontinued operations attributable to
ordinary equity holders of the Company
Basic and diluted gain per share
(0.00)
(0.00)
Loss per share attributable to ordinary equity holders of the
Company
Basic and diluted loss per share
10
(1.64)
(1.59)
The above statement of comprehensive income should be read in conjunction with the accompanying notes.
BrainChip Holdings Ltd
2018 Annual Report
29
Consolidated Statement of Financial Position
As at 31 December 2018
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Inventory
Other assets
Total current assets
NON-CURRENT ASSETS
Plant and equipment
Intangible assets 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
2018
$US
31 December
2017
$US
11
12
13
14
15
16
18
19
17
18
20
7,543,326
461,129
20,864
139,789
8,165,108
226,456
1,735,122
38,950
2,000,528
16,049,330
358,975
20,563
333,600
16,762,468
192,307
2,814,027
41,512
3,047,846
10,165,636
19,810,314
723,541
-
-
228,962
952,503
226,873
106,951
333,824
1,160,337
-
-
208,129
1,368,466
236,342
139,036
375,378
1,286,327
1,743,844
8,879,309
18,066,470
21(a)
22
22
22
23
55,143,789
16,463,527
80,526
247,872
(63,056,405)
53,570,901
10,733,454
81,556
247,872
(46,567,313)
8,879,309
18,066,470
The above statement of financial position should be read in conjunction with the accompanying notes.
BrainChip Holdings Ltd
2018 Annual Report
30
Consolidated Statement of Cash Flows
For the year ended 31 December 2018
CASH FLOWS USED IN OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers and employees
Interest received
Grants received from third parties
R&D credits received from third parties
Other income
Note
31 December
2018
US$
31 December
2017
US$
909,662
(8,694,093)
97,339
232,449
251,439
-
312,131
(6,602,048)
23,846
15,916
170,393
5,220
Net cash flows used in operating activities
11
(7,203,204)
(6,074,542)
CASH FLOWS USED IN INVESTING ACTIVITIES
Payments for property, plant and equipment
Payments for purchase of patents
Payments for capitalised research and development
Proceeds from sale of royalty interests
Net cash flows used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Receipts from the issue of shares
Payment of share issue costs
Repayment of loans to third parties
Net cash flows (used in)/generated from financing activities
(86,738)
(457,273)
(686,189)
-
(1,230,200)
(125,118)
(229,176)
(543,389)
32,289
(865,394)
-
(26,560)
(2,092)
(28,652)
20,888,073
(1,330,195)
(308,281)
19,249,597
Net (decrease)/increase in cash and cash equivalents
(8,462,056)
12,309,661
Net foreign exchange differences
Cash at the beginning of the financial period
(43,948)
16,049,330
145,718
3,593,951
Cash and cash equivalents at the end of the period
11
7,543,326
16,049,330
The above cash flow statement should be read in conjunction with the accompanying notes.
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2018 Annual Report
31
Consolidated Statement of Changes in Equity
For the year ended 31 December 2018
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
income
Total comprehensive
loss for the period
Issue of share capital
Share issue costs
Share-based payment –
Note 24(a)
-
-
-
20,888,073
(1,330,195)
-
-
-
-
-
-
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
Contributed
equity
US$
Share-based
payment
reserve
US$
Other
reserves
US$
Foreign
currency
reserve
US$
Accumulated
losses
US$
Total equity
US$
At 1 January 2018
53,570,901
10,733,454 247,872
81,556
(46,567,313)
18,066,470
Loss for the year
Other comprehensive loss
Total comprehensive
loss for the period
Issue of share capital
Share issue costs
Share-based payment –
Note 24(a)
At 31 December 2018
-
-
-
1,599,448
(26,560)
-
-
-
-
-
-
5,730,073
-
-
-
-
-
-
-
(16,523,186)
(16,523,186)
(1,030)
34,094
33,064
(1,030)
(16,489,092)
(16,490,122)
-
-
-
-
-
-
1,599,448
(26,560)
5,730,073
55,143,789
16,463,527 247,872
80,526
(63,056,405)
8,879,309
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2018 Annual Report
32
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
1. CORPORATE INFORMATION
l
y
n
o
The annual financial report of BrainChip Holdings Ltd (“Company”) and its controlled entities (“Consolidated Entity”
or “Group”) for the year ended 31 December 2018 was authorised for issue in accordance with a resolution of the
Directors on 27 March 2019.
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, 225 George Street, Sydney NSW 2000, Australia.
The nature of the operations and principal activities of the Group are described in the Directors’ Report.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of preparation
e
s
u
l
a
n
o
s
r
e
p
r
o
F
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.
New standards, interpretation and amendments adopted by the Group
The Group applied for the first time all new and amended Accounting Standards and Interpretations, which are
effective for annual periods beginning 1 January 2018. Although these new and amended standards and
Interpretations applied for the first time in 2018, they did not have a material impact on the annual consolidated
financial statements of the Group.
AASB 15 Revenue from Contracts with Customers
AASB 15 supersedes AASB 118 Revenue and related Interpretations and it applies to all revenue arising from
contracts with customers, unless those contracts are in the scope of other standards. The new standard establishes
a five-step model to account for revenue arising from contracts with customers. Under AASB 15, revenue is
recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for
transferring goods or services to a customer.
The standard requires entities to exercise judgement, taking into consideration all of the relevant facts and
circumstances when applying each step of the model to contracts with their customers. The standard also specifies
the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract.
The Group adopted AASB 15 using the full retrospective method of adoption. The effect of the transition on the current
period has not been disclosed as the standard provides an optional practical expedient. The Group did not apply any
of the other available optional practical expedients. The Group determined there was no material financial effect of
adopting AASB 15.
The Group disaggregated revenue recognised from contracts with customers into categories that depict how the
nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Refer to Note 5
for the disclosure on disaggregated revenue.
AASB 9 Financial Instruments
AASB 9 Financial Instruments replaces AASB 139 Financial Instruments: Recognition and Measurement for annual
periods beginning on or after 1 January 2018, bringing together all three aspects of the accounting for financial
instruments: classification and measurement; impairment; and hedge accounting.
AASB 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts
to buy or sell non-financial items. The Group has adopted AASB 9 retrospectively in accordance with the standard;
changes in accounting policies resulting from the adoption of AASB 9 did not have a material impact on the
Company’s consolidated financial statements.
AASB 9 largely retains the existing requirements of AASB 139 for the classification and measurement of financial
liabilities, however, it eliminates the previous AASB 139 categories for financial assets held to maturity, receivables
and available for sale. Under AASB 9, on initial recognition a financial asset is classified as measured at:
(cid:120) Amortised cost;
(cid:120)
(cid:120)
(cid:120)
Fair Value through Other Comprehensive Income (“FVOCI”) – debt investment;
FVOCI – equity investment; or
Fair Value through Profit or Loss (“FVTPL”)
BrainChip Holdings Ltd
2018 Annual Report
33
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(a) Basis of preparation (continued)
The classification of financial assets under AASB 9 is generally based on the business model in which a financial
asset is managed and its contractual cash flow characteristics. A financial asset (unless it is a trade receivable without
a significant financing component that is initially measured at the transaction price) is initially measured at fair value
plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition. For financial assets
measured at amortised cost, these assets are subsequently measured at amortised cost using the effective interest
method. The amortised cost is reduced by impairment losses.
Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss
on derecognition is recognised in profit or loss.
As of 31 December 2018, the Company’s financial instruments consist of cash and cash equivalents, trade and other
receivables and trade and other payables.
Cash and cash equivalents and trade and other receivables previously designated as receivables under AASB 139
are now classified as amortised cost under AASB 9. The trade and other payables are designated as other financial
liabilities, which are measured at amortised cost.
The cash and cash equivalents, trade and other receivables, trade and other payables approximate their fair value
due to their short-term nature.
Other financial liabilities (as reported in the balance sheet) are reported as financial liabilities and measured through
the fair value through the profit and loss.
The Group classified the fair value of the financial instruments according to the following fair value hierarchy based
on the amount of observable inputs used to value the instruments:
The three levels of the fair value hierarchy are:
(cid:120)
(cid:120)
(cid:120)
Level 1 – Values based on unadjusted quoted prices available in active markets for identical assets
or liabilities as of the reporting date.
