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BrainChip Holdings Ltd
Annual Report
2019
Corporate Directory
Board of Directors
Emmanuel T. Hernandez Non-Executive Director and Chair
Louis DiNardo
Executive Director, Chief Executive Officer
Peter van der Made
Steve Liebeskind
Executive Director
Non-Executive Director
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Company Secretary
Kim Clark
Registered Office
Level 12, 225 George St. Sydney NSW 2000 Australia
Telephone: +61 2 9290 9606
Facsimile: +61 2 9279 0664
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
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Contents
Letter from the CEO
Directors’ Report
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Auditor’s Independence Declaration
Consolidated Statement of Profit or Loss and Comprehensive Income for the Year ended 31
December 2019
Consolidated Statement of Financial Position as at 31 December 2019
Consolidated Statement of Cash Flows for the Year ended 31 December 2019
Consolidated Statement of Changes in Equity for the Year ended 31 December 2019
Notes to the Consolidated Financial Statements for the Year ended 31 December 2019
Directors’ Declaration
Independent Audit Report
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Additional Shareholder Information as at 24 January 2020
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Letter from the CEO
To our Valued Shareholders,
During the financial year ending 31 December 2019, BrainChip made significant progress in completing the
design and development of the AkidaTM System-on-Chip (SoC) and in preparing for manufacturing. The
Company is actively marketing the Akida Intellectual Property (IP), in advance of the Akida device, to leading
manufacturers of end products in the AI Edge market.
Subsequent to the end of the year, on 14 February 2020, the Company officially received an EAR99
classification for its Akida™ Neuromorphic System-on-Chip (NSoC), Akida Software Development
Environment (ADE) and related technologies from the U.S. Government. The U.S. Department of Commerce
Bureau of Industry and Security (BIS) also established Akida as not being classified as identified technology
for the purposes of the Committee on Foreign Investment (CFIUS), which could otherwise limit investment.
The BIS ruling now authorizes BrainChip to export its AI technology, without additional U.S. government
license, to non-restricted customers, including to high-growth customers in countries such as Japan, Korea,
China and Taiwan.
As the Company engages with potential customers and defines appropriate industry benchmarks, results
indicate Akida’s performance, in terms of power consumption and performance, is excellent. The table below
shows a small network for Key Word Spotting, which is a very active market, implemented at 150uW, Object
Detection at 117mW and a Complex Yolo network LiDAR in ADAS and Autonomous Vehicles at 4W.
Target customers in a variety of markets can integrate the Akida IP or device in their ASIC (Applied Specific
Integrated Circuit) or equipment to implement existing Deep Neural Networks as Event-based Convolutional
or implement a Native Spiking Network. In either architecture they enjoy a solution with ultra-low power,
optimized memory usage and low cost. They can further evolve to incremental learning at the edge without
retraining your network.
Akida is a complete network in silicon or as intellectual property with no host processor, external memory or
MAC accelerator, coupled with the ability to provide incremental learning at the edge Akida provides the
Company a competitive advantage in the high growth AI Edge race.
BrainChip is bringing to market significant and exciting technology in the form of IP and a first in a family of
devices. We have expanded our sales and marketing resources to take advantage of our first mover and
competitive advantages. 2020 is expected to be a year of validation of the Company’s technology and
penetration in the AI Edge market.
We thank our shareholders, employees and stakeholders for their support as we move our products to market.
Sincerely,
Louis DiNardo
Executive Director and Chief Executive Officer
BrainChip Holdings Ltd
25 February 2020
BrainChip Holdings Ltd
2019 Annual Report
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Directors’ Report
The directors submit their report of the consolidated entity, being BrainChip Holdings Ltd (“BrainChip
Holdings” or the “Company” or “BrainChip”) and its controlled entities (“Group” or “Consolidated Entity”), for
the year ended 31 December 2019.
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:
Emmanuel Hernandez
Louis DiNardo
Peter van der Made
Steve Liebeskind
Stephe Wilks
Adam Osseiran
Julie Stein
Non-Executive Director
Executive Director
Executive Director (appointed 29 January 2020)
Non-Executive Director
Non-Executive Director and Chair (appointed 11 February 2019, resigned
31 December 2019)
Non-Executive Director (resigned 29 January 2020)
Non-Executive Director (resigned 1 April 2019)
The name of the Company’s Secretary in office during the financial period and until the date of this report is
as follows:
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
The Company entered into a Convertible Securities Agreement (“CSA”) with CST Capital Pty Ltd (“CST”)
where the Convertible Securities were issued with a face value of US$2,850,000 less 10% interest and fees.
The undiscounted balance owing on the Convertible Securities at 31 December 2019 is US$990,000.
In July 2019 the Company issued 112,206,282 shares upon the completion of a Non-renounceable
Entitlement Offering raisin A$10,692,840.
Board changes during the year comprised the resignation of Ms Julie Stein effective 1 April 2019 and Mr
Stephe Wilks, effective 31 December 2019. Emmanuel Hernandez was appointed Interim Chair of the Board
of Directors whilst a search for a new Chair is completed.
There has been no significant changes in the state of affairs of the Group.
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 2019 (2018: 33).
DIVIDENDS
No dividends have been paid or declared by the Company during the financial year or up to the date of this
report.
BrainChip Holdings Ltd
2019 Annual Report
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Directors’ Report
REVIEW OF OPERATIONS
The financial results of the Group are presented in US dollars, unless otherwise referenced.
Overview
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The Group made a net loss after income tax for the year ended 31 December 2019 of $11,310,062 (2018:
$16,523,186).
Revenues for the year ended 31 December 2019 of $75,574 decreased 92% from $947,989 for the same
period a year ago. This decrease was largely attributable to revenues recognised in the prior year from the
GPI agreement.
Total operating expenses for the year ended 31 December 2019 of $11,004,318 increased 37% from
$17,601,775 incurred in the year ended 31 December 2018. This increase was attributable to:
1) Research & development (R&D) expenses of $4,511,410 for the current period decreased 3%, or
$149,382 from a year ago. R&D costs comprise the employee, contractor and other research and
development costs, and amortisation of capitalised R&D intangible assets. Movements in R&D costs are
summarised as follows:
a)
Increased employee expenses reflecting 12 months of the current headcount, offset by increased
credits received from government authorities;
b) Recognition of $1,066,590 of third party pre-development services of which $700,000 related to one
supplier;
c) Recognition in the prior year of the write off and amortisation of capitalised intangible assets related
to the Studio project that was no longer capitalised in accordance with the Group’s policies.
2) Selling & marketing (S&M) expenses of $1,061,595 for the current period decreased 28%, or $403,880
from a year ago. The decrease reflects management’s decision to reduce S&M headcount and related
expenditure during Q2 2019;
3) General & administrative (G&A) expenses of $3,795,200 for the current period decreased 9% overall, or
$374,506 from the same period a year ago as a result of:
a) Lower employee expenses reflecting the voluntary reduction in salaries of key management in early
2019, offset by the employment of a VP of Finance;
b) a reduction in legal and other professional consultants of $949,813 in line the cost cutting efforts
implemented during 2019;
c)
increased software expenses due to the implementation of a global accounting software system; and
d) decreased travel expenses related to business development and investor relations activities; and
4) Share-based payment expense of $1,636,113 for the current period decreased 78%, or $5,669,689 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.
The Company also recognised $519,494 of interest expense and $171,484 of fair value gains recognised
through profit and loss related to the valuation of the Convertible Securities as at 31 December 2019.
At the end of the year the Group had consolidated net assets of $9,096,350 (2018: $8,879,309), including
cash and cash equivalents of $7,622,178 (2018: $7,543,326).
Overall there has been an increase in the amount of cash outflows used in operating activities to $9,001,435
(2018: $7,203,204) as noted in the Consolidated Statement of Cash Flows, which reflects the continued
focus on attaining the business milestones and strategies of the Group.
BrainChip Holdings Ltd
2019 Annual Report
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Directors’ Report
REVIEW OF OPERATIONS (Continued)
Operational Highlights
The Company progressed the Akida device development significantly in 2019 and has scheduled wafer
fabrication, is completing package design and will schedule assembly and test operations.
The Company continues to work with Socionext Inc to complete the development of the Akida device.
Socionext will deliver finished goods to the Company and manage production control for wafer fabrication,
assembly, test, marking and packing operations.
The Company was granted U.S Patent #10,410,117 for Artificial Intelligence Dynamic Neural Network on 22
October 2019 and converted a provisional patent application related to Akida inventions to a utility patent
application with the U.S. Patent and Trademark Office. The Company is evaluating expanding its IP
protection strategy to include patent applications in China and Japan.
The Company continues to market the Akida IP in advance of device availability. Sales and marketing
resources have been added to address potential customer opportunities in the U.S., Europe and Asia with
particular focus on China which is aggressively pursuing AI Edge solutions.
The Company has reduced planned expenses for 2020 related to headcount and control of discretionary
items.
The Company announced plans to establish an innovation and research centre in Perth, Western Australia
and is evaluating the establishment of a design centre in Hyderabad, India to absorb current contracted
software development services provided.
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Trade Shows, Promotional Activities and Intellectual Property Protection:
Throughout the year the Company participated in several tradeshows, distributed promotional material and
continued the process of protecting its intellectual property, summarised as follows:
7 February 2020, the Company announced that it would present its revolutionary new breed of
neuromorphic processing IP and Device in two sessions at the tinyML Summit at the Samsung Strategy
& Innovation Center in San Jose, California February 12-13.
4 December 2019, BrainChip and Tata Consultancy Services (TCS) announced that the Company would
jointly present a demonstration featuring its Akida™ Neuromorphic System-on-Chip Technology,
recognizing and classifying hand gestures from the audience at the 33rd Conference on Neural
Information Processing Systems (NeurIPS), at the Vancouver Convention Center in Vancouver,
Canada.
1 November 2019, the Company conducted a technical workshop in Perth, Western Australia. The
workshop focused on implementations of Convolutional Neural Networks converted to Event-Based
Neural Networks and the development of Native Spiking Neural Networks.
31 October 2019, the Company announced that The Linley Group had completed an analysis of the
company’s Akida™ processor platform. The results of the analysis are available in a comprehensive
report available for download free of charge from the BrainChip web site.
22 October 2019, the Company announced that it was awarded a new patent for dynamic neural function
libraries, a key component of its AI processing chip AkidaTM. United States Patent number 10,410,117
addresses a dynamic neural network within an AI device.
24 September 2019, the Company announced that Louis DiNardo, CEO of BrainChip was accepted into
Forbes Technology Council, an invitation-only community for world-class CIOs, CTOs, and technology
executives.
11 June 2019, the Company announced the availability of the Company’s powerful neural network
converter which enables users to easily convert existing convolutional neural networks (CNNs) to an
Akida compatible event-based Spiking Neural Network (“SNN”).
28 May 2019, the Company announced the availability of the Company’s Akida Neural Processing Core
(“NPC”) as intellectual property available for licensing. This introduction marks a major development in
the Company’s market presence.
BrainChip Holdings Ltd
2019 Annual Report
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Directors’ Report
REVIEW OF OPERATIONS (Continued)
Risk
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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:
• 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.
• Risks of delays in new product introduction as the Company commercialises advanced products include:
wafer fabrication, assembly of products and test operations.
• Risks of delays in sales and marketing of new products include: recruitment and retention of the highly
skilled and experienced human resources.
• 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:
• 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.
• Risks of successful intellectual property infringement claims that may have an adverse effect on our
business, consolidated financial position, results of operations, or cash flows.
• 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.
• Risks of intellectual property protection efforts to protect proprietary rights may not be sufficient or
effective. 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.
• Risks that intellectual property held as trade secrets could be compromised by outside parties, or by our
employees.
• Risks that changes in government rules governing export of artificial intelligence-related products and
technologies may prohibit the sale of our products or licensing of our technology in certain regions of the
world.
Other key risks the Company has identified include:
• Risks of an information technology breach that may result in litigation, and potential liability.