Level 2 – Values based on inputs, including quoted prices, time value and volatility factors, which can
be substantially observed or corroborated in the marketplace. Prices in Level 2 are either directly or
indirectly observable as of the reporting date.
Level 3 – Values based on prices or valuation techniques that are not based on observable market
data.
Impairment of financial assets
AASB 9 replaces the ‘incurred loss’ model in AASB 139 with an ‘expected credit loss’ (“ECL”) model. The new
impairment model is applied to financial assets measured at amortised cost, contract assets and debt investments at
Fair Value Through Other Comprehensive Income (“FVOCI”), but not to investments in equity instruments.
Under AASB 9, loss allowances are measured on either of the following bases:
(cid:120)
(cid:120)
12-month ECLs: these are ECLs that result from possible default events within the 12 months after
the reporting date; and
Lifetime ECL: these are ECLs that result from all possible default events over the expected life of a
financial instrument.
ECLs are probability-weighted estimates of credit losses. Credit losses are measured at the present value of all cash
shortfalls (I.e. the difference between the cash flows due to the Group in accordance with the contract and the cash
flows that the Group expects to receive). ECLs are discounted at the effective interest rate of the financial asset.
The Group has adopted a simplified approach for trade receivables on the initial transaction date (1 January 2018)
with an amount equal to the full ECL to be recognised. As the ECL assessment has resulted in an immaterial credit
loss, no impairment allowance has been recognised by the Group.
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2018 Annual Report
34
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(a) Basis of preparation (continued)
Going concern
This financial report has been prepared on the going concern basis, which contemplates the continuity of normal
business activity and the realisation of assets and settlement of liabilities in the normal course of business.
During the period ended 31 December 2018, the Group incurred a net loss after tax of $16,523,186 and a cash
outflow from operating activities of $7,203,204.
At 31 December 2018, the Group had cash and cash equivalents of $7,543,326, net assets of $8,879,309 and a net
working capital of $7,212,605.
The Company has prepared a detailed cash budget showing the need to generate additional commercial agreements
or receive additional funds in order to finance the Group for the next twelve months.
This creates a material uncertainty that may cast doubt as to whether the Group will continue as a going concern
and, therefore, whether it will settle its liabilities and commitments in the normal course of business.
The Directors have considered the funding and operational status of the business in arriving at their assessment of
going concern and believe that the going concern basis of preparation is appropriate, based upon the following:
(cid:120)
(cid:120)
The ability to further vary cash flows depending upon the achievement of new commercial agreements; and
The ability of the Group to obtain funding through various sources, including debt and equity issues which
are currently being investigated by management.
The Directors have reasonable expectations that they will be able to generate additional commercial agreements or
raise the funds needed for the Group to continue to execute the business plan of the Group in the medium term.
However, cashflows can be adjusted by controlling headcount and R&D and marketing expenses to ensure that the
Company can pay its debts as and when they fall due until such funding is secured, or new commercial agreements
are in place.
Should the Group not achieve the matters set out above, there is uncertainty whether the Group would continue as
a going concern and therefore whether it would realise its assets and extinguish its liabilities in the normal course of
business and at the amounts stated in the financial report. The financial report does not include adjustments relating
to the recoverability or classification of the recorded asset amounts or to the amounts or classification of liabilities
that might be necessary should the Group not be able to continue as a going concern.
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2018 Annual Report
35
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(b) Statement of compliance
The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards
Board. The financial report also complies with International Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board.
The following Standards and Interpretations have been issued by the AASB, are relevant to the Group, but are not
yet effective and have not been adopted by the Group for the period ending 31 December 2018. 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
l
y
n
o
Leases
AASB 16
e
s
u
l
a
n
o
s
r
e
p
r
o
F
AASB 2018-1
Amendments
to Australian
Accounting
Standards –
Annual
Improvements
2015-2017
Cycle
AASB
Interpretation
23
Uncertainty
over Income
Tax
Treatments,
and relevant
amending
standards
Annual
Improvements
to IFRS
Standards
2015-2017
Cycle‡
Uncertainty
over Income
Tax
Treatments
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.
The amendments clarify certain requirements in:
(cid:120)
AASB 3 Business Combinations and AASB 11
Joint Arrangements - previously held interest in
a joint operation
AASB 112 Income Taxes - income tax
consequences of payments on financial
instruments classified as equity
AASB 123 Borrowing Costs - borrowing costs
eligible for capitalisation.
(cid:120)
(cid:120)
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:
(cid:120) Whether an entity considers uncertain tax
(cid:120)
(cid:120)
(cid:120)
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.
Application
date of
standard*
Application
date for
Group
1 January
2019
1 January
2019
Impact on Group
The Group is still
assessing the
impact of applying
this new
accounting
standard as at the
date of this report.
1 January
2019
1 January
2019
1 January
2019
1 January
2019
The Group has
assessed the
impact of applying
this new
accounting
standard. The
Group does not
expect a
significant impact.
The Group has
assessed the
impact of applying
this new
accounting
standard. The
Group does not
expect a
significant impact.
*
Designates the beginning of the applicable annual reporting period unless otherwise stated.
BrainChip Holdings Ltd
2018 Annual Report
36
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Basis of consolidation
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
The consolidated financial statements comprise the financial statements of the parent entity and its subsidiaries (the
‘Group') as at 31 December each year. Control is achieved when the Group 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 Group controls an investee if and only if the Group has:
(cid:120) Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the
investee)
(cid:120) Exposure, or rights, to variable returns from its involvement with the investee, and
(cid:120) The ability to use its power over the investee to affect its returns
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant
facts and circumstances in assessing whether it has power over an investee, including:
(cid:120) The contractual arrangement with the other vote holders of the investee
(cid:120) Rights arising from other contractual arrangements
(cid:120) The Group’s voting rights and potential voting rights
The Group 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 Group obtains
control over the subsidiary and ceases when the Group 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 Group gains control until the date the Group 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 Group 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 Group’s accounting policies. All intra-Group assets and liabilities, equity, income, expenses
and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
(d) Foreign currency translation
(i) Functional and presentation currency
The functional currency of each entity within the Group 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.
(e) 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.
BrainChip Holdings Ltd
2018 Annual Report
37
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) Cash and cash equivalents
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
(i)
r
o
F
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.
(g) Trade and other receivables
A receivable represents the Group’s right to an amount of consideration that is unconditional (I,e., only the passage
of time is required before payment of the consideration is due).
Trade receivables are initially measured at transaction value and other receivables are initially recognised at fair value
plus transaction costs. Trade and other receivables are subsequently measured at amortised cost using the effective
interest method, less any provision for impairment. Trade receivables generally have 30-60 day payment terms.
Collectability of trade and other receivables is reviewed on an ongoing basis in accordance with the expected credit
loss (“ECL”) model.
(h) Property, plant and equipment
Plant and equipment is stated at historical cost less accumulated depreciation.
Capital work-in-progress is stated at cost and comprises all costs directly attributable to bringing the assets under
construction ready to their intended use. Capital work-in-progress is transferred to property, plant and equipment at
cost on completion.
Depreciation is calculated on a straight-line basis over the estimated useful life of the asset which ranges between
3 and 25 years.
Derecognition
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset.
Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the item) is included in the statement of comprehensive income in the period
the item is derecognised.
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 carrying amount of the asset and are recognised in the statement of profit or loss when
the asset is derecognised.
BrainChip Holdings Ltd
2018 Annual Report
38
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(j) Research and development costs
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Research costs are expensed as incurred. Development expenditures on an individual project are recognised
as an intangible asset when the Group can demonstrate:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
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
(k) 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 Group prior to the end of the financial year
that are unpaid and arise when the Group 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.
(l) Provisions
Provisions are recognised when the Group 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.
(m) 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.
BrainChip Holdings Ltd
2018 Annual Report
39
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(n) Share-based payment transactions
The Group provides benefits to employees, consultants and service providers (including Directors) (“eligible
participants”) in the form of share-based payment transactions, whereby employees render services in exchange
for shares or rights over shares (equity-settled transactions).
The 2018 Long Term Incentive Plan (LTIP) was adopted by shareholders on 10 May 2018. The Company had share
options and performance rights that were issued under the plans current at the time of offer (Performance Rights
Plan, 2015 Long Term Incentive Plan and Directors and Officers Option Plan) however all new awards post 10 May
2018 have been issued under the 2018 LTIP.