• Risks of international operations exposure that could harm our business, operating results, and financial
condition include: changes in local political, economic, regulatory, tax, social, labour conditions and
health and safety issues, may adversely harm our business.
• 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.
• 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 2020, CST converted 136,799 Convertible Securities in exchange for reallocation of Collateral
Shares in accordance with the CSA dated 26 June 2019.
CST also elected to pay for 10,000,000 collateral shares previously sold at A$0.052 resulting in a financial
cash inflow of A$500,000 net of costs in January 2020 and 5,025,521 collateral shares previously sold at
A$0.046 resulting in a financial cash inflow of A$230,944 in February 2020.
On 29 January 2020, the Company announced the departure of Dr. Adam Osseiran from the Board of
Directors and his appointment as the Chair of the Company’s Scientific Advisory Board. On the same day,
Mr Peter van der Made was appointed to the Board of Directors as Executive Director.
On 14 February 2020, the Company officially received an EAR99 classification for its Akida™ Neuromorphic
System-on-Chip (NSoC), Akida Software Development Environment (ADE) and related technologies from
the U.S. Government. The U.S. Department of Commerce Bureau of Industry and Security (BIS) also
established Akida as not being classified as identified technology for the purposes of the Committee on
BrainChip Holdings Ltd
2019 Annual Report
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Directors’ Report
SIGNIFICANT EVENTS AFTER THE BALANCE DATE (continued)
Foreign Investment (CFIUS), which could otherwise limit investment. The BIS ruling now allows BrainChip to
export its AI technology, without additional U.S. government license, to non-restricted customers, including
to high-growth customers in countries such as Japan, Korea, China and Taiwan.
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.
As at the date of this report, 1,337,375,663 ordinary shares were on issue (1,337,375,663 at the reporting
date).
Subsequent to the end of the year 136,799 Convertible Securities were converted in exchange for
reallocation of Collateral Shares in accordance with the CSA dated 26 June 2019. No new shares were
issued as a result of the conversion.
SHARES ON ISSUE
SHARE OPTIONS
As at the date of this report, there were 195,068,976 unissued ordinary shares under options (195,068,976
at the reporting date). Refer to the remuneration report for further details of the options outstanding for Key
Management Personnel (KMP).
Option holders do not have any right, by virtue of the option, to participate in any share issue of the Company
or any related body corporate.
No options were exercised during the financial year and to the date of this report.
PERFORMANCE RIGHTS
No Performance Rights were on issue at the date of this report and at the reporting date.
During the period 7,500,000 Performance Rights previously issued to Mr DiNardo were cancelled in
accordance with the resolution of shareholders at the Annual General Meeting on 30 May 2019.
RESTRICTED STOCK UNITS
There were 5,800,000 Restricted Stock Units (“RSU”) on issue at the reporting date and the date of this
report. 50,000 RSUs were converted during the year with none converted subsequent to the end of 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 2019 Corporate
Governance Statement dated 27 February 2020 released to the ASX and posted on the Company website
which outlines the Group’s approach to corporate governance and sets out the key charters and polices of
the Group.
BrainChip Holdings Ltd
2019 Annual Report
7
Directors’ Report
INFORMATION ON DIRECTORS
Names, qualifications, experience and special responsibilities
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Louis DiNardo, BA – Executive Director and Chief Executive Officer (Appointed 9 Dec 2016), Chair (for
period 1 May 2018 to 11 Feb 2019)
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) (Jun 2014 – Nov 2016).
Emmanuel Hernandez – BSC, CPA, MBA - Non-Executive Director (Appointed 7 Jul 2017); Chair
(Appointed 1 Jan 2020)
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 a member of the Company’s Remuneration & Nomination Committee and
Audit & Governance Committee.
Other directorships in the past 3 years:
- ON Semiconductor Corp.; Audit Committee Chair/member – 20 Nov 2002 to present
- SunEdison, Inc.; Executive Chair, Audit Committee member – 12 May 2009 to 29 Dec 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 Chair of the Company’s Audit & Governance Committee effective from 1 April 2019 and joined
the Renumeration and Nomination Committee as Chair on 1 January 2020.
Other directorships in the past 3 years: Nil.
BrainChip Holdings Ltd
2019 Annual Report
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Directors’ Report
INFORMATION ON DIRECTORS (Continued)
Names, qualifications, experience and special responsibilities (continued)
Peter van der Made – Executive Director (Appointed 29 Jan 2020)
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Mr van der Made has been at the forefront of computer innovation for 40 years. He is the inventor of a
computer immune system at vCIS Technology where he served as Chief Technical Officer, and then Chief
Scientist when it was acquired by Internet Security Systems, and subsequently IBM. Previously, he designed
a high resolution, high speed colour Graphics Accelerator chip for IBM PC graphics at PolyGraphics
Systems. He was the founder of PolyGraphics Systems, vCIS Technology, and BrainChip Inc.
Mr van der Made was previously held the position of Executive Director of BrainChip Holdings Ltd from 10
September 2015 to 1 January 2018.
Mr van der Made has held no other public company directorships in the past three years.
Stephe Wilks – Non-Executive Director and Chair (Appointed 11 Feb 2019, resigned 31 Dec 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) (26 Feb 2016 – 12 May 2019).
- Non-Executive Director and Chairman of Speedcast International Limited (ASX:SDA) (27 Aug 2019 –
present)
Adam Osseiran, A/Prof – Non-Executive Director (Appointed 10 Sep 2015, resigned 29 Jan 2020)
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.
Julie H. Stein, BA, MA, MBA, NACD Leadership Fellow – Non-Executive Director (Appointed 14 Nov 2016,
resigned 1 Apr 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. Ms Stein sits on the
Audit Committee serving the International Board of the not-for-profit JDRF International organization. Ms
Stein also served as the Chair of the Company’s Audit & Governance Committee from 20 June 2018 to 11
February 2019 and was a Member of the Remuneration & Nomination Committee.
Other directorships in the past 3 years: Nil.
BrainChip Holdings Ltd
2019 Annual Report
9
Directors’ Report
COMPANY SECRETARY
Kim Clark (Appointed 1 Dec 2018)
Ms Clark is an experienced business professional with 21 years’ experience in the Banking and Finance
industries and 7 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.
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:
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S Liebeskind (1)
E Hernandez
Peter van der Made
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Total
Fully Paid
Ordinary Shares
Options over
Ordinary Shares
11,779,361
11,649,242
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57,500,000
6,000,000
8,000,000
176,305,508
-
199,734,111
71,500,000
(1) Equity instruments associated with Mr Liebeskind comprise:
2,310,742 fully paid ordinary shares held in the name of Crossfield Intech Nominees Pty Ltd;
(i)
(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.
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:
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Directors Meetings
Audit & Governance
Committee Meetings
(1)
Remuneration &
Nomination Committee
Meetings (1)
Eligible
to attend
Attended
Eligible to
attend
Attended
Eligible to
attend
Attended
12
13
4
13
13
13
12
13
4
12
13
13
5
n/a
3
n/a
8
8
5
n/a
3
n/a
8
8
1
n/a
2
3
3
n/a
1
n/a
2
3
3
n/a
S Wilks
L DiNardo
J Stein
A Osseiran
E Hernandez
S Liebeskind
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(1) Directors who are not members of the Audit & Governance Committee or Remuneration & Nomination
Committee may be invited to attend meetings of the Committees.
BrainChip Holdings Ltd
2019 Annual Report
10
Directors’ Report
Committee Memberships
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:
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Remuneration & Nomination Committee
S Liebeskind (Chair from 1 April 2019)
E Hernandez (Chair)
E Hernandez
A Osseiran
S Wilks (appointed 01 April 2019, resigned
31December 2019)
S Wilks (appointed 01 April 2019, resigned
31December 2019)
J Stein (Chair up to 1 April 2019)
Subsequent to the end of the financial year, Mr Liebeskind was appointed Chair of the Remuneration &
Nomination Committee, effective 1 January 2020.
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REMUNERATION REPORT (Audited)
This remuneration report for the year ended 31 December 2019 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
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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”)
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BrainChip Holdings Ltd
2019 Annual Report
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Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
1.
Introduction
The Remuneration Report details the remuneration arrangements for Key Management Personnel (“KMP”)
who are defined as those persons having authority and responsibility for planning, directing and controlling
the major activities of the 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
S Wilks
L DiNardo
Non-Executive Director & Chair
Executive Director & Chief
Executive Officer
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
S Liebeskind
E Hernandez
A Osseiran
J Stein
Other Key Management Personnel
A Mankar
P van der Made
R Levinson
K Scarince
R Beachler
Chief Development Officer
Chief Technical Officer
Chief Operating Officer
Vice President Finance,
Controller
Senior Vice President of
Marketing and Business
Development
11 February 2019
31 December 2019
30 September 2016
1 May 2018
7 July 2017
10 September 2015
14 November 2016
1 October 2014
10 September 2015
18 March 2019
11 March 2019
-
-
-
-
1 April 2019
-
-
-
-
5 March 2017
3 May 2019
Subsequent to the end of the financial year the following changes occurred,
- Mr Hernandez was appointed interim Chair effective 1 January 2020;
- Effective 29 January 2020, Mr Peter van der Made was appointed as Executive Director and Mr
Osseiran resigned as Non-Executive Director.
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BrainChip Holdings Ltd
2019 Annual Report
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Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
2. Remuneration governance
Remuneration & Nomination Committee
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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.
Remuneration Strategy
The remuneration strategy of the Group is evolving towards the following core principles:
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• 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.
• 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.
• 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.
• 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.
• Separate Remuneration Structures. In accordance with best practice corporate governance, the
structure of executive and non-executive directors’ remuneration is separate and distinct.
• 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
2019 Annual Report
13
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
2. Remuneration governance (continued)
Adoption of 2018 Remuneration Report
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At the Annual General Meeting of Shareholders on 30 May 2019, shareholders resolved to adopt the
Remuneration Report as contained within the 2018 Annual Report.
3. Non-executive director remuneration arrangements
Remuneration Policy
The Board seeks to set aggregate remuneration for non-executive directors at a level which provides the
Company with the ability to attract and retain directors of the highest calibre, 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:
• Fixed remuneration (base salary and superannuation); and
• Variable remuneration (share options and performance rights).
BrainChip Holdings Ltd
2019 Annual Report
14
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
4. Executive remuneration arrangements (continued)
Fixed Remuneration
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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 2019 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
2019 Annual Report
15
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
5. Options and performance rights granted as part of remuneration
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(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.
No options over ordinary shares or performance rights with performance criteria attached were issued during
2019 or 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
Fair
value
per
option
Total
Fair
Value
Exercise
price per
option
Expiry
date
Options
vested
during the
year
Options
forfeited
during the
year
Options
lapsed
during the
year
US$
US$
US$
Number
Number
Number
Directors
L DiNardo 2016 21,000,000 28/09/2016 $0.064 1,334,151
$0.172 30/09/2021 3,750,000
2017
6,000,000
16/02/2017 $0.175 1,050,104
$0.173 30/09/2021 1,500,000
-
-
-
-
R Beachler 2017 12,000,000 05/03/2017 $0.166 1,995,992
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$0.209 31/03/2022 3,000,000
6,000,000 6,000,000
Mr Beachler resigned effective 3 May 2019 resulting in the cancellation of 6,000,000 vested options and
forfeiture of 6,000,000 unvested options.