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 24.
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 Group, Company or the eligible participant, the failure to satisfy
the condition is treated as a cancellation. If a non-vesting condition within the control of neither the Group, Company
nor eligible participant 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.
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.
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2018 Annual Report
40
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(o) Employee benefits
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
(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) Superannuation
Contributions made by the Group to employee superannuation funds, which are defined contribution plans, are
charged as an expense when incurred.
(iii) 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.
(p) Revenue from contracts with customers
The Group accounts for a contract when it has approval and commitment from both parties, the rights of the parties
are identified, payment terms are identified, the contract has commercial substance and collectability of the
consideration is probable.
Revenues from license and product sales are recognised when an identified performance obligation is satisfied, and
the customer obtains and accepts control of the Company’s product. This means that the customer can direct the
use, and obtain substantially all of the remaining benefits, from the use of the license and product. Sales of product
and licenses generally occur at a point in time, typically upon delivery to the customer. In instances where the Group
has significant obligations to maintain or update licences, the revenue is recognised over time.
Revenue from development service is generally recognised as the Company creates or enhances an asset that the
customer controls.
The Group determined that the input method is the best method in measuring progress of the development services
revenue because there is a direct relationship between the Group’s effort (i.e., labour hours incurred) and the
transfer of service to the customer. The Group recognises revenue on the basis of the labour hours expended
relative to the total expected labour hours to complete the service.
Taxes collected from customers relating to product and service sales and remitted to governmental authorities are
excluded from revenues. The Company expenses incremental costs of obtaining a contract as and when incurred
because the expected amortisation period of the asset that the Company would have recognised is one year or less.
(q) Government grants
Government grants are recognised where there is reasonable assurance that the grant will be received and all
attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on
a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed.
When the grant relates to an asset, it is recognised as income in equal amounts over the expected useful life of the
related asset.
When the Group receives grants of non-monetary assets, the asset and the grant are recorded at nominal amounts
and released to profit or loss over the expected useful life of the asset, based on the pattern of consumption of the
benefits of the underlying asset by equal annual instalments.
BrainChip Holdings Ltd
2018 Annual Report
41
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(r)
Income tax
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
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:
(cid:120) 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
(cid:120) 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:
(cid:120) 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
(cid:120) 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:
(cid:120) 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.
(cid:120)
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
2018 Annual Report
42
(s) Other taxes
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(t) Earnings per share
l
y
n
o
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:
(cid:120)
(cid:120)
(cid:120)
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
e
s
u
l
a
n
o
s
r
e
p
r
o
F
The preparation of the financial statements requires management to make judgements, estimates and assumptions
that affect the reported amounts in the financial statements. Management continually evaluates its judgements and
estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its
judgements and estimates on historical experience and on other various factors it believes to be reasonable under the
circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily
apparent from other sources.
Management has identified the following critical accounting policies for which significant judgements, estimates and
assumptions are made. Actual results may differ from these estimates under different assumptions and conditions and
may materially affect financial results or the financial position reported in future periods.
Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial
statements.
(cid:120) Revenue from contracts with customers
Judgement was applied in determining whether applicable contracts were considered a contract with a customer,
where goods and/or services are delivered in exchange for consideration, or a co-development agreement where
the risks and benefits that result from the activity are shared. In all instances, management concluded that a
contract with a customer had been negotiated and AASB 15 was applicable.
The revenue recognition standard states that if a contract has more than one performance obligation, judgement
is required in determining the allocation of the transaction price to each performance obligation (or distinct good
and service) in an amount that depicts the amount of consideration to which the entity expects to be entitled in
exchange for transferring the promised goods or services to the customer.
Determining the performance obligation in a contract comprising license revenue and development service revenue
The Group determined that both license and development service revenue is capable of being distinct and
identifiable in a specific contract, comprising the delivery of the perpetual license and the engineering services
provided to specifically enhance the license to the specifications of the customer.
Determining the timing of satisfaction of the development service revenue
The Group concluded that development service revenue is to be recognised over time because the customer
simultaneously receives and consumes the benefits provided by the Group; Brainchip is enhancing an asset that
the customer controls, and the work completed does not create an alternative use to the Group.
The Group determined that the input method is the best method in measuring progress of the development services
revenue because there is a direct relationship between the Group’s effort (i.e., labour hours incurred) and the
transfer of service to the customer. The Group recognises revenue on the basis of the labour hours expended
relative to the total expected labour hours to complete the service.
(cid:120) Share-based payment transactions
The Group 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 24. 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.
BrainChip Holdings Ltd
2018 Annual Report
43
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
3. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (Continued)
(cid:120)
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 Group and to the particular asset which may
lead to an impairment being recognised.
(cid:120) 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.
(cid:120)
Impairment of goodwill
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.
(cid:120) 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 2018, the carrying amount of capitalised development costs was $Nil (2017: $1,135,132).
(cid:120) 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 20.
Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial
statements.
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2018 Annual Report
44
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
4.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Overview
This note presents information about the Group’s exposure to credit, liquidity and market risks, its objectives, policies
and processes for measuring and managing risk, and the management of capital.
The Group 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 Group if a customer or counterparty to a financial instrument fails to meet
its contractual obligations and arises principally from the Group’s cash and cash equivalents and receivables from
customers.
Presently, the Group undertakes technology development activities in the USA and France, and is exposed to credit
risk from its operating activities (primarily trade and other receivables).
Cash and cash equivalents and investment securities
The Group limits its exposure to credit risk by only investing in liquid securities and only with counterparties that have
an acceptable credit rating.
Trade and other receivables
The Group operates primarily in technology development and has trade receivables. There is risk that these
receivables may not be recovered however the Group does not consider this to be likely. The Group reviews the
collectability of trade and other receivables on an ongoing basis and measures the expected credit loss at each
reporting date (see Note 12).
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
Note
2018
US$
2017
US$
11
12
7,543,326
461,129
16,049,330
358,975
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’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 Group’s reputation.
The Group manages liquidity risk by maintaining adequate cash reserves from funds raised in the market and by
continuously monitoring forecast and actual cash flows. The Group does not have any external borrowings.
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2018 Annual Report
45
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
Liquidity risk (continued)
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding
the impact of netting agreements:
Carrying
amount
US$
Contractual
cash flows
US$
6 mths or
less
US$
6-12 mths
1-5 years
US$
US$
723,541
226,873
950,414
723,541
233,890
957,431
723,541
-
723,541
-
-
-
-
233,890
233,890
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
-
243,603
243,603
31 December 2018
Trade and other payables
Financial liabilities
31 December 2017
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 Group 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. As a result of this, the Group’s statement of financial position can be affected by movements in the
USD/AUD 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 Group’s exposure to foreign currency risk at the balance sheet date was negligible.
Interest rate risk
The Group 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 Group does not use derivatives to mitigate these exposures.
The Group adopts a policy of ensuring that as far as possible it maintains excess cash and cash equivalents in interest
bearing accounts.
The Group’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.
BrainChip Holdings Ltd
2018 Annual Report
46
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
4.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
Capital Management
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
Capital managed by the Board includes contributed equity totalling $55,143,789 and other equity reserves of
$247,872 at 31 December 2018 (2017: $53,570,901 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 fund the continued development of the Company’s pioneering AI
technology and keep the Company operational. 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 2018, management did not pay a dividend and does not expect to pay
a dividend in the foreseeable future.
The Group encourages employees to be shareholders through the Long Term Incentive Plan.
There were no changes in the Group’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.
5. REVENUE FROM CONTRACTS WITH CUSTOMERS
(a) Types of good and services
Product revenue
License revenue (1)
Development service revenue (1) (2)
Total revenue from contracts with customers
(1) $200,000 of license revenue and $300,000 of development service
revenue has been recognised from one customer in 2018 which was
deemed to have satisfied the requirements of Milestone 4 – refer Note
21(e).
(2) Development service revenue includes (i) further development of
existing licensed technology; and/or (ii) engineering services for existing
licensed technology.