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BrainChip Holdings Ltd
2019 Annual Report
16
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
5. Options and performance rights granted as part of remuneration (continued)
(b) Options and performance rights with no linked performance criteria
Options were also issued to KMP with no performance criteria however included a service condition of between 1 to 4-years vesting period in equal tranches
from the date of issue of the options to encourage the retention of staff. Details of these Options over ordinary shares in the Company are set out in the table
below:
Year
2019
2016
2019
2017
2017
2017
2017
2017
2017
2019
2019
2019
2019
Options
awarded
during the
year
Options
vested
during 2019
Options
forfeited
during 2019
Options
lapsed
during 2019
Grant Date
End of
Vesting
Period
Fair value
per option
^
Total Fair
Value
Exercise
price per
option
Expiry
date
Number
Number
Number
Number
US$
US$
US$
8,000,000
-
7,500,000
-
-
-
-
-
-
10,000,000
12,000,000
10,000,000
10,000,000
-
5,750,000
7,500,000
1,000,000
2,000,000
-
-
2,000,000
4,000,000
-
-
-
-
-
-
-
-
-
-
-
-
4,000,000
-
-
-
-
8,000,000
-
-
-
-
2,000,000
2,000,000
-
4,000,000
-
-
-
-
06/06/2019
28/09/2016
30/05/2019
31/05/2017
31/05/2017
31/05/2017
31/05/2017
7/07/2017
05/03/2017
18/03/2019
18/03/2019
11/03/2019
11/03/2019
06/06/2023
30/09/2020
30/05/2019
01/02/2019
31/01/2019
31/01/2020
31/01/2021
07/07/2019
21/03/2021
18/03/2029
18/03/2029
11/03/2023
11/03/2023
$0.037
298,901
$0.064 1,461,607
780,000
$0.104
118,423
$0.118
242,700
$0.121
250,145
$0.125
256,101
$0.128
209,581
$0.106
$0.166 1,330,662
388,304
$0.039
388,304
$0.039
381,370
$0.038
381,370
$0.038
$0.052 06/06/2029
$0.172 30/09/2021
$0.100 30/05/2029
$0.182 01/02/2024
$0.138 31/01/2024
$0.138 31/01/2025
$0.138 31/01/2026
$0.125 07/07/2024
$0.209 31/03/2022
$0.042 18/03/2029
$0.042 18/03/2029
$0.047 11/03/2029
$0.047 11/03/2029
S Wilks (1)
L DiNardo
L DiNardo (2)
A Osseiran
J Stein (3)
J Stein (3)
J Stein (3)
E Hernandez
R Beachler (4)
R Levinson
R Levinson
K Scarince
K Scarince
^ For details on valuation of the options issued in the current year, including models and assumptions used, please refer to Note 23.
(1) Mr Wilks’ options were forfeited on 31/12/2019 effective from his resignation.
(2) Replacement options issued to Mr DiNardo, as approved by shareholders on 30 May 2019, reflects the fair value of the cancelled performance right (see next page)
(3) 4,000,000 unvested options held by Ms Stein were forfeited upon her resignation. 4,000,000 vested options held by Ms Stein will lapse if not exercised by 1 April 2020.
(4) Mr Beachler options were forfeited upon his resignation effective 3 May 2019.
BrainChip Holdings Ltd
2019 Annual Report
17
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Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
5. Options and performance rights granted as part of remuneration (continued)
(b) Options and performance rights with no linked performance criteria
Details of Performance Rights over ordinary shares in the Company provided as remuneration to KMPs, of
which there are no performance conditions however included a service condition to encourage the retention
of staff, are set out in the table below:
Class E Performance Rights
Year
Performance rights
awarded during the year
(Number)
Grant Date
Fair value per
performance right
at grant date
Expiry Date
Number
cancelled
(1)
L DiNardo
2018
-
10/5/2018
(US$)
$0.104
08/06/2028
7,500,000
(1) On 30 May 2019, shareholders approved the issue of 7,500,000 options exercisable at A$0.10 and expiring
30/5/2019 to Mr DiNardo as a result of the cancellation of 7,500,000 Performance Rights issued in 2018.
6. Company performance and the link to remuneration
The actual remuneration earned by executives and non-executive directors during 2019 is set out in section
7 of this report. Shareholders can see the remuneration earned and the value ascribed to share-based
payments which were vesting during the year. These share-based payment values were calculated at the
date of grant using the Black Scholes model and the costs are expensed over the vesting period.
Remuneration in the form of share-based payments awarded to executives has been largely in recognition
of the service provided. However as noted in section 5 of this report, Mr DiNardo was awarded options in
2016 that were subject to specific performance criteria. In 2017, Mr Beachler also received options in the
Company with specific performance criteria.
The adoption of BrainChip’s 2018 LTIP gave the Board the ability to add performance criteria as appropriate
to the specific terms as and when options or performance rights are offered to participants. The granting of
options and performance rights is carried out to attain services and encourage retention and, is a
performance incentive which allows executives to share the rewards of the success of the Company.
The table below shows information on the Group’s earnings and movements in shareholder value for the
past five years up to and including the current financial year.
Net loss after tax US$ million
Closing share price AUD
Closing share price USD
Loss per share (US cents)
2019
11.31
$0.047
$0.033
0.95
2018
16.52
$0.105
$0.074
1.64
2017
13.77
$0.185
$0.144
1.59
Restated
2016 (1)
5.10
$0.28
2015
27.36
$0.26
$0.202
$0.189
0.69
8.43
Net tangible assets US cents per share
0.25
(1) 2016 results have been restated after the finalisation of the fair value of the acquisition of BrainChip SAS.
0.68
0.38
1.77
0.49
No dividends were issued in the past five years including the current financial year.
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2019 Annual Report
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Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
7. Executive contractual arrangements
Details for executive contractual arrangements for KMP are detailed below:
Name
Title
Term of agreement Open agreement with no fixed term
Details
Louis DiNardo
Chief Executive Officer and 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.
Name
Title
Term of agreement Open agreement with no fixed term
Details
Anil Mankar
Chief Development Officer
Base fee of US$300,000 plus benefits under health and welfare benefit plans,
practices, policies and programs provided by BrainChip Inc.
Mr Mankar will be entitled to a cash bonus on such terms and conditions as
determined from time to time by the Board (Annual Bonus). The Annual Bonus
may be an amount up to fifty percent (50%) of the base salary in effect at the
end of any fiscal year. No bonuses have been paid to date.
Terminated at any time with or without cause or notice by either himself or
BrainChip Inc. Mr Mankar is entitled to 24 months’ severance pay upon
termination by BrainChip Inc. at any time without cause. The amount is payable
over 24 months from the date of termination.
Name
Title
Term of agreement Open agreement with no fixed term
Details
Roger Levinson
Chief Operating Officer
Base fee of US$300,000 plus benefits under health and welfare benefit plans,
practices, policies and programs provided by BrainChip Inc.
Mr Levinson 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 Levinson 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.
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Termination
Termination
Termination
BrainChip Holdings Ltd
2019 Annual Report
19
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
7. Executive contractual arrangements (continued)
Ken Scarince
Name
Title
Vice President Finance, Controller
Term of agreement Open agreement with no fixed term
Details
Base fee of US$250,000 plus benefits under health and welfare benefit plans,
practices, policies and programs provided by BrainChip Inc.
Mr Scarince 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 Scarince is entitled to 12 months’ severance pay upon
termination by BrainChip Inc. at any time without cause. The amount is payable
over 12 months from the date of termination.
Termination
Name
Title
Term of agreement Open agreement with no fixed term
Details
Robert Beachler (ceased as KMP on 3 May 2019)
Senior Vice President of Marketing and Business Development
Base fee of US$300,000 plus benefits under health and welfare benefit plans,
practices, policies and programs provided by BrainChip Inc.
Terminated at any time with or without cause or notice by either himself or
BrainChip Inc. Mr Beachler is entitled to 12 months’ severance pay upon
termination by BrainChip Inc. at any time without cause. The amount is payable
over 12 months from the date of termination.
Termination
There are no other formalised KMP employment agreements.
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BrainChip Holdings Ltd
2019 Annual Report
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Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
7.
Executive contractual arrangements (continued)
Short Term
Post-
Employment
Salary and
Fees (6)
US$
Annual
leave
US$
Super-
annuation
US$
Share-
based
Payment (7)
Equity
Instruments
US$
Termin-
ation
Total
Perform
-ance
related
US$
US$
%
92,087
78,884
90,530
71,130
27,528
-
-
-
-
-
377,051
17,988
-
-
-
-
-
-
-
-
180,901
77,625
(272,640)
-
-
-
-
-
92,087
78,884
271,431
148,755
(245,112)
-
-
-
-
798,709
-
1,193,748
25%
292,259
291,671
246,685
207,833
106,809
20,747
20,747
17,152
14,571
5,214
8,344
-
-
3,750
3,028
-
-
372,359
342,411
(786,349)
-
-
-
-
-
321,350
312,418
636,196
568,565
(671,298)
-
-
-
-
-
1,882,467
96,419
15,122
713,016
-
2,707,024
Remuneration of KMP
2019
Non-Executive Directors
S Wilks (1)
S Liebeskind
E Hernandez
A Osseiran
J Stein (2)
Executive Directors
L DiNardo
Other Key Management
Personnel
A Mankar
P van der Made
R Levinson (3)
K Scarince (4)
R Beachler (5)
Totals
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(1) Mr Wilks was appointed Non-Executive Director and Chair on 11 February 2019. Options awarded to Mr Wilks during
2019 were forfeited upon his resignation with no financial impact.
(2) Ms Stein resigned effective 1 April 2019. Unvested options were forfeited upon her resignation.
(3) Mr Levinson was appointed 18 March 2019
(4) Mr Scarince was appointed 11 March 2019.
(5) Mr Beachler ceased to be KMP upon his resignation, effective 3 May 2019.
(6) No bonuses were awarded to any KMP during the year.
(7) 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.
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2019 Annual Report
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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.
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BrainChip Holdings Ltd
2019 Annual Report
22
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
8. Equity Instruments Disclosure
Shareholdings of KMP (including nominees)
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Shares held in BrainChip Holdings by KMP are summarised as follows:
Balance held
at
1 January
2019
Shares
issued as
remuneration
Acquired /
Disposed
Conversion
of
Performance
Rights
Net change
other
Balance held
at
31 December
2019
-
-
-
-
-
-
-
11,779,361
11,649,242
-
9,338,500
-
Directors
S Wilks
L DiNardo
S Liebeskind (1)
E Hernandez
A Osseiran (2)
J Stein
Other KMPs
A Mankar (3)
P van der Made
R Levinson
K Scarince
R Beachler (4)
Total
(1) Shares held indirectly comprise 2,310,742 fully paid shares in the name of Crossfield Intech Nominees Pty Ltd
- 121,885,000
- 176,305,508
-
-
-
-
-
(700,304)
(700,304) 330,957,611
121,885,000
176,305,508
-
-
700,304
331,657,915
-
11,779,361
11,649,242
-
9,338,500
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
and 9,338,500 fully paid shares via Crossfield Intech Nominees Pty Ltd as trustee for the Liebeskind Family
Superfund.
(2) Shares held indirectly by Adam Osseiran and Rebecca Osseiran-Moisson ATF the Osseiran Family Trust.
(3)
99,135,000 fully paid ordinary shares are held by Merrill Lynch (Australia) Nominees Pty Ltd on behalf of Mr
Mankar.
(4) Mr Beachler resigned as a KMP on 3 May 2019.
Options holdings of Key Management Personnel (including nominees)
The table below summarises the options granted to KMPs and exercised during the current year. Refer to
section 5 for the terms of the options granted to KMP in the current and prior years. There were no
alterations to the terms and conditions of options awarded as remuneration since their award date. No
options were lapsed during the current year.
Balance at
beginning of
period 1 January
2019
Granted as
remuner-
ation
Exercised
Net change
other
Balance at end
of period 31
December 2019
Vested
and not
exercise-
able
Vested and
exercisable
-
-
-
-
-
-
8,000,000
7,500,000
-
-
-
-
(8,000,000)
-
-
-
-
(8,000,000)
-
50,000,000
6,000,000
8,000,000
4,000,000
8,000,000
Directors
S Wilks (1)
L DiNardo (2)
S Liebeskind (3)
E Hernandez
A Osseiran
J Stein (4)
Other KMPs
A Mankar
-
-
P van der Made
-
-
R Levinson
- 22,000,000
K Scarince
- 20,000,000
R Beachler (5)
20,000,000
-
96,000,000 57,500,000
Total
(1) Mr Wilks was appointed 11 February 2019.
(2) Mr DiNardo received 7,500,000 options in place of 7,500,000 performance rights as approved by shareholders.
(3) Mr Liebeskind held 3,000,000 options directly and 3,000,000 indirectly via Crossfield Intech Nominees Pty Ltd as
-
-
-
-
-
-
-
-
(20,000,000)
-
- (36,000,000)
-
-
22,000,000
20,000,000
-
117,500,000
-
-
-
-
-
-
-
-
-
-
- 46,750,000
-
-
- 36,750,000
6,000,000
-
2,000,000
-
2,000,000
-
-
-
-
57,500,000
6,000,000
8,000,000
4,000,000
-
(4)
trustee for the Liebeskind Family Superfund.
4,000,000 unvested options held by Ms Stein were forfeited upon her resignation as a director on 1 April 2019. A
further 4,000,000 vested options held by Ms Stein will lapse if not exercised by 1 April 2020.
(5) Mr Beachler resigned as a KMP on 3 May 2019 resulting in the forfeiture of 10,000,000 unvested options and
10,000,000 vested options lapsed 30 days after his resignation.
BrainChip Holdings Ltd
2019 Annual Report
23
Directors’ Report
REMUNERATION REPORT (Audited) (Continued)
8. Equity Instruments Disclosure (continued)
Performance Rights held by KMP (including nominees)
The table below discloses the number of Performance Rights held by KMP that were granted and vested
during the year. No performance rights lapsed during the year.
Balance at
beginning
of period 1
January
2019
Granted as
remuner-
ation
Cancelled
Other
Balance at
end of
period 31
December
2019
Vested
and
exercise-
able
Value of
performance
rights
exercised
US$
7,500,000
-
-
-
-
-
-
-
-
-
7,500,000
-
-
-
-
-
-
-
-
-
-
-
(7,500,000)
-
-
-
-
-
-
-
-
-
(7,500,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Directors
S Wilks
L DiNardo (1)
S Liebeskind
E Hernandez
A Osseiran
J Stein
Other KMPs
A Mankar
P van der Made
R Levinson
K Scarince
R Beachler
Total
(1)
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. The remaining 7,500,000 performance rights were cancelled and replaced by 7,500,000
options, as approved by shareholders on 30 May 2019.
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.
9. Other transactions and balances with KMP
There were no other transactions with other Key management personnel have been incurred, other than
reported above.
End of Audited Remuneration Report.
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BrainChip Holdings Ltd
2019 Annual Report
24
Directors’ Report
INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS
During the financial year, the Company paid a premium in respect to a contract of insurance to insure
directors and officers of the Company and related bodies corporate against those liabilities for which
insurance is permitted under section 199B of the Corporations Act 2001. Disclosure of the nature of the
liabilities and the amount of the premium is prohibited under the conditions of the contract of insurance.
INDEMNIFICATION OF AUDITORS
To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of
the terms of its audit engagement agreement against claims by third parties arising from the audit (for an
unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial
year.
The Directors received the Independence Declaration, as set out on page 26, 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.
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Emmanuel Hernandez
Chair
California, U.S.A., 25 February 2020
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2019 Annual Report
25
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 2019, 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
26 February 2020
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A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
PT:KW:BRAINCHIP:047
Consolidated Statement of Profit or Loss and Other Comprehensive
Income for the year ended 31 December 2019
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
Fair value gain through profit and loss
Loss from continuing operations before income tax
Income tax expense
Note
31 December
2019
$US
31 December
2018
$US
5
75,574
947,989
6(a)
6(b)
6(c)
23(a)
7(a)
7(b)
7(c)
9(c)
(4,511,410)
(1,061,595)
(3,795,200)
(1,636,113)
(4,660,792)
(1,465,475)
(4,169,706)
(7,305,802)
(10,928,744)
(16,653,786)
66,571
(612,945)
165,056
130,600
-
-
(11,310,062)
(16,523,186)
-
-
Loss from continuing operations after income tax
(11,310,062)
(16,523,186)
Net loss for the year
(11,310,062)
(16,523,186)
Other comprehensive income/(loss)
Other comprehensive income not to be reclassified to profit or
loss in subsequent periods (net of tax):
Remeasurement (losses)/gains on defined benefit plans
Items that may be reclassified subsequently to profit or loss
(net of tax):
Exchange differences on translation of foreign operations
Other comprehensive income for the year, net of tax
(16,990)
34,094
(7,723)
(24,713)
(1,030)
33,064
Total comprehensive loss for the year, net of tax
(11,334,775)
(16,490,122)
Loss per share attributable to ordinary equity holders of
the Company
Basic and diluted loss per share
10
(0.95)
(1.64)
US cents per
share
US cents per
share
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The above statement of comprehensive income should be read in conjunction with the accompanying notes.
BrainChip Holdings Ltd
2019 Annual Report
27
Consolidated Statement of Financial Position
As at 31 December 2019
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CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Inventory
Prepayments
Total current assets
NON-CURRENT ASSETS
Right-of-use assets
Plant and equipment
Intangible assets and goodwill
Other assets
Total non-current assets
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Financial liabilities
Lease liabilities
Employee benefits liabilities
Total current liabilities
NON-CURRENT LIABILITIES
Financial liabilities
Lease 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
2019
$US
31 December
2018 (1)
$US
11
12
2
13
14
15
17
2
16
17
2
18
7,622,178
1,187,512
16,021
135,534
8,961,245
191,460
178,883
1,776,113
34,801
2,181,257
7,543,326
461,129
20,864
139,789
8,165,108
-
226,456
1,735,122
38,950
2,000,528
11,142,502
10,165,636
471,284
736,932
102,362
280,801
1,591,379
222,667
90,691
141,415
454,773
723,541
-
-
228,962
952,503
226,873
-
106,951
333,824
2,046,152
1,286,327
9,096,350
8,879,309
20(a)
21
21
21
22
64,740,268
18,418,864
72,803
247,872
(74,383,457)
55,143,789
16,463,527
80,526
247,872
(63,056,405)
9,096,350
8,879,309
(1) As the Group adopted the modified retrospective approach as a result of AASB 16 Leases, the 2018 balance
sheet is not considered comparative.
The above statement of financial position should be read in conjunction with the accompanying notes.
BrainChip Holdings Ltd
2019 Annual Report
28
Consolidated Statement of Cash Flows
For the year ended 31 December 2019
CASH FLOWS USED IN OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Grants and R&D credits received from third parties
Note
31 December
2019
US$
31 December
2018
US$
186,142
(9,583,435)
80,054
(9,804)
325,608
909,662
(8,694,093)
97,339
-
483,888
Net cash flows used in operating activities
11
(9,001,435)
(7,203,204)
CASH FLOWS USED IN INVESTING ACTIVITIES
Payments for property, plant and equipment
Payments for purchase of patents and licenses
Payments for capitalised research and development
Net cash flows used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Receipts from the issue of shares
Receipt from the issue of Convertible Securities
Payment of share issue costs
Payment of Convertible Securities costs
Repayment of loans to third parties
Payment to reduce lease liabilities
Net cash flows generated from /(used in) financing activities
19(c)
19(c)
19(c)
19(c)
(39,673)
(119,826)
-
(86,738)
(457,273)
(686,189)
(159,499)
(1,230,200)
7,394,000
2,565,000
(484,151)
(30,453)
(2,193)
(223,779)
9,218,424
-
-
(26,560)
-
(2,092)
-
(28,652)
Net increase /(decrease) in cash and cash equivalents
57,490
(8,462,056)
Net foreign exchange differences
Cash at the beginning of the financial period
Cash and cash equivalents at the end of the period
11
21,362
7,543,326
7,622,178
(43,948)
16,049,330
7,543,326
The above cash flow statement should be read in conjunction with the accompanying notes.
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BrainChip Holdings Ltd
2019 Annual Report
29
Consolidated Statement of Changes in Equity
For the year ended 31 December 2019
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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)/gain
Total comprehensive
loss for the period
Issue of share capital
Share issue costs
Share-based payment –
Note 24(a)
-
-
-
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
At 31 December 2018
55,143,789
16,463,527 247,872
80,526
(63,056,405)
8,879,309
Contributed
equity
US$
Share-based
payment
reserve
US$
Other
reserves
US$
Foreign
currency
reserve
US$
Accumulated
losses
US$
Total equity
US$
At 1 January 2019
55,143,789
16,463,527 247,872
80,526
(63,056,405)
8,879,309
Loss for the year
Other comprehensive loss
Total comprehensive
loss for the period
-
-
-
Issue of share capital
9,056,810
Converted treasury shares
1,023,821
Share issue costs
(484,152)
-
-
-
-
-
-
Share-based payment –
Note 23(a)
At 31 December 2019
-
1,955,337
-
-
-
-
-
-
-
-
(11,310,062)
(11,310,062)
(7,723)
(16,990)
(24,713)
(7,723)
(11,327,052)
(11,334,775)
-
-
-
-
-
-
-
-
9,056,810
1,023,821
(484,152)
1,955,337
64,740,268
18,418,864 247,872
72,803
(74,383,457)
9,096,350
BrainChip Holdings Ltd
2019 Annual Report
30
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
1. CORPORATE INFORMATION
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The annual financial report of BrainChip Holdings Ltd (“Company”) and its controlled entities (“Consolidated Entity”
or “Group”) for the year ended 31 December 2019 was authorised for issue in accordance with a resolution of the
Directors on 25 February 2020, California, U.S.A.
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
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 except for certain financial assets and liabilities that have been measured at fair value.
The financial report is presented in US dollars, being the functional currency of the Company.
Except for the adoption of new and amended standards including the adoption of AASB16 leases, 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 2019. Although these new and amended standards and
Interpretations applied for the first time in 2019, they did not have a material impact on the annual consolidated
financial statements of the Group.
AASB 16 Leases
AASB 16 Leases supersedes AASB 117 Leases, Interpretation 4 Determining whether an Arrangement contains a
Lease, Interpretation 115 Operating Leases Incentives, and Interpretation 127 Evaluating the Substance of
Transactions Involving the Legal Form of a Lease. AASB16 sets out the principles for the recognition, measurement,
presentation and disclosure of leases and requires lessees to account for most leases under a single on-balance
sheet model.
The Group adopted AASB 16 using the modified retrospective method of adoption with the date of initial application
of 1 January 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initially
applying the standard recognised at the date of initial application. The Group elected to use the transition practical
expedients allowing a) the standard to be applied only to contracts that were previously identified as leases applying
AASB 117 and Interpretation 4 at the date of initial application, and b) the measuring the right-of-use asset on
transition as being equal to the amount of the lease liability initially recognised on transition.
The Group also elected to use the recognition exemptions for lease contracts that, at the commencement date, have
a lease term of 12 months or less and do not contain a purchase option (‘short-term leases’), and lease contracts for
which the underlying asset is of low value (‘low-value assets’).
The effect of adoption of AASB 16 is as follows:
The impact on the consolidated statement of financial position as at 1 January 2019 is an increase in right-of-use
assets of $114,407 and an increase in the lease liability of $114,407.
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BrainChip Holdings Ltd
2019 Annual Report
31
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(a) Basis of preparation (continued)
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The lease liabilities as of 1 January 2019 can be reconciled to the operating lease commitments as of 31 December
2018 as follows:
Operating lease commitments as at 31 December 2018
Weighted average incremental borrowing rate at 1 January 2019
Discounting of operating lease commitments at 1 January 2019
Less:
Commitments relating to short -term leases
Other miscellaneous adjustments
Lease liabilities as at 1 January 2019
(i) Nature and effect of adoption of AASB 16
US$
177,388
8%
(3,322)
(40,733)
(18,926)
114,407
The Group has lease contracts for various office premises. Before the adoption of AASB 16, the Group classified
each of its leases (as lessee) at the inception date as an operating lease (as it held no finance leases). In an operating
lease, the leased property was not capitalised, and the lease payments were recognised as an expense in the
condensed interim consolidated statement of comprehensive loss on a straight-line basis over the lease term. Prepaid
or accrued rent was recognised under prepaid expenses and deposits and accounts payable and accrued liabilities,
respectively.