(b) Timing of revenue recognition
Services transferred over time
Sale of product and license transferred at a point in time
Total revenue
2018
US$
2017
US$
108,140
327,349
512,500
947,989
10,131
73,709
185,656
269,496
512,500
435,489
947,989
185,656
83,840
269,496
r
o
F
BrainChip Holdings Ltd
2018 Annual Report
47
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
6. EXPENSES (1)
(a) Research & development expenses
Employee expenses
Grants received/receivable
Amortisation of intangible assets
Write off of intangible assets
Other expenses
Total research & development expenses
(b) Selling & marketing expenses
Employee expenses
Contractor fees
Other expenses
Total selling & marketing expenses
(c) General and administration expenses
Director fees and key management personnel employee expenses
Employee expenses
Legal and professional fees
Travel and accommodation expenses
Depreciation of plant & equipment
Office rent
Other
Total general & administrative expenses
(1) Certain comparative expenditures have been reclassified to align with
the current period reporting presentation. Significant adjustments
comprise amortisation of intangible assets being included in Research &
development expenses, and the segregation of Selling & marketing
expenses from General & administrative expenses.
FINANCE INCOME AND EXPENSE
(a) Finance income
Interest received
Foreign exchange gain
Total finance income
(b) Finance expense
Interest expense
Total finance expense
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
7.
2018
US$
2017
US$
1,990,710
(332,283)
1,098,396
813,228
399,253
3,969,304
785,715
309,364
370,396
1,465,475
1,707,500
364,182
1,843,813
293,260
51,610
237,577
363,252
4,861,194
1,387,511
(326,137)
1,108,423
-
35,942
2,205,739
422,039
-
85,844
507,883
1,822,682
359,589
1,380,086
299,809
75,792
218,136
388,663
4,544,757
107,448
23,152
130,600
29,784
98,696
128,480
-
-
622
622
8. DIVIDENDS PAID AND PROPOSED
No dividends have been paid or declared by the Company during the financial period or up to the date of this report.
BrainChip Holdings Ltd
2018 Annual Report
48
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
9.
INCOME TAX
(a) Major components of income tax expense
Consolidated income statement
Current income tax:
Current income tax expense/(benefit)
Tax losses previously not recognised
Deferred tax asset not recognised
Income tax (benefit)/expense reported in the statement of
comprehensive income
(b) Amounts charged or credited directly to equity
Current income tax related to items charged or credited directly to equity
Deferred income tax related to items charged or credited directly to equity
Income tax (benefit)/expense reported in equity
A reconciliation between tax expense and the product of accounting
loss before income tax multiplied by the Group's applicable income
tax rate is as follows:
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 profit or loss and
other 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
Deferred State Tax deduction
Other
Not recognised
Net deferred tax liability
Deferred tax income/ (expense)
l
y
n
o
e
s
u
(c)
l
a
n
o
s
r
e
p
r
o
F
2018
US$
2017
US$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
452,887
(985,749)
(567,597)
5,644,336
1,883,943
(862,944)
(272,245)
3,039,100
-
0%
-
0%
Consolidated Statement of
financial position
2018
68,855
7,249,575
2017
46,734
4,381,352
-
-
4,822,847
35,986
(254,391)
14,281
(11,937,153)
1,688,584
26,926
(254,391)
403,612
(6,292,817)
-
-
-
-
Accounting loss before tax
16,523,186
13,774,013
At statutory income tax rate of 27.5% (2017: 27.5%)
(4,543,877)
(3,787,854)
(e) Unrecognised losses
At 31 December 2018, there are unrecognised losses of $7,249,575 (tax effected), for the Group (2017:
$4,381,352 (tax effected)).
BrainChip Holdings Ltd
2018 Annual Report
49
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
10. LOSS PER SHARE
Net loss attributable to ordinary shareholders for basic and diluted earnings
per share
2018
US$
2017
US$
(16,523,186)
(13,774,013)
US cents per
share
US cents per
share
Basic and diluted loss per share
(1.64)
(1.59)
Number
Number
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
1,006,859,664
-
863,653,555
-
1,006,859,664
863,653,555
(1) At 31 December 2018, the Company had on issue 162,950,000 (2017: 190,550,000) 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 2018, the Company had on issue 8,500,000 (2017: 56,500,000) performance rights and
3,850,000 (2017: Nil) restricted stock units that are excluded from the calculation of diluted loss per share for
the current period. The performance rights and restricted stock units 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 to 31 December 2017 by a
factor of approximately 1.02 as a result of a rights issue to institutional and sophisticated investors in November
2017.
11. CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Term deposits
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:
r
o
F
Depreciation
Amortisation
Write off of intangible assets
Share-based payments
Other income classified as investing
Foreign exchange (gain)/loss
Working capital adjustments:
Decrease in trade and other receivables
Increase in inventory
(Increase)/decrease in prepayments
Decrease/(increase) in other assets
Decrease in financial liabilities
(Decrease)/Increase in defined benefits plan
Increase in employee provisions
Decrease in trade and other payables
Net cash flows used in operating activities
2018
US$
2017
US$
5,505,494
2,037,832
7,543,326
16,049,330
-
16,049,330
(16,523,186)
(13,774,013)
51,610
1,098,396
813,228
7,305,802
-
(10,991)
126,581
(301)
(34,924)
2,561
(9,469)
(32,084)
20,832
(11,259)
(7,203,204)
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)
BrainChip Holdings Ltd
2018 Annual Report
50
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
12. TRADE AND OTHER RECEIVABLES
l
y
n
o
Current
Trade receivables
Research tax credit (1)
Other receivables
(1) BrainChip SAS recognised research credits from the French regulatory
authorities as receivable according to the French tax regulations.
Trade receivables are non-interest bearing and generally on terms of 30-90
days. As at year end, there is no allowance for expected credit loss recorded.
13. OTHER ASSETS
Current
Grants receivable from third parties (1)
Prepayments
Interest receivable
(1) Other current assets are grants to be received from various French
government agencies.
14. PLANT & EQUIPMENT
Plant and equipment
Plant and equipment – Gross carrying value at cost
Accumulated depreciation
Net carrying amount
Movement in plant and equipment
At 1 January net of accumulated depreciation
Additions
Depreciation charge for the year
Net foreign exchange movements
At 31 December net of accumulated depreciation
e
s
u
l
a
n
o
s
r
e
p
2018
US$
2017
US$
114,795
336,582
9,752
461,129
81,138
269,537
8,300
358,975
-
126,504
13,285
139,789
236,081
91,580
5,939
333,600
385,299
(158,843)
226,456
301,846
(109,539)
192,307
192,307
86,738
(51,610)
(979)
226,456
140,209
125,119
(75,792)
2,771
192,307
r
o
F
BrainChip Holdings Ltd
2018 Annual Report
51
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
15.
INTANGIBLE ASSETS AND GOODWILL
Patents and licenses (a)
Capitalised research & development costs (b)
Goodwill
(a) Patents and licenses with finite useful life – at cost
Accumulated amortisation
Movement in patents
At 1 January
Additions
Amortisation
Net foreign exchange movements
At 31 December
(b) Capitalised research & development costs
Accumulated amortisation
Movement in capitalised research & development costs
At 1 January
Additions
Amortisation
Write off
Net foreign exchange movements
At 31 December
2018
US$
2017
US$
829,664
-
905,458
1,735,122
773,437
1,135,132
905,458
2,814,027
970,212
(140,548)
829,664
773,437
130,556
(73,397)
(932)
829,664
-
-
-
1,135,132
686,189
(1,024,999)
(813,228)
16,906
-
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
The uncertainty of revenue has resulted in the write off of carry forward capitalised research & development costs
related to BrainChip Studio at 31 December 2018. All other projects were fully amortised by the end of the year
in line with the Group’s amortisation policy.
As at 31 December 2018, 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 as at 31 December 2018, the market capitalisation of the Group was above the book value
of its equity, which shows that the estimated recoverable amount was sufficient to recover the consolidated net
assets at 31 December 2018. Assumptions used within the Group’s fair value less cost of disposal determination
included the Group’s share price of A$0.105 at 31 December 2018 and the foreign exchange rate of $0.70
AUD/USD at 31 December 2018.
As at 31 December 2018, the Group considered indicators of impairment of these assets and determined that
there was none other than those noted above.
16. TRADE AND OTHER PAYABLES
Current
Trade creditors and accruals
VAT and other taxes payable to foreign authorities
17. EMPLOYEE BENEFITS LIABILITIES
Provision for annual leave
The nature of the provision is described in note 2(o).