Upon adoption of AASB 16, the Group applied a single recognition and measurement approach for all leases where
it is the lessee, except for short-term leases and leases of low-value assets. The Group recognised lease liabilities to
make lease payments and right-of-use assets representing the right to use the underlying assets. In accordance with
the modified retrospective method of adoption, the Group applied AASB 16 at the date of initial application by
measuring the right-of-use assets based on the amount equal to the lease liabilities. Lease liabilities were recognised
based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the
date of initial application.
(ii) Summary of new accounting policy
Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset
is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment
losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount
of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement
date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased
asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over
the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment.
Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease
payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed
payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and
amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price
of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a
lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not
depend on an index or a rate are recognised as expense in the period on which the event or condition that triggers
the payment occurs.
In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease
commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement
date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments
made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the
lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the
underlying asset.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term office premises leases i.e., those
leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase
option. It also applies the lease of low-value assets recognition exemption to leases of office equipment that are
considered of low value. Lease payments on short-term leases and leases of low-value assets are recognised as
expense on a straight-line basis over the lease term.
BrainChip Holdings Ltd
2019 Annual Report
32
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(a) Basis of preparation (continued)
Significant judgement in determining the lease term of contracts with renewal options
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The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by
an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to
terminate the lease, if it is reasonably certain not to be exercised. The Group has the option, under some of its leases
to lease the assets for additional terms. The Group applies judgement in evaluating whether it is reasonably certain
to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for it to
exercise the renewal. After the commencement date, the Group reassesses the lease term if there is a significant
event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the
option to renew (e.g., a change in business strategy).
(iii) Amounts recognised in the statement of financial position and profit and loss
Set out below, are the carrying amounts of the Group’s right-of-use assets and lease liabilities and the movements
during the period:
As at 31 December 2018
Initial adoption of AASB 16
Additions
Depreciation expense
Interest expense
Payments of interest and reduction in lease liabilities
Foreign exchange remeasurement
As at 31 December 2019
Disclosed as:
Current
Non-current
Total Lease liabilities
Right-of-use
assets
US$
Lease
Liabilities
US$
114,407
305,736
(226,992)
-
-
(1,691)
191,460
114,407
305,736
-
9,804
(233,583)
(3,311)
193,053
102,362
90,691
193,053
Set out below, are the amounts recognised in profit and loss for the year ended 31 December 2019:
Depreciation expense of right-of-use asset included in General & administrative expenses
Interest expense on lease liabilities included in Finance expense
Rent expense of short-term leases included in General & administrative expenses
Total amount recognised in profit or loss
31 Dec 2019
US$
226,992
9,804
93,165
329,961
AASB Interpretation 23 Uncertainty over Income Tax Treatment
The Interpretation clarifies the application of the recognition and measurement criteria in AASB 112 Income Taxes
when there is uncertainty over income tax treatments. The Interpretation specifically addresses the following:
• Whether an entity considers uncertain tax treatments separately
•
•
The assumptions an entity makes about the examination of tax treatments by taxation authorities
How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax
rates
How an entity considers changes in facts and circumstances
•
An entity has to determine whether to consider each uncertain tax treatment separately or together with one or more
other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty needs to be
followed. The Group applies significant judgement in identifying uncertainties over income tax treatments.
The Group assessed whether the Interpretation had an impact on its consolidated financial statements. Upon
adoption of the Interpretation, the Group concluded that there were no uncertain tax positions and therefore the
interpretation does not have an impact on the consolidated financial statements of the Group.
BrainChip Holdings Ltd
2019 Annual Report
33
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
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 2019, the Group incurred a net loss after tax of $11,310,062 and a cash
outflow from operating activities of $9,001,435.
At 31 December 2019, the Group had cash and cash equivalents of $7,622,178, net assets of $9,096,350 and a net
working capital of $7,369,866.
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:
•
•
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.
(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 2019. Unless otherwise
stated, the Group has yet to fully assess the impact of these Standards and Interpretations when applied in future
periods.
Amendment to Conceptual Framework for Financial Reporting
The revised Conceptual Framework includes some new concepts, provides updated definitions and recognition
criteria for assets and liabilities and clarifies some important concepts. It is arranged in eight chapters, as follows:
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•
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Chapter 1 – The objective of financial reporting
Chapter 2 – Qualitative characteristics of useful financial information
Chapter 3 – Financial statements and the reporting entity
Chapter 4 – The elements of financial statements
Chapter 5 – Recognition and derecognition
Chapter 6 – Measurement
Chapter 7 – Presentation and disclosure
Chapter 8 – Concepts of capital and capital maintenance
AASB 2019-1 has also been issued, which sets out the amendments to Australian Accounting Standards,
Interpretations and other pronouncements in order to update references to the revised Conceptual Framework. The
changes to the Conceptual Framework may affect the application of accounting standards in situations where no
standard applies to a particular transaction or event. In addition, relief has been provided in applying AASB 3 and
developing accounting policies for regulatory account balances using AASB 108, such that entities must continue to
apply the definitions of an asset and a liability (and supporting concepts) in the Framework for the Preparation and
Presentation of Financial Statements (July 2004), and not the definitions in the revised Conceptual Framework.
The amendments apply prospectively on or after 1 January 2020, with no material effect to the Group.
BrainChip Holdings Ltd
2019 Annual Report
34
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(b) Statement of compliance (continued)
Amendments to AASB 3: Definition of a Business
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(c) Basis of consolidation
In October 2018, the IASB issued amendments to the definition of a business in IFRS 3 Business Combinations to
help entities determine whether an acquired set of activities and assets is a business or not. They clarify the minimum
requirements for a business, remove the assessment of whether market participants are capable of replacing any
missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the
definitions of a business and of outputs, and introduce an optional fair value concentration test. New illustrative
examples were provided along with the amendments.
Since the amendments apply prospectively to transactions or other events that occur on or after the date of first
application, the Group will not be affected by these amendments on the date of transition.
Amendments to AASB 101: Definition of Material
This Standard amends AASB 101 Presentation of Financial Statements and AAS 108 Accounting Policies, Changes
in Accounting Estimates and Errors to align the definition of ‘material’ across the standards and to clarify certain
aspects of the definition. The amendments clarify that materiality will depend on the nature or magnitude of
information. An entity will need to assess whether the information, either individually or in combination with other
information, is material in the context of the financial statements. A misstatement of information is material if it could
reasonably be expected to influence decisions made by the primary users.
The amendments apply prospectively on or after 1 January 2020, with no material effect to the Group.
Amendments to IAS 1: Presentation of Financial Statements
This Standard aims to improve presentation in financial statements by clarifying the criteria for the classification of a
liability as either current or non-current.
This amendment is to:
•
•
Clarify that the classification of a liability as either current or non-current is based on the entity’s rights at the
end of the reporting period
Clarify the link between the settlement of the liability and the outflow of resources from the entity
The amendments apply prospectively on or after 1 January 2022. The client has not yet determined the impact of this
amendment.
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:
•
Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the
investee)
Exposure, or rights, to variable returns from its involvement with the investee, and
The ability to use its power over the investee to affect its returns
•
•
When the 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:
•
•
•
The contractual arrangement with the other vote holders of the investee
Rights arising from other contractual arrangements
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.
BrainChip Holdings Ltd
2019 Annual Report
35
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(d) Foreign currency translation
(i) Functional and presentation currency
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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 average exchange rates for the month. 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.
(f) Cash and cash equivalents
Cash and cash equivalents in the statement of financial position comprise cash at bank and in hand and short-term
deposits that are readily convertible to known amounts of cash and which are subject to an insignificant risk of
changes in value.
For the purposes of the Statement of cash flows, cash and cash equivalents consist of cash and cash equivalents
as defined above, net of outstanding bank overdrafts.
(g) Trade and other receivables
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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.
Refer note (i) below for accounting policy related to financial assets at fair value through profit or loss reported in
other receivables.
Collectability of trade and other receivables is reviewed on an ongoing basis in accordance with the expected credit
loss (“ECL”) model.
BrainChip Holdings Ltd
2019 Annual Report
36
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(h) Financial instruments – initial recognition and subsequent measurement
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A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity
instrument of another entity.
i) Financial assets
Financial assets are classified, at initial recognition, as subsequently measured at cost, fair value through other
comprehensive income (OCI) and fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow
characteristics and the Group’s business model for managing them. With the exception of trade receivables that do
not contain a significant financing component or for which the Group has applied the practical expedient, the Group
initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit
or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the
Group has applied the practical expedient are measured at the transaction price determined under AASB 15. Refer
to the accounting policies in section (p) Revenue from contracts with customers.
In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to
give rise to cash flows that are ‘solely payments of principal and interest (SPPI)’ on the principal amount outstanding.
This assessment is referred to as the SPPI test and is performed at an instrument level.
The Group’s business model for managing financial assets refers to how it manages its financial assets in order to
generate cash flows. The business model determines whether cash flows will result from collecting contractual cash
flows, selling the financial assets, or both. Financial assets classified and measured at amortised cost are held within
a business model with the objective to hold financial assets in order to collect contractual cash flows while financial
assets classified and measured at fair value through OCI are held within a business model with the objective of both
holding to collect contractual cash flows and selling.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
•
•
•
Financial assets at amortised cost (debt instruments)
Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments)
Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon
derecognition (equity instruments)
Financial assets at fair value through profit or loss
•
Financial assets at amortised cost (debt instruments)
Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are
subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or
impaired. The Group’s financial assets at amortised cost includes trade receivables and other receivables.
Financial assets at fair value through OCI (debt instruments)
For debt instruments at fair value through OCI, interest income, foreign exchange revaluation and impairment losses
or reversals are recognised in the statement of profit or loss and computed in the same manner as for financial assets
measured at amortised cost. The remaining fair value changes are recognised in OCI. Upon derecognition, the
cumulative fair value change recognised in OCI is recycled to profit or loss.
The Group’s debt instruments at fair value through OCI includes investments in quoted debt instruments included
under other current financial assets.
Financial assets designated at fair value through OCI (equity instruments)
Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity instruments
designated at fair value through OCI when they meet the definition of equity under IAS 32 Financial Instruments:
Presentation and are not held for trading. The classification is determined on an instrument -by-instrument basis.
Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other
income in the statement of profit or loss when the right of payment has been established, except when the Group
benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are
recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment.
BrainChip Holdings Ltd
2019 Annual Report
37
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(h) Financial instruments – initial recognition and subsequent measurement (continued)
Financial assets at fair value through profit or loss
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Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with
net changes in fair value recognised in the statement of profit or loss.
This category includes derivative instruments which the Group had not irrevocably elected to classify at fair value
through OCI.
A derivative embedded in a hybrid contract, with a financial liability or non-financial host, is separated from the host
and accounted for as a separate derivative if: the economic characteristics and risks are not closely related to the
host; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative;
and the hybrid contract is not measured at fair value through profit or loss. Embedded derivatives are measured at
fair value with changes in fair value recognised in profit or loss. Reassessment only occurs if there is either a change
in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a
reclassification of a financial asset out of the fair value through profit or loss category.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is
primarily derecognised (i.e., removed from the Group’s consolidated statement of financial position) when:
• The rights to receive cash flows from the asset have expired, or
• The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay
the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either
(a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither
transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through
arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has
neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the
asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case,
the Group also recognises an associated liability. The transferred asset and the associated liability are measured on
a basis that reflects the rights and obligations that the Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the
original carrying amount of the asset and the maximum amount of consideration that the Group could be required to
repay.
Impairment
Further disclosures relating to impairment of financial assets are also provided in the following notes:
• Disclosures for significant assumptions Note 3
• Trade receivables Note 12
The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value
through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with
the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original
effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit
enhancements that are integral to the contractual terms.
ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit
risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within
the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in
credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of
the exposure, irrespective of the timing of the default (a lifetime ECL).
For trade receivables, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not
track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date.
The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for
forward-looking factors specific to the debtors and the economic environment.
BrainChip Holdings Ltd
2019 Annual Report
38
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(h) Financial instruments – initial recognition and subsequent measurement (continued)
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ii) Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans
and borrowings, payables, as appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net
of directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, Convertible
Securities recognised as financial liabilities, and derivative financial instruments.
Subsequent measurement
Financial liabilities at fair value through profit or loss
Financial liabilities at amortised cost (loans and borrowings)
For purposes of subsequent measurement, financial liabilities are classified in two categories:
•
•
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include embedded derivatives designated upon initial recognition
as at fair value through profit or loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial
date of recognition, and only if the criteria in AASB 9 are satisfied.
Financial liabilities at amortised cost (loans and borrowings)
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using
the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as
through the EIR amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are
an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When
an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms
of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of
the original liability and the recognition of a new liability. The difference in the respective carrying amounts is
recognised in the statement of profit or loss.
iii) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of
financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an
intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
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.
BrainChip Holdings Ltd
2019 Annual Report
39
(i) Property, plant and equipment
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(j)
Intangible assets
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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.
(k) Research and development costs
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Research costs are expensed as incurred. Development expenditures on an individual project are recognised
as an intangible asset when the Group can demonstrate:
the technical feasibility of completing the intangible asset so that the asset will be available for use or sale;
its intention to complete and its ability and intention to use or sell the asset;
•
•
• how the asset will generate future economic benefits;
•
•
the availability of resources to complete the asset; and
the ability to measure reliably the expenditure during development.
Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any
accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development
is complete and the asset is available for use. It is amortised over the period of expected future benefit. Amortisation
is recorded in profit and loss. During the period of development, the asset is tested for impairment annually.
Patents and licences
The Group made upfront payments to purchase patents and licences. The patents have been granted for a period
of 20 years by the relevant government agency with the option of renewal at the end of this period.
A summary of the policies applied to the Group’s intangible assets is, as follows:
USEFUL LIFE
AMORTISATION
METHOD
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
(l) Trade and other payables
Trade payables and other payables are carried at amortised cost and are not discounted due to their short-term
nature. They represent liabilities for goods and services provided to the 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.
BrainChip Holdings Ltd
2019 Annual Report
40
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(m) Provisions
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(n)
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.
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.
(o) Share-based payment transactions
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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.
BrainChip Holdings Ltd
2019 Annual Report
41
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(p) Employee benefits
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(i) Wages, salaries and annual leave
Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled wholly
within 12 months of the reporting date are recognised in respect of employees' services up to the reporting date. They
are measured at the amounts expected to be paid when the liabilities are settled.
(iii) Superannuation
Contributions made by the Group to employee superannuation funds, which are defined contribution plans, are
charged as an expense when incurred.
(iv) Defined benefit plan
The Group’s net obligation in respect of defined benefits plans is calculated by estimating the discounted amount of
future benefit that employees have earned in the current and prior periods. The calculation of defined benefit plan
obligations is performed annually by a qualified actuary using the projected unit credit method, taking into account
staff turnover and mortality probability.
Re-measurements of the net defined benefit liability, which comprise actuarial gains and losses, are recognised
immediately in OCI. The Group determines the net interest expense on the defined benefit liability for the period by
applying the discount rate used to measure the net defined benefit obligation. Net interest expense and other
expenses related to defined benefit plans are recognised in profit or loss.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to
past service or the gain or loss on curtailment is recognised immediately in profit or loss.
(q) 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.
(r) 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
2019 Annual Report
42
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(s)
Income tax
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The income tax expense or credit for the period is the tax payable on the current period’s taxable income based on
the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities
attributable to temporary differences and to unused tax losses.
Deferred income tax is provided for using the full liability, balance sheet method.
Deferred income tax liabilities are recognised for all taxable temporary differences, except:
• when the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction
that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor
taxable profit or loss; and
• when the taxable temporary differences associated with investments in subsidiaries, associates and interests
in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it
is probable that the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax
assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the
deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised,
except:
• when the deferred income tax asset relating to the deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit or loss; and
• when the deductible temporary differences associated with investments in subsidiaries, associates and
interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the
temporary differences will reverse in the foreseeable future and taxable profit will be available against which
the temporary differences can be utilised.
The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent
that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income
tax asset to be utilised.
Unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent
that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when
the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted at the reporting date.
Income taxes relating to items recognised directly in equity are recognised in equity and not in the Statement of
comprehensive income.
Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current
tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity
and the same taxation authority.
Revenues, expenses and assets are recognised net of the amount of GST except:
• when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in
which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item
as applicable; and
receivables and payables, which are stated with the amount of GST included.
•
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or
payables in the statement of financial position.
Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows
arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are
classified as operating cash flows.
Commitments and contingencies are disclosed net of amounts of GST recoverable from, or payable to, the taxation
authority.
BrainChip Holdings Ltd
2019 Annual Report
43
(t) Other taxes
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(u) Earnings per share
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Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any
costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average
number of ordinary shares, adjusted for any bonus element.
Diluted earnings per share are calculated as net profit attributable to members of the parent adjusted for:
•
•
cost of servicing equity (other than dividends) and preference share dividends;
the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been
recognised as expenses; and
other non-discriminatory changes in revenues or expenses during the period that would result from the dilution
of potential ordinary shares;
•
divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any
bonus element.
3. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
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The preparation of the financial statements requires management to make judgements, estimates and assumptions
that affect the reported amounts in the financial statements. Management continually evaluates its judgements and
estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its
judgements and estimates on historical experience and on other various factors it believes to be reasonable under the
circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily
apparent from other sources.
Management has identified the following critical accounting policies for which significant judgements, estimates and
assumptions are made. Actual results may differ from these estimates under different assumptions and conditions and
may materially affect financial results or the financial position reported in future periods.
Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial
statements.
• 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.
• 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 23. The accounting estimates and assumptions relating to
equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities in the
next annual reporting period but may impact expenses and equity.
BrainChip Holdings Ltd
2019 Annual Report
44
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
3. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (Continued)
•
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.
• 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.
•
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.
• 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 2019, the carrying amount of capitalised development costs was $Nil (2018: $Nil).
• Defined benefit plans
The cost of the defined benefit pension plan and the present value of the pension obligation are determined using
actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual
developments in the future. These includes the determination of the discount rate, future salary growth, mortality
rates and employee turnover rate. Due to the complexities involved in the valuation and its long-term nature, a
defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at
each reporting date. Further details about defined benefit plans are provided in Note 18.
• Fair value measurement of financial instruments
When the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot
be measured based on quoted prices in active markets, their fair value is measured using valuation techniques
including the monte carlo model. The inputs to these models are taken from observable markets where possible,
but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements include
considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions relating to these
factors could affect the reported fair value of financial instruments. See Note 19 for further disclosure.
Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial
statements.
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BrainChip Holdings Ltd
2019 Annual Report
45
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
4.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Overview
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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.
Other than derivatives associated with the Convertible Securities described in Note 19, 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 Notes 12).
Credit risk associated with Other receivables related to the sale of collateral shares is considered low due to its short-
term nature and is ability to offset the receivable against any outstanding liability recognised in relation to the
Convertible Securities.
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
2019
US$
7,622,178
1,187,512
2018
US$
7,543,326
461,129
Note
11
12
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 entered into Convertible Securities during 2019
which are expected to terminate in 2020. See Note 2(a) Basis of Preparation - Going Concern for further comment.
BrainChip Holdings Ltd
2019 Annual Report
46
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
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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$
471,284
959,599
193,053
1,623,936
471,284
1,214,060
197,845
1,883,189
471,284
990,000
81,652
1,542,936
-
-
24,040
24,040
-
224,060
92,153
316,213
723,541
226,873
950,414
723,541
233,890
957,431
723,541
-
723,541
-
-
-
-
233,890
233,890
31 December 2019
Trade and other payables
Financial liabilities
Lease liabilities
31 December 2018
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. The Group is
not exposed to material market risk at period end.
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
Set out below is a comparison of the carrying amount and fair values of the Group’s financial instruments, other than
those with carrying amounts that are reasonable approximations of fair values.
(i) Cash and short-term deposits, 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) The fair value of the Convertible Securities are carried at amortised cost is considered to approximate the fair
value given the 12-month term.
BrainChip Holdings Ltd
2019 Annual Report
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
4.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
Capital Management
Capital managed by the Board includes contributed equity totalling $64,740,268 and other equity reserves of
$247,872 at 31 December 2019 (2018: $55,143,789 and $247,872 respectively). When managing capital,
management’s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns
to shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure that
ensures the lowest cost of capital available to the entity. Managed capital is disclosed on the face of the Statement
of financial position and comprises contributed equity and reserves.
Management may adjust the capital structure to fund the continued development of the Company’s pioneering AI
technology and keep the Company operational. As the market is constantly changing, management may issue new
shares or sell assets to raise cash, change the amount of dividends to be paid to shareholders (if at all) or return
capital to shareholders.
During the financial year ending 31 December 2019, management did not pay a dividend and does not expect to pay
a dividend in the foreseeable future.
The Group encourages employees to be shareholders through the Long Term Incentive Plan.
There were no changes in the Group’s approach to capital management during the year. Risk management policies
and procedures are established with regular monitoring and reporting.
Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
5. REVENUE FROM CONTRACTS WITH CUSTOMERS
(a) Types of good and services
Product revenue
License revenue
Development service revenue
Total revenue from contracts with customers
(b) Timing of revenue recognition
Services transferred over time
Sale of product and license transferred at a point in time
Total revenue
2019
US$
2018
US$
10,153
2,232
63,189
75,574
108,140
327,349
512,500
947,989
63,189
12,385
75,574
512,500
435,489
947,989
BrainChip Holdings Ltd
2019 Annual Report
48
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
6. EXPENSES
2019
US$
2018
US$
(a) Research & development expenses
Employee expenses
Grants received
Third party development services
Other contractor fees
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
Employee expenses
Legal and professional fees
Travel and accommodation expenses
Depreciation of plant & equipment
Depreciation of right of use assets
Office rent
Software lease expense
Other
Total general & administrative expenses
(a) Finance income
Interest received
Foreign exchange gain
Total finance income
(b) Finance expense
Convertible Securities interest expense
Other interest expense
Foreign exchange loss
Total finance expense
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7.
FINANCE INCOME, FINANCE EXPENSEAND FAIR VALUE THROUGH PROFIT AND LOSS
(c) Fair value gain through profit and loss
Gain from financial assets and liabilities measured at fair value through the
profit or loss (refer to Note 17 and 19)
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
2019 Annual Report
49
3,530,335
(547,034)
700,000
366,590
78,509
-
383,010
4,511,410
541,981
234,356
285,258
1,061,595
1,631,083
894,000
285,323
86,311
226,992
93,165
191,763
386,563
3,795,200
66,571
-
66,571
519,454
11,413
82,078
612,945
165,056
165,056
2,655,771
(332,283)
-
-
1,098,396
813,228
425,680
4,660,792
785,715
309,364
370,396
1,465,475
1,406,621
1,843,813
293,260
51,610
-
237,577
72,818
264,007
4,169,706
107,448
23,152
130,600
-
-
-
-
-
-
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
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:
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Accrued expenses
Tax losses
Share-based compensation
Intangible assets
Deferred State Tax deduction
Other
Not recognised
Net deferred tax liability
Deferred tax income/(expense)
(e) Unrecognised losses
2019
US$
2018
US$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
576,357
(148,252)
2,682,162
452,887
(985,749)
(567,597)
5,644,336
-
0%
-
0%
Consolidated
Statement of
financial
position
2019
96,525
9,730,206
4,234,651
32,222
-
24,660
(14,118,264)
-
-
2018
68,855
7,249,575
4,822,847
35,986
(254,391)
14,281
(11,937,153)
-
-
Accounting loss before tax
11,310,062
16,523,186
At statutory income tax rate of 27.5% (2018: 27.5%)
(3,110,267)
(4,543,877)
At 31 December 2019, there are unrecognised losses of $9,730,206 (tax effected), for the Group (2018:
$7,249,575 (tax effected)).