2018
US$
2017
US$
676,479
47,062
723,541
1,119,627
40,710
1,160,337
228,962
228,962
208,129
208,129
BrainChip Holdings Ltd
2018 Annual Report
52
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
18. FINANCIAL LIABILITIES
Current
Advances from third parties (a)
Non-Current
Advances from third parties (b)
(a) Reconciliation of financial liabilities – current
Opening balance
Repayment of advance from third parties
Interest charged on advances
Foreign exchange movements
(b) Reconciliation of financial liabilities – non-current (1)
Opening balance
Repayment of advances from third parties
Fair value remeasurement
Foreign exchange movements
19. OTHER LIABILITIES
Deferred income in relation to research & development projects (1)
(a) Reconciliation of other liabilities
Opening balance
Grant revenue released to the statement of profit and loss
Foreign exchange movement
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
2018
US$
2017
US$
-
-
-
-
226,873
226,873
236,342
236,342
-
-
-
-
-
236,342
(2,092)
3,292
(10,669)
226,873
220,562
(239,016)
2,779
15,675
-
277,232
(72,600)
1,284
30,426
236,342
2018
US$
2017
US$
-
-
-
-
-
-
287,507
(309,943)
22,436
-
(i) 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.
(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.
r
o
F
BrainChip Holdings Ltd
2018 Annual Report
53
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
20. DEFINED BENEFIT PLAN
2018
US$
2017
US$
Net employee defined benefit liabilities
106,951
139,036
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.
(a) Movement in net defined benefit liability
At 1 January
Included in profit or loss
Current service costs
Finance costs
Included in OCI
Actuarial losses/(gains)
Foreign exchange movement
At 31 December
(b) Defined benefit obligation
2018
US$
2017
US$
139,036
108,123
14,973
1,892
(42,674)
(6,276)
106,951
12,833
1,901
1,370
14,809
139,036
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)
1.6%
1.5%
45.0%
1.0%
1.3%
1.5%
45.0%
1.0%
Assumptions regarding future mortality have been based on published statistics and morality tables provided by
the French government.
(c) 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$
13,330
(10,821)
(10,522)
13,387
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
2018 Annual Report
54
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
21. CONTRIBUTED EQUITY
2018
US$
2017
US$
(a) Ordinary Shares
Issued and fully paid
55,143,789
53,570,901
(b) Movements in ordinary shares on issue
At 1 January 2017
Issue of shares pursuant to private placement (1)
Conversion of Performance Rights
Issue of shares pursuant to private placement (2)
Conversion of Performance Rights
Share issue costs incurred
At 31 December 2017
At 1 January 2018
Issue of shares as remuneration to Mr Louis DiNardo (3)
Issue of shares to the Trustee of the BrainChip LTIP – refer Note 21(c)
Conversion of Performance Rights – refer Note 21(e)
Conversion of Performance Rights – refer Note 21(e)
Issue of shares to third party for services performed (5)
Share issue costs incurred
At 31 December 2018
Number
808,200,426
40,000,000
1,000,000
119,380,063
500,000
-
US$
34,013,023
4,597,620
-
16,290,453
-
(1,330,195)
969,080,489
53,570,901
969,080,489
15,000,000
10,000,000
49,500,000
6,000,000
303,030
-
53,570,901
1,563,870
-
-
-
35,578
(26,560)
1,049,883,519
55,143,789
(1) 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.
(2) 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.
(3) On 8 June 2018, 15,000,000 shares were issued to Mr Louis DiNardo. The shares were fair valued based on
the share price of A$0.14 (US$0.104) on 10 May 2018, being the date of approval by shareholders at the
AGM. The value of the shares issued are reported as a share-based payment expense.
(4) On 9 October 2018, 10,000,000 shares were issued to the Trustee of the BrainChip Long Term Incentive Plan.
(5) On 21 December 2018, 303,030 shares were issued to a third party for services performed over a 12 month
period commencing 18 August 2018.
(c) Treasury shares
Issued and fully paid
Movements in Treasury shares
At 1 January
Shares issued to Trust from BrainChip Holdings Ltd (1)
Shares Issued on conversion of Performance Rights - refer Note 21(e)(2)
Shares Issued on conversion of Performance Rights - refer Note 21(e)(5)
At 31 December
2018
Number
2017
Number
1,500,000
-
10,000,000
(1,000,000)
(7,500,000)
1,500,000
-
-
-
-
-
-
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
(1) The BrainChip Long Term Incentive Plan Trust was established on 2 August 2018 and Solium Nominees
(Australia) Pty Limited was appointed as the Plan Trustee. On 9 October 2018, 10,000,000 shares were
issued to the Trust at no value in the name of the Trustee to be held for the conversion of vested options,
performance rights and restricted stock units of the LTIP.
BrainChip Holdings Ltd
2018 Annual Report
55
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
21. CONTRIBUTED EQUITY (Continued)
(d) 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.
(e) Performance Rights movements
Class B Performance Rights (1) (2)
Class C Performance Rights (1) (3)
Class D Performance Rights (1) (4)
Class E Performance Rights (5)
Opening
balance
1 January
2018
1,000,000
6,000,000
49,500,000
-
56,500,000
Converted
Allocated
(1,000,000)
(6,000,000)
(49,500,000)
(7,500,000)
1,000,000
-
-
15,000,000
Closing
balance
31 December
2018
1,000,000
-
-
7,500,000
(64,000,000)
16,000,000
8,500,000
(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 and were
issued to employees by 30 June 2018.
(2) 1,000,000 Class B Performance Rights were converted to shares in BrainChip Holdings held by the Trustee
of the BrainChip LTIP Trust on 15 October 2018, the milestones of which had been previously attained.
(3) 6,000,000 Class C Performance Rights were converted to shares in BrainChip Holdings on 18 October 2018,
the milestones of which had been previously attained.
(4) 49,500,000 Class D Performance Rights were converted to shares in BrainChip Holdings on 9 October 2018,
after approval by the Board that the Milestone had been achieved. Of the total converted, 46,500,000 had
been held by shareholders and 3,000,000 had been issued to employees from the unallocated pool held at
31 December 2015.
(5) The Board approved the issue of 15,000,000 Performance Rights which were issued to Mr Louis DiNardo on
8 June 2018 after approval was provided by shareholders at the AGM on 10 May 2018. 7,500,000
Performance Rights were converted to shares held by the Trustee of the BrainChip LTIP Trust on 8 December
2018 after achievement of the vesting condition.
The performance rights have the following milestones attached to them:
(cid:120) 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);
(cid:120) 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
(cid:120) 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$500,000 (Milestone 4).
(cid:120) Class E Performance Rights: 7,500,000 performance rights vested on 8 December 2018 and 7,500,000 will
vest on 8 June 2019 subject to continued service being provided.
BrainChip Holdings Ltd
2018 Annual Report
56
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
21. CONTRIBUTED EQUITY (Continued)
(f) Options on issue
l
y
n
o
Unissued ordinary shares of the Company under option at 31 December 2018 are as follows:
Type
Expiry Date
Exercise
Price (US$)
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 24(c)
10/09/2019
0.112
6,250,000
31/05/2020
0.171
20,000,000
Various
Various
136,700,000
Total
162,950,000
The above options are exercisable at any time on or before the expiry date.
(1) 6,250,000 unlisted options exercisable at A$0.157 cents per share before 10 September 2019 were issued
to a BrainChip Inc. shareholder as part of the consideration for the Acquisition of BrainChip Holdings on 10
September 2015.
(2) 20,000,000 options were issued as free attaching options to shares issued to sophisticated investors under
a Placement on 5 June 2017.
e
s
u
22. RESERVES
Foreign
currency
reserve
Share-
based
payment
reserve
Other
equity
reserve
Total
US$
US$
5,414
3,792,094
-
6,941,360
-
76,142
81,556 10,733,454
US$
247,872
-
-
US$
4,045,380
6,941,360
76,142
247,872 11,062,882
81,556 10,733,454
5,730,073
-
(1,030)
-
80,526 16,463,527
247,872 11,062,882
5,730,073
(1,030)
247,872 16,791,925
-
-
CONSOLIDATED
At 1 January 2017
Share-based payments
Foreign translation of foreign operations
At 31 December 2017
At 1 January 2018
Share-based payments
Foreign translation of foreign operations
At 31 December 2018
Nature and purpose of reserves
Share-based payment reserve
The share-based payment reserve is used to record the value of share-based payments
provided to Directors, employees and third parties as part of their remuneration.
Other equity reserve
This reserve arises from the issue of shares in BrainChip Holdings 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.
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2018 Annual Report
57
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
23. ACCUMULATED LOSSES
l
y
n
o
e
s
u
At 1 January
Re-measurement gains /(losses) on defined benefit plans
Net loss in current period attributable to members of the Company
At 31 December
24. SHARE-BASED PAYMENTS
(a) Recognised share-based payment expenses
Performance Rights issued to employees
Options issued to directors, employees and contractors
Restricted stock units issued to employees
Recognised in share-based payment reserve
Shares issued to director and consultants
Total share-based payment expense
2018
US$
2017
US$
(46,567,313)
34,094
(16,523,186)
(32,791,785)
(1,515)
(13,774,013)
(63,056,405)
(46,567,313)
2018
US$
2017
US$
1,438,285
4,190,478
101,310
559,516
6,381,844
-
5,730,073
6,941,360
1,575,729
7,305,802
-
6,941,360
l
a
n
o
s
r
e
p
r
o
F
The 2018 Long Term Incentive Plan (LTIP) was adopted by shareholders in May 2018. The Company has
Performance Rights and Options that were issued under the plans current at the time of offer (Performance
Rights Plan, Long Term Incentive Plan and Directors and Officers Option Plan) however all new equity awards
post May 2018 have been issued under the 2018 LTIP.
2018 and 2015 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 equity instruments, will provide selected employees and consultants with opportunity to
participate in the future growth of the Company. Equity instruments 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 equity instruments which are issued under the LTIP.
Performance Rights Plan
Awards under the PRP were previously 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 were 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 that remain unvested 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 vesting are at the absolute discretion of the Board with the terms of
any grants to Directors approved by Shareholders. 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.
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. 11,000,000
options issued under the DOOP in December 2015 lapsed during 2018.
BrainChip Holdings Ltd
2018 Annual Report
58
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
24. SHARE-BASED PAYMENTS (Continued)
(b) Performance Rights issued to employees
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
The following table summarises the movement in Performance Rights issued to employees:
Class B Performance Rights
Class D Performance Rights
Class E Performance Rights
(1) Refer Note 21(e)
Opening
balance
1 January
2018
Issued
during the
year (1)
Converted
during the
year
1,000,000
3,000,000
-
4,000,000
1,000,000
-
15,000,000
16,000,000
(1,000,000)
(3,000,000)
(7,500,000)
(11,500,000)
Closing
balance
31
December
2018
1,000,000
-
7,500,000
8,500,000
(c) Summary of options granted under the Long Term Incentive Plan and Directors & Officers Option Plan
Type
Grant Date
Expiry Date
Unissued ordinary shares of the Company under option at 31 December 2018 are as follows:
Number of
options
5,300,000
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
500,000
5,300,000
400,000
200,000
5,100,000
2,000,000
1,300,000
500,000
1,000,000
600,000
500,000
400,000
136,700,000
Unlisted (1)
Unlisted (1)
Unlisted (2)
Unlisted (1)
Unlisted (1)
Unlisted (3)
Unlisted (1)
Unlisted (4)
Unlisted (4)
Unlisted (5)
Unlisted (5)
Unlisted (5)
Unlisted (6)
Unlisted (6)
Unlisted (6)
Unlisted (6)
Unlisted (7)
Unlisted (7)
Unlisted (7)
Unlisted (7)
Unlisted (8)
Unlisted (8)
Unlisted (8)
Unlisted (8)
Unlisted (1)
Unlisted (1)
Unlisted (1)
Unlisted (1)
Unlisted (9)
Unlisted (10)
Unlisted (1)
Unlisted (1)
Unlisted (1)
Unlisted (1)
Unlisted (1)
Unlisted (1)
Total
Exercise
Price (US$)
0.172
0.165
0.172
0.113
0.205
0.137
0.242
0.185
0.185
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
0.136
0.141
0.148
0.140
0.147
0.147
0.171
0.136
0.117
0.105
0.107
0.103
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
28/11/2017
28/11/2017
28/11/2017
1/12/2017
5/03/2018
5/03/2018
5/03/2018
30/04/2018
30/04/2018
16/06/2018
12/07/2018
19/11/2018
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
14/12/2022
14/12/2022
14/12/2022
14/12/2022
13/03/2028
13/03/2028
13/03/2028
08/06/2028
08/06/2028
16/06/2028
17/07/2028
5/10/2028
Vested at
year end
3,975,000
750,000
16, 750,000
2,000,000
1,000,000
7,000,000
25,000
3,000,000
3,000,000
2,000,000
1,500,000
1,500,000
2,000,000
-
-
-
1,750,000
-
-
-
2,000,000
-
-
-
125,000
1,325,000
100,000
50,000
-
1,000,000
-
-
-
-
-
-
50,850,000
BrainChip Holdings Ltd
2018 Annual Report
59
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
24. SHARE-BASED PAYMENTS (Continued)
(c) Summary of options granted under the Long Term Incentive Plan and Directors & Officers Option Plan
(continued)
(1) Options issued to employees and consultants which vest equally over a 4-year period on each anniversary of
the grant date.
(2) 50,000,000 unlisted options were issued to the CEO, Lou DiNardo, on 30 September 2016 with an expiry date
of 30 September 2021. 23,000,000 options vest equally over a 4-year period. 27,000,000 options vest equally
over a 4-year period after attainment of specific performance criteria.
(3) 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.
(4) 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% vested on 31 December 2017 as long as continuous service
is provided and expire 31 December 2022.
(5) 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.
(6) 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.
(7) 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.
(8) 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.
(9) 5,100,000 unlisted options issued to employees on 13 March 2018 and expiring on 13 March 2028 with the
following vesting terms:
- 1,200,000 vest 5 July 2021;
- 800,000 vest 7 October 2021;
- 650,000 vest 15 January 2020;
- 1,500,000 vest 9 December 2019;
- 800,000 vest 15 January 2021;
- 150,000 vesting equally over a 4-year period from 5 March 2018.
(10) 2,000,000 unlisted options issued to consultants on 13 March 2018, expiring on 13 March 2028, with the
following vesting terms: 25% on 30 April 2018, 25% on 30 September 2018 and 50% on 13 February 2019.
The above options are exercisable after vesting and at any time on or before the expiry date.
(d) Options forfeited, lapsed and cancelled
The following options were forfeited during the year due to cessation of employment:
(cid:120) 20,750,000 unlisted options granted to an employee on 10 August 2017;
(cid:120) 500,000 unlisted options granted to an employee on 28 November 2017.
The following options lapsed during the year during the year:
(cid:120) 6,250,000 unlisted options granted to an employee on 10 August 2017;
(cid:120) 11,000,000 unlisted options issued to directors on 4 December 2015.
The following options expired during the year during the year:
(cid:120) 500,000 unlisted options granted to a consultant on 21 December 2015.
BrainChip Holdings Ltd
2018 Annual Report
60
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
24. 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
Cancelled during the year
Lapsed during the year
Outstanding at 31 December
Exercisable (vested and unrestricted)
at 31 December
2018
Number
164,300,000
11,400,000
(21,250,000)
(500,000)
(17,250,000)
136,700,000
50,850,000
2018
WAEP
(US$)
0.161
0.142
(0.128)
(0.215)
(0.150)
0.165
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
The weighted average remaining contractual life for the share options outstanding at 31 December 2018 is 3.83
years (2017: 4.40 years).
The weighted average fair value of options granted during the year was US$0.108 (2017: US$0.11)
The range of exercise prices for options outstanding at the end of the year was US$0.105 to US$0.258 (2017:
US$0.108 to US$0.258)
l
y
n
o
e
s
u
(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 2018:
Number of
options
5,100,000
1,300,000
500,000
600,000
500,000
400,000
2,000,000
1,000,000
Fair value at
measurement
date
$US
0.124
0.123
0.097
0.094
0.089
0.074
0.124
0.098
Share price
at Grant
Date
US$
0.140
0.140
0.110
0.105
0.089
0.074
0.140
0.110
Exercise
price
US$
0.147
0.171
0.136
0.105
0.107
0.103
0.147
0.117
Expected
volatility
(%)
97.3
97.3
97.3
97.3
97.3
97.3
97.3
97.3
Risk-free
interest rate
(%)
2.75
2.75
2.77
2.67
2.64
2.64
2.75
2.77
Expected
life of
options
in years
10.0
10.0
10.1
10.0
10.0
10.0
10.0
10.1
Employee
Consultants
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2018 Annual Report
61
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
24. SHARE-BASED PAYMENTS (Continued)
Options pricing model (continued)
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.