BrainChip Holdings Ltd
2019 Annual Report
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
10. LOSS PER SHARE
Net loss attributable to ordinary shareholders for basic and diluted earnings
per share
2019
US$
2018
US$
(11,310,062)
(16,523,186)
US cents per
share
US cents per
share
Basic and diluted loss per share
(0.95)
(1.64)
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
1,187,151,633
-
1,006,859,664
-
1,187,151,633
1,006,859,664
(1) At 31 December 2019, the Company had on issue 195,068,976 (2018: 162,950,000) share options that are
excluded from the calculation of diluted loss per share for the current period as they are considered anti-
dilutive.
(2) At 31 December 2019, the Company had on issue 5,800,000 restricted stock units (2018: 3,850,000 restricted
stock units and 8,500,000 performance rights) that are excluded from the calculation of diluted loss per share
for the current period as they are considered anti-dilutive.
(3) Weighted average number of ordinary shares has been adjusted as a result of rights issue to institutional and
sophisticated investors for all periods:
- to 31 December 2017 by a factor of approximately 1.02, effective November 2017;
- to 31 December 2019 by a factor of approximately 1.01, effective July 2019.
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:
Depreciation
Amortisation
Write off of intangible assets
Share-based payments
Gain from financial liabilities measured at fair value through the profit or loss
Interest expense
Foreign exchange (gain)/loss
Working capital adjustments:
(Increase)/decrease in trade and other receivables
Decrease /(increase) in inventory
Decrease in prepayments
Increase in other assets
Decrease in financial liabilities
Increase /(decrease) in defined benefits plan
Increase in employee provisions
Decrease in trade and other payables
Net cash flows used in operating activities
2019
US$
2018
US$
7,593,022
29,156
7,622,178
5,505,494
2,037,832
7,543,326
(11,310,062)
(16,523,186)
313,303
78,509
-
1,636,113
(165,056)
521,063
87,311
47,571
4,843
(57,278)
4,913
(4,207)
34,464
51,840
(244,762)
(9,001,435)
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)
BrainChip Holdings Ltd
2019 Annual Report
51
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
12. TRADE AND OTHER RECEIVABLES
Current
Trade receivables
Research tax credit (1)
Receivable from sale of collateral shares (2) – refer Notes 17 and 19
Other receivables
2019
US$
2018
US$
4,228
402,974
766,818
13,492
1,187,512
114,795
336,582
-
9,752
461,129
(1) BrainChip SAS recognised research credits from the French regulatory authorities as receivable according
to the French tax regulations.
(2) Under the terms of the Convertible Securities Agreement (“CSA”), Collateral Shares were issuable to CST.
These Collateral Share are treated as Treasury Shares until traded by CST. If traded by CST they effectively
become issued and CST must pay the Company an amount determined based on the lower of $0.79 per
share and 92% of the average 5 day VWAP during the 20 actual trading days prior to maturity, at the end
of the instrument. As such the receivable is recorded at fair value through profit and loss. Refer to Note 19
for details of the CSA.
Trade receivables are non-interest bearing and generally on terms of 30-90 days. As at year end, there is no
allowance for expected credit loss recorded.
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13. PLANT & EQUIPMENT
Plant and equipment
Plant and equipment – Gross carrying value at cost
Accumulated depreciation
Net carrying amount
Movement in plant and equipment
At 1 January net of accumulated depreciation
Additions
Depreciation charge for the year
Net foreign exchange movements
At 31 December net of accumulated depreciation
2019
US$
2018
US$
498,290
(319,407)
178,883
385,299
(158,843)
226,456
226,456
39,673
(86,311)
(935)
178,883
192,307
86,738
(51,610)
(979)
226,456
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
14.
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 and licenses
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
2019
US$
2018
US$
870,655
-
905,458
1,776,113
829,664
-
905,458
1,735,122
1,081,320
(210,665)
870,655
829,664
119,826
(78,509)
(326)
870,655
-
-
-
-
-
-
-
-
-
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
-
The uncertainty of revenue has resulted in the write off of carry forward capitalised research & development costs
related to BrainChip Studio in the prior year, with all other projects fully amortised by the end of that year in line
with the Group’s amortisation policy.
As at 31 December 2019, 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 2019, 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 2019. Assumptions used within the Group’s fair value less cost of disposal determination
included the Group’s share price of A$0.047 at 31 December 2019 and the foreign exchange rate of $0.701
AUD/USD at 31 December 2019.
As at 31 December 2019, the Group considered indicators of impairment of these assets and determined that
there was none other than those noted above.
15. TRADE AND OTHER PAYABLES
Current
Trade creditors and accruals
VAT and other taxes payable to foreign authorities
16. EMPLOYEE BENEFITS LIABILITIES
Provision for annual leave
The nature of the provision is described in Note 2(p).
2019
US$
2018
US$
469,408
1,876
471,284
676,479
47,062
723,541
2019
US$
2018
US$
280,801
280,801
228,962
228,962
BrainChip Holdings Ltd
2019 Annual Report
53
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
17. FINANCIAL LIABILITIES
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Current
Convertible liabilities (2)
Derivative liabilities (2)
Non-Current
Advances from third parties (1)
2019
US$
2018
US$
586,673
150,259
736,932
222,667
222,667
-
-
-
226,873
226,873
(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.
(2) Convertible Securities Agreement
On 26 June 2019, the Company entered into an unsecured Convertible Securities Agreement (“CSA”) with CST
Capital Pty Ltd (“CST”) as trustee of the CST Investments Fund, under which the Company has issued
Convertible Securities with a face value of US$2,850,000 (“Convertible Securities”) to CST and an interest rate
of 10%pa. The effect of the key terms described below gave rise to a Convertible Securities held at amortised
cost and embedded derivatives (conversion and extension option) held at fair value through profit and loss.
Key Terms and conditions
a) The Convertible Securities are convertible into ordinary shares at the discretion of CST based on an amount
determined being on the lower of $0.079 per share and 92% of average 5 day VWAP during the 20 day
VWAP during the 20 trading days prior to conversion
b) The term of the Convertible Securities is 12 months but the term may be extended by the Company by 6
months up to a total of 18 months by paying an extension fee equal to 3% of the face value of the then
outstanding Convertible Securities. The Company can also early repay up to 50% of the amount outstanding
preventing CST from converting its shares
c) Whilst the Convertible Securities are unsecured, the Company issued 30,000,000 shares to CST for no
consideration (“Collateral Shares”) at the time of issue of the Convertible Securities. CST may trade the
Collateral Shares at any time but is not obliged to use them in full or partial satisfaction of the Company’s
obligations to issue Shares on conversion of the Convertible Securities or exercise of Options. The Collateral
Shares are reported as Treasury Shares until traded by CST or used in satisfaction of the Company’s
obligation to issue Shares on conversion of the Convertible Securities.
d) On Maturity, or an earlier date elected by the Company, the outstanding number of the Collateral Shares,
may be applied to reduce the outstanding amount.
As part of the issuance of the Convertible Securities, the Company:
e)
issued 1,561,279 shares to CST in lieu of a drawdown fee. The shares were fair valued at $83,167 by
reference to the equity instruments issued as they provide the most reliable estimate of the value of services
delivered.
f) granted CST 21,868,976 options to purchase Shares, with an exercise price of A$0.117 and expiry date of
26 June 2022. The Options were valued at $567,135 by reference to the equity instruments issued as they
provide the most reliable estimate of the value of services delivered.
g) The value of these and options shares has been split between the Convertible Securities (transaction cost)
and profit and loss in accordance with the relative value of the Convertible Securities and embedded
derivatives at the time of issuance.
Conversion of debt and treasury shares
h) The Company issued 77,177,256 ordinary shares to CST between September and December 2019 as a
result of the conversion of Convertible Securities. The shares were valued in accordance with the CSA at the
lower of A$0.079 or 92% of the average 5 day VWAP during the 20 actual trading days prior to conversion.
The value of the debt converted totalled $1,549,251.
i) CST sold 29,581,510 collateral shares, reported as treasury shares, in the period July to September 2019.
The consideration payable by CST was initially fair valued at $1,023,821 which resulted in an increase to
Contributed Equity but has since been remeasured to $766,818 (Note 12)
BrainChip Holdings Ltd
2019 Annual Report
54
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
18. DEFINED BENEFIT PLAN
2019
US$
2018
US$
Net employee defined benefit liabilities
141,415
106,951
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) Defined benefit obligation
The following were the principal actuarial assumptions at the reporting date:
Discount rate
Future salary growth
Retirement at employee’s initiative
Turnover rate (weighted average)
0.8%
1.5%
45.0%
1.0%
1.6%
1.5%
45.0%
1.0%
Assumptions regarding future mortality have been based on published statistics and morality tables provided by
the French government.
(b) 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$
(16,519)
20,683
21,118
(16,542)
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.
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2019 Annual Report
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
19. FINANCIAL ASSETS & LIABILITIES
(a) Set out below is an overview of financial assets (other than cash and short term deposits) and financial
liabilities held by the Group as at 31 December 2019:
Financial assets at amortised cost
Trade and other receivables
Financial assets at fair value through profit or loss
Receivable on sale of collateral shares
Total financial assets
Current
Non-current
Total financial assets
Financial liabilities at amortised cost
Trade and other payables
Financial liabilities
- Advances from third parties
- Convertible liabilities
Financial liabilities at fair value through profit & loss
Financial liabilities
- Derivative liabilities
Financial liabilities at fair value through OCI
Defined benefit plan
Total financial liabilities
Current
Non-current
Total financial liabilities
2019
US$
2018
US$
420,694
461,129
766,818
-
1,187,512
461,129
1,187,512
-
1,187,512
461,129
-
461,129
471,284
723,541
222,667
586,673
226,873
-
150,259
-
141,415
106,951
1,572,298
1,057,365
1,208,216
364,082
1,572,298
723,541
333,824
1,057,365
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2019 Annual Report
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
19. FINANCIAL ASSETS & LIABILITIES (Continued)
(b) The following table provides the fair value measurement hierarchy of the Group’s financial assets and liabilities
as at 31 December 2019:
As at 31 December 2019
Financial assets measurement at
fair value
Receivable on sale of collateral shares
Financial liabilities measured at fair
value
Derivative liabilities
Defined benefit plan
As at 31 December 2018
Financial liabilities measured at fair
value
Defined benefit plan
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Fair value measurement using
Quoted prices
in active
markets
(Level 1)
US$
Significant
observable
inputs
(Level 2)
US$
Significant
unobservable
inputs
(Level 3)
US$
Total
US$
766,818
766,818
766,818
766,818
150,259
141,415
291,674
106,951
106,951
-
-
-
-
-
-
150,259
141,415
291,674
106,951
106,951
-
-
-
-
-
-
There were no transfers between Level 1 and Level 2 during 2019 and 2018.
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(c) The following table provides the changes in liabilities arising from financing activities
2019
Advances from
third parties
Convertible
Securities and
derivative liability
Defined benefit
plan
Lease liabilities
1 January
2019
US$
Cashflows
US$
Foreign
exchange
US$
Changes in
fair values
US$
New
leases
US$
Other
US$
226,873
(2,193)
4,415
(6,429)
- 2,534,547
-
171,485
-
-
(1,969,100) (1)
736,932
106,951
-
-
(223,779)
333,824 2,308,575
(2,443)
(1,310)
662
16,990
-
- 305,736
182,046 305,736
19,917
112,406
141,415
193,053
(1,836,777) 1,294,066
31
December
2019
US$
-
222,666
Change in fair values reconciled as follows:
Fair value through profit or loss
Fair value through other comprehensive income
165,056
16,990
182,046
(1) Other transaction related to Convertible Securities includes interest accretion and the value of shares
converted on exercise of conversion notices during the financial year.