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
(g) Performance rights pricing model - 2018
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 2018:
r
o
F
Employee
Number of
performance rights
1,000,000
15,000,000
16,000,000
Grant date
8/06/2018
10/05/2018
Fair value at
grant date
$US
0.110
0.104
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
9/08/2017
5/03/2017
5/03/2017
Fair value at
grant date
$US
0.131
0.209
0.209
BrainChip Holdings Ltd
2018 Annual Report
62
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
24.
SHARE-BASED PAYMENTS (Continued)
(h) Restricted Stock Units issued during the year as share-based payments
The Company granted the following Restricted Stock Units to employees during 2018 (2017: Nil). The fair
value of the Restricted Stock Unit granted is estimated using the share price on the date of the grant.
Employee
Number of RSUs granted
2,950,000
50,000
300,000
200,000
150,000
200,000
3,850,000
Grant date
8/06/2018
17/7/2018
6/8/2018
3/9/2018
8/10/2018
19/11/2018
Fair value at grant date
$US
0.103
0.107
0.089
0.089
0.089
0.088
25. COMMITMENTS
Operating lease commitments - Company as lessee
Office lease
Up to one year
Two to five years
More than five years
2018
US$
2017
US$
177,388
-
-
177,388
261,827
144,001
-
405,828
26. CONTINGENT ASSETS AND LIABILITIES
The Group had no contingent assets or liabilities at 31 December 2018 (31 December 2017: $Nil).
27. EVENTS AFTER THE BALANCE SHEET DATE
In January 2019, the Company partnered with SoftCryptum to deliver BrainChip Studio’s AI-powered video
analytics to government agencies in European countries.
On 11 February 2019, Mr Stephe Wilks was appointed as Non-Executive Director and Chair of the Board of
Directors.
In February 2019, the Company expanded the distribution network of BrainChip Studio in Europe with the
engagement of Novo Technologies in Greece and Cypress.
In March 2019, the Company appointed Roger Levinson as Chief Operating Officer. Mr Levinson will be
responsible for all aspects of operations including ASIC manufacturing which includes wafer fabrication, product
engineering, assembly and test operations, and customer service.
In March 2019, the Company appointed Ken Scarince as Vice President of Finance, Controller. Mr Scarince will
be responsible for all aspects of finance, including general accounting, tax, audit, treasury, compliance and
financial planning. Mr Scarince replaces the Company’s former CFO who left in August 2018.
In March 2019, the Company accepted the resignation of Julie H. Stein as Non-executive director. The resignation
is effective 1 April 2019. Ms Stein served on the board since November 2016.
In March 2019, the Company executed a Memorandum of Understanding with Socionext Americas to develop
and manufacture the Akida Neuromorphic System-on-Chip (NSoC). The companies will negotiate a definitive
agreement to deliver a physical Akida device. The agreement is expected to be finalised within the coming months
while the parties begin preliminary work.
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 Group, the results of those operations, or the state of affairs of the
Group in subsequent financial years.
BrainChip Holdings Ltd
2018 Annual Report
63
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
28. AUDITOR’S REMUNERATION
l
y
n
o
Amounts received or due to be receivable by Ernst & Young (Australia) for:
An audit or review of the financial reports of the entity
Amounts received or due and receivable by non-Ernst & Young audit firms
for:
An audit or review of the financial report of the entity
2018
US$
2017
US$
87,370
87,370
102,560
102,560
10,255
10,255
17,455
17,455
e
s
u
l
a
n
o
s
r
e
p
r
o
F
29. OPERATING SEGMENTS
For management purposes, the Group is organised into one operating segment, being the technological
development of designs that can be licensed to OEM (Original Equipment Manufacturer) 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 BrainChip Inc., located in the USA, and BrainChip SAS, its France
based subsidiary.
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, Middle East & Asia (EMEA)
Revenue from continuing operations
2018
US$
2017
US$
722,586
225,403
947,989
24,565
244,931
269,496
Customers representing more than 10% of revenues in the current year amounted to $712,500 from a North
American customer comprising license revenue of $200,000 and development service revenue of $512,500.
Development service revenue includes (i) further development of existing licensed technology and/or (ii)
engineering services for existing licensed technology.
In the prior year, customers representing more than 10% of revenues totaled $194,728 of development service
revenue from European customers, comprising Customer A: $89,807; Customer B $76,529 and Customer C
$28,392.
Non-current assets
North America
EMEA
2018
US$
1,018,340
982,188
2,000,528
2017
US$
1,117,018
1,930,828
3,047,846
BrainChip Holdings Ltd
2018 Annual Report
64
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
30. DISCONTINUED OPERATION
Sale of ORRI and dissolution of subsidiaries 2017 (a)
Net gain/(loss) from discontinued operations after tax
-
-
28,372
28,372
2018
US$
2017
US$
(a) Sale of ORRI and dissolution of subsidiaries 2017:
During 2017, BrainChip dissolved three wholly owned subsidiaries 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
2018
US$
2017
US$
-
-
-
-
-
-
-
-
-
-
-
-
-
5,220
32,289
(9,137)
28,372
-
28,372
-
-
28,372
28,372
(3,917)
32,289
28,372
BrainChip Holdings Ltd
2018 Annual Report
65
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
31. RELATED PARTY DISCLOSURES
(a) Ultimate parent
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
The ultimate legal Australian parent entity and the ultimate legal parent entity of the Group is BrainChip
Holdings Ltd.
(b) 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)
Subsidiary companies of BrainChip Inc.
BrainChip SAS (formerly Spikenet Technology SAS) (2)
Country of
incorporation
Beneficial interest
2018
2017
USA
100%
100%
France
100%
100%
(1) BrainChip Holdings Ltd holds 100% of the shares of BrainChip Inc. effective from 10 September 2015.
(2) BrainChip SAS was acquired by BrainChip Holdings Ltd 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.
(c) Other entities
The consolidated financial statements include the following entities controlled by BrainChip Holdings Ltd:
Beneficial interest
2017
-
Name
BrainChip Long Term Incentive Plan Trust (1)
Country of
registration
Australia
2018
-
(1) BrainChip Holdings Ltd executed the BrainChip Long Term Incentive Plan Trust on 2 August 2018 and
appointed Solium Nominees (Australia) Pty Ltd as the Plan Trustee.
(d) Key Management Personnel compensation
Total remuneration paid to KMP of the Group during the year are as follows:
Short-term employee benefits (1)
Short-term employee benefits capitalised to Intangible assets
Termination benefit (2)
Share-based payment
2018
US$
1,986,750
-
-
5,917,796
7,904,546
2017
US$
1,936,098
162,573
180,895
5,059,626
7,339,192
(1)
(2)
In the prior year, Mr. Bolto and Ms. Stein each had a consulting agreement with the Company for ad hoc
services as requested by the CEO from time to time effective from 1 December 2016 to 31 August 2017 at
a rate of A$10,000 per month during active assignments. 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.
The agreements were terminated effective from 31 August 2017. Fees paid during the prior year to Mr. Bolto
totalled $38,462 and to Ms. Stein totalled $61,540.
In the prior year, accrued termination salary payable as at 31 December 2017 to Mr DoDuy, a KMP at the
time of his resignation, totalled $51,800.
r
o
F
Related party transactions with KMPs of the Group are as follows:
There were no related party transactions with KMPs of the Group.
(e) Transactions with other related parties
There were no transactions with other related parties.
(f) Loans to/from related parties
There were no outstanding loans arising to or from related parties (31December 2017: $Nil).
BrainChip Holdings Ltd
2018 Annual Report
66
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
32. PARENT ENTITY INFORMATION
Information relating to BrainChip Holdings Ltd
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Issued capital
Other contributed equity
Accumulated losses
Share-based payment reserve
Option premium reserve
Foreign currency translation reserve
Other reserves
Total shareholders’ equity
Net loss of the parent entity (1)
Total comprehensive loss of the parent entity
2018
US$
2017
US$
318,207
8,879,309
9,197,516
(87,099)
-
(87,099)
9,110,417
80,383,215
2,025,617
(109,836,277)
36,308,159
480,731
-
(251,028)
9,110,417
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
15,239,650
15,239,650
14,102,256
14,102,256
(1) At the reporting date investments and loans receivable from controlled entities net of provision for impairment
totalled $8,879,309 (2017: 17,350,532). Impairment expense of $7,742,170 (2017: $6,411,651) was
recognised for the year ended 31 December 2018.
Guarantees entered into by the parent entity in relation to the debts of its subsidiaries
Nil
Contingent liabilities of the parent entity
Nil
Contractual commitments by the parent entity for the acquisition of property, plant or equipment
Nil
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2018 Annual Report
67
Directors’ Declaration
In accordance with a resolution of the Directors of BrainChip Holdings Ltd, I state that:
In the opinion of the Directors:
l
y
n
o
e
s
u
(a)
the financial statements and notes of the Company and of the Group are in accordance with the
Corporations Act 2001, including:
(i)
(ii)
giving a true and fair view of the Company's and the Group's financial position as at 31
December 2018 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
2018.
(b)
(c)
(d)
On behalf of the Board.
On beheheheheheheheheheheheheheeehe alf ofofofofofofofofofofofofofoffoff the Board.
l
Stephe Wilks
StSSSSSSSSSSSSS ephe Wilksksksksksksksksksksksksksksksk
Chair
ChChChChChChChChChChChChCChC air
Sydney, Australia, 27 March 2019
Sydndndndndndndndndndndndndnddd eeeeeyeyeyeyeyeyeyeey, AAAAAAAAAAuAAAAAA stttttttttttttttrrrrarrrrrrrrrrrrr lia, 27 March 2
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2018 Annual Report
68
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
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
Independent auditor's report to the members of BrainChip Holdings Ltd
Report on the audit of the financial report
Opinion
We have audited the financial report of BrainChip Holdings Ltd (the Company) and its subsidiaries
(collectively the Group), which comprises the consolidated statement of financial position as at
31 December 2018, 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 2018 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.
Material uncertainty related to going concern
We draw attention to Note 2(a) Going Concern in the financial report which describes the principal
conditions that raise doubt about the consolidated entity’s ability to continue as a going concern. These
events or conditions indicate a material uncertainty exists that may cast significant doubt on the Group’s
ability to continue as a going concern. Our opinion is not modified in respect of this matter.
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. In addition to the matter described in the Material Uncertainty Related to Going
Concern section, we have determined the matter described below to be the key audit matter to be
communicated in our report. For the matter below, our description of how our audit addressed the matter
is provided in that context.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
PT:CT:BRN:036
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
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 this matter. Accordingly, our audit included
the performance of procedures designed to respond to our assessment of the risks of material
misstatement of the financial report. The results of our audit procedures, including the procedures
performed to address the matter below, provide the basis for our audit opinion on the accompanying
financial report.
Share-based payment
Why significant
How our audit addressed the key audit matter
As disclosed in Note 24 to the financial
statements, the Group has awarded significant
share-based payment to employees, directors
and consultants during the year, contributing to
a total share-based payment expense of
approximately US$7.3 million.
The valuation of share-based payment is
complex and involves the use of subjective
assumptions that have a material effect on the
financial statements. As such this matter was
determined to be a key audit matter.
As part of our audit procedures, we assessed the
Group’s share based payment expense calculations
to determine whether the balances were calculated in
accordance with Australian Accounting Standards.
We involved our valuation specialists to assess the
Group’s calculation of the fair value of share-based
payment issued during the year, including the key
assumptions used.
We also assessed the adequacy of the presentation
and disclosures included in Note 24 to the financial
statements.
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 2018 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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
PT:CT:BRN:036
l
y
n
o
e
s
u
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:
►
►
►
►
l
a
n
o
s
r
e
p
r
o
F
►
►
Identify and assess the risks of material misstatement of the financial report, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the 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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
PT:CT:BRN:036
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 2018.
In our opinion, the Remuneration Report of BrainChip Holdings Ltd for the year ended
31 December 2018, complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration
Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the Remuneration Report, based on our audit conducted in accordance with Australian
Auditing Standards.
Ernst & Young
Philip Teale
Partner
Perth
27 March 2019
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
PT:CT:BRN:036
Additional Shareholder Information as at 28 February 2019
(a) Top 20 Quoted Shareholders
MR PETER AJ VAN DER MADE
MR ROBERT F MITRO
MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED (1)
METALS X LIMITED
NERONA PTE LTD
MR ANIL SHAMRAO MANKAR & MRS MEENA ANIL MANKAR
(1)
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
MR PAUL GLENDON HUNTER
MS CRISTINA M MITRO
MS VELIA MITRO
CROSSFIELD INTECH NOMINEES PTY LTD
MR ADAM OSSEIRAN + MRS REBECCA OSSEIRAN-MOISSON
J P MORGAN NOMINEES AUSTRALIA LIMITED
MR LOUIS DINARDO
AJAVA HOLDINGS PTY LTD
ZERO NOMINEES PTY LTD
SOLIUM NOMINEES (AUSTRALIA) PTY LTD
BNP PARIBAS NOMINEES PTY LTD
MR JEFFREY BRIAN WALTON
%
Number of
shares
16.79
11.45
176,305,508
120,202,500
9.48
5.79
2.36
2.17
1.65
1.42
0.95
0.95
0.95
0.89
0.89
0.73
0.71
0.56
0.52
0.50
0.43
0.39
99,567,164
60,747,531
24,759,500
22,750,000
17,330,225
14,904,478
10,000,000
10,000,000
10,000,000
9,338,500
9,338,500
7,686,188
7,500,000
5,860,281
5,477,265
5,253,290
4,520,837
4,100,000
Total
59.58%
625,641,767
(1) 99,135,000 fully paid ordinary shares are held by Merrill Lynch (Australia) Nominees Pty Limited on behalf of
Mr Mankar. Total holding by Mr Mankar is 121,885,000 fully paid ordinary shares.
(b)
(i) 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
148
2,752
1,803
3,822
762
Number of
shares
34,338
9,543,695
14,661,046
136,677,778
888,966,662
9,287
1,049,883,519
There are 3,652 holders with less than a marketable parcel of ordinary shares based on the Company’s closing
market price of $0.064 on 28 February 2018.
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2018 Annual Report
73
Additional Shareholder Information as at 28 February 2019
(ii) Distribution of unquoted securities
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
Option
holders
1
-
-
25
70
96
Number of
options
3,333
1,068,665
161,578,002
162,950,000
Number of
perfor-
mance
rights
holders
Number of
perform-
ance
rights
Number of
restricted
stock unit
holders
-
-
-
-
5
5
8,500,000
8,500,000
-
-
-
4
11
15
Number of
restricted
stock units
-
-
-
275,000
3,575,000
3,850,000
(c) Substantial Shareholders
MR PETER AJ VAN DER MADE
MR ROBERT F MITRO
MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED (1)
METALS X LIMITED
ANIL SHAMRAO MANKAR AND MEENA ANIL MANKAR AS
TRUSTEE OF THE MANKAR FAMILY TRUST (1)
%
Number of
shares
16.79
11.45
9.48
5.79
2.17
176,305,508
120,202,500
99,567,164
60,747,531
22,750,000
(1) 99,135,000 fully paid ordinary shares are held by Merrill Lynch (Australia) Nominees Pty Limited on
behalf of Mr Mankar. Total holding by Mr Mankar is 121,885,000 fully paid ordinary shares.
(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 voting rights. Upon exercise of the option, the holders will be holders of fully
paid ordinary shares and therefore will have voting rights as afforded to shareholders of these securities.
Performance Rights
The holders of performance rights have no voting rights. Upon vesting of the performance rights, the holders
will be holders of fully paid ordinary shares and therefore will have voting rights as afforded to shareholders of
these securities.
Restricted Stock Units
The holders of restricted stock units have no voting rights. Upon vesting of the restricted stock units, the
holders will be holders of fully paid ordinary shares and therefore will have voting rights as afforded to
shareholders of these securities.
l
y
n
o
e
s
u
l
a
n
o
s
r
e
p
r
o
F
BrainChip Holdings Ltd
2018 Annual Report
74