2018
Advances from
third parties
Defined benefit
plan
1 January
2018
US$
Cashflows
US$
Foreign
exchange
US$
Changes in
fair values
US$
New
leases
US$
Other
US$
31
December
2018
US$
236,342
(2,092)
(10,669)
3,292
139,036
375,378
-
(2,092)
(6,276)
(16,945)
(42,674)
(39,382)
-
-
-
-
226,873
16,865
16,865
106,951
333,824
BrainChip Holdings Ltd
2019 Annual Report
57
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
20. CONTRIBUTED EQUITY
2019
US$
2018
US$
(a) Ordinary Shares
Issued and fully paid
64,740,268
55,143,789
(b) Movements in ordinary shares on issue
At 1 January 2018
Issue of shares as remuneration to Mr Louis DiNardo (1)
Issue of shares to the Trustee of the BrainChip LTIP (2)
Conversion of Performance Rights
Conversion of Performance Rights
Issue of shares to third party for services performed (3)
Share issue costs incurred
At 31 December 2018
At 1 January 2019
Issue of shares as per Convertible Securities – refer note 17(2)(b)
Issue of shares as collateral in relation to the Convertible Securities –
refer note 17(2)(d)
Issue of shares upon non-renounceable entitlement (4)
Shares issued on conversion of Convertible Securities - refer note 17(2)(f)
Treasury shares disposed by CST Capital Pty Ltd - refer note 17(2)(g)
Share issue costs incurred
At 31 December 2019
Number
969,080,489
15,000,000
10,000,000
49,500,000
6,000,000
303,030
-
US$
53,570,901
1,563,870
-
-
-
35,578
(26,560)
1,049,883,519
55,143,789
1,049,883,519
1,561,279
55,143,789
-
30,000,000
178,753,609
77,177,256
-
-
-
7,507,560
1,549,251
1,023,820
(484,152)
1,337,375,663
64,740,268
(1) 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.
(2) On 9 October 2018, 10,000,000 shares were issued to the Trustee of the BrainChip Long Term Incentive Plan
for Nil consideration.
(3) 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.
(4) The Company issued 112,206,282 shares on 8 July 2019 raising A$6,732,377 (US$4,696,641) and
66,547,327 shares on 16 July 2019 raising a further A$3,992,840 (US$2,810,919).
(c) Treasury shares
Fully paid shares issued to CST Capital Pty Ltd
Fully paid shares issued to Trustee of Long Term Incentive Plan (“LTIP”)
Movements in Treasury shares
2019
Number
2018
Number
368,490
500,000
868,490
-
1,500,000
1,500,000
At 1 January
Shares issued to Trust from BrainChip Holdings Ltd (1)
Shares issued to CST Capital Pty Ltd – refer note 17(2)(c)
Shares disposed by CST Capital Pty Ltd
Shares issued by Trustee of the LTIP on conversion of Performance Rights
– refer note 23(b)
Shares Issued on conversion of Performance Rights
Shares Issued on conversion of Performance Rights
Shares Issued on conversion of RSU – refer note 20(g)
1,500,000
-
30,000,000
(29,581,510)
(1,000,000)
-
-
(50,000)
-
10,000,000
-
-
-
(1,000,000)
(7,500,000)
-
At 31 December
868,490
1,500,000
(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.
20. CONTRIBUTED EQUITY (Continued)
BrainChip Holdings Ltd
2019 Annual Report
58
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
(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)
Class E Performance Rights (2)
Opening
balance
1 January
2019
1,000,000
7,500,000
Converted
Cancelled
(1,000,000)
-
-
(7,500,000)
8,500,000
(1,000,000)
(7,500,000)
Closing
balance
31 December
2019
-
-
-
(1) 1,000,000 Class B Performance Rights previously issued to employees were converted to Treasury shares
on 8 June 2019 after the achievement of certain vesting conditions.
(2) Shareholders approved the cancellation of 7,500,000 performance rights previously issued to Mr DiNardo and
the issue of 7,500,000 options, exercisable at A$0.075, expiring 30 May 2029.
(f) Options on issue
Unissued ordinary shares of the Company under option at 31 December 2019 are as follows:
31 December
2019
Number
Exercise
Price (US$)
Expiry Date
31 December
2018
Number
Type
Options issued as part consideration as
part of the Acquisition
Unlisted
Options issued to shareholders
Unlisted
Options issued as share-based payments
10/09/2019
0.112
-
6,250,000
31/05/2020
0.171
20,000,000
20,000,000
Unlisted – refer Note 23(d)
Various
Various
175,068,976
136,700,000
Total
195,068,976
162,950,000
The above options are exercisable at any time on or before the expiry date.
(g) Restricted Stock Units (RSUs) on issue
Unissued ordinary shares of the Company under option at 31 December 2019 are as follows:
31 December
2019
Number
Type
31 December
2018
Number
Unlisted – refer Note 23(h)
Total
Movement in RSUs
1 January
Issue during the period
Converted during the period
31 December
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5,800,000
5,800,000
3,850,000
3,850,000
3,850,000
2,000,000
(50,000)
5,800,000
-
3,850,000
-
3,850,000
BrainChip Holdings Ltd
2019 Annual Report
59
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
21. RESERVES
Foreign
currency
reserve
US$
81,556
-
(1,030)
80,526
80,526
-
(7,723)
72,803
Share- based
payment
reserve
Other equity
reserve
Total
US$
10,733,454
5,730,073
-
16,463,527
16,463,527
1,955,337
-
18,418,864
US$
247,872
-
-
247,872
247,872
-
-
247,872
US$
11,062,882
5,730,073
(1,030)
16,791,925
16,791,925
1,955,337
(7,723)
18,739,539
CONSOLIDATED
At 1 January 2018
Share-based payments
Translation of foreign operations
At 31 December 2018
At 1 January 2019
Share-based payments
Translation of foreign operations
At 31 December 2019
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 Securities holders in BrainChip Inc., on 10 September 2015.
Translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the
financial statements of foreign operations.
22. ACCUMULATED LOSSES
At 1 January
Re-measurement (losses)/gains on defined benefit plans
Net loss in current period attributable to members of the Company
At 31 December
23. SHARE-BASED PAYMENTS
(a) Recognised share-based payment expenses
Performance Rights issued to employees
Options issued to directors, employees, contractors and CST
Restricted stock units issued to employees
Recognised in share-based payment reserve
Equity Instruments capitalised to Convertible Securities
Equity instruments reported as prepayments
Shares issued to director and consultants
Total share-based payment expense
2019
US$
2018
US$
(63,056,405)
(16,990)
(11,310,062)
(46,567,313)
34,094
(16,523,186)
(74,383,457)
(63,056,405)
2019
US$
358,447
1,384,201
212,689
1,955,337
(342,965)
23,741
-
1,636,113
2018
US$
1,438,285
4,190,478
101,310
5,730,073
-
-
1,575,729
7,305,802
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BrainChip Holdings Ltd
2019 Annual Report
60
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
23. SHARE-BASED PAYMENTS (Continued)
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.
(b) Performance Rights issued to employees
The following table summarises the movement in Performance Rights issued to employees:
Class B Performance Rights
Class E Performance Rights
Opening
balance
1 January
2019
1,000,000
7,500,000
8,500,000
Converted
during the
year
Cancelled
during the
year
(1,000,000)
-
(1,000,000)
-
(7,500,000)
(7,500,000)
Closing
balance
31 December
2019
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-
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(c) Performance rights valuation model
The fair value of the performance rights granted under the LTIP is estimated as at the date of grant using the
share price at the date of grant. No performance rights were issued during the year ended 31 December 2019.
The following table lists the fair value of performance rights issued during the prior year:
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F
2018 : Employees
Number of
performance rights
Grant date
1,000,000
15,000,000
16,000,000
8/06/2018
10/05/2018
Fair value at
grant date
$US
0.110
0.104
BrainChip Holdings Ltd
2019 Annual Report
61
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
23. SHARE-BASED PAYMENTS (Continued)
(d) Share Options granted as share-based payments
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The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in,
share options issued as share based payments during the year:
Outstanding at 1 January
Granted during the period
Forfeited during the period
Lapsed during the period
Expired during the period
Outstanding at the end of the period
Exercisable (vested and unrestricted)
at the end of the period
2019
Number
136,700,000
85,018,976
(28,275,000)
(11,375,000)
(7,000,000)
175,068,976
2019
WAEP
(US$)
0.165
0.056
(0.138)
(0.201)
(0.137)
2018
Number
164,300,000
11,400,000
(21,250,000)
(500,000)
(17,250,000)
0.115
136,700,000
2018
WAEP
(US$)
0.161
0.142
(0.128)
(0.215)
(0.150)
0.165
91,656,476
0.117
50,850,000
0.180
The weighted average remaining contractual life for the share options outstanding at 31 December 2019 is 3.23
years (2018: 3.83 years).
The weighted average fair value of options granted during the year was $0.081 (2018: $0.108)
The range of exercise prices for options outstanding at the end of the year was $0.037 to $0.242 (2018:
US$0.105 to US$0.258).
The above options are exercisable after vesting and at any time on or before the expiry date.
(e) Options granted under the Long Term Incentive Plan
Unissued ordinary shares of the Company under option at 31 December 2019 are as follows:
Grant Type
Grant Date
Expiry Date
LTIP (1)
LTIP (1)
LTIP (2)
LTIP (1)
LTIP (1)
LTIP (1)
LTIP (3)
LTIP (3)
AGM 2017 (4)
AGM 2017 (4)
AGM 2017 (5)
AGM 2017 (5)
AGM 2017 (5)
AGM 2017 (5)
LTIP (6)
LTIP (6)
LTIP (6)
LTIP (6)
LTIP (1)
LTIP (1)
LTIP (1)
LTIP (1)
LTIP (7)
LTIP (8)
LTIP (1)
LTIP (1)
LTIP (1)
LTIP (1)
LTIP (1)
4/12/2015
22/01/2016
28/09/2016
8/07/2016
7/10/2016
27/01/2017
30/01/2017
30/01/2017
31/05/2017
31/05/2017
31/05/2017
31/05/2017
31/05/2017
31/05/2017
7/07/2017
7/07/2017
7/07/2017
7/07/2017
28/11/2017
28/11/2017
28/11/2017
1/12/2017
5/03/2018
5/03/2018
5/03/2018
30/04/2018
30/04/2018
16/06/2018
19/11/2018
21/12/2020
01/02/2021
30/09/2021
10/10/2021
10/10/2021
16/02/2022
16/02/2022
31/12/2022
31/01/2023
31/01/2024
01/02/2023
01/02/2024
01/02/2025
01/02/2026
7/07/2023
7/07/2024
7/07/2025
7/07/2026
14/12/2022
14/12/2022
14/12/2022
14/12/2022
13/03/2028
13/03/2028
13/03/2028
08/06/2028
08/06/2028
16/06/2028
5/10/2028
Exercise
Price (US$)
0.172
0.165
0.172
0.113
0.205
0.242
0.185
0.185
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
0.103
Number
4,800,000
1,500,000
50,000,000
4,000,000
2,000,000
100,000
3,000,000
3,000,000
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
300,000
400,000
200,000
4,450,000
2,000,000
800,000
500,000
1,000,000
600,000
400,000
Vested at
year end
4,800,000
1,125,000
29,250,000
3,000,000
1,500,000
50,000
3,000,000
3,000,000
2,000,000
2,000,000
1,750,000
1,750,000
-
-
2,000,000
2,000,000
-
-
250,000
150,000
200,000
100,000
1,537,500
2,000,000
200,000
125,000
250,000
150,000
100,000
BrainChip Holdings Ltd
2019 Annual Report
62
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
23. SHARE-BASED PAYMENTS (Continued)
(e) Options granted under the Long Term Incentive Plan (continued)
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Grant Type
LTIP (9)
LTIP (10)
AGM 2019 (11)
LTIP (1)
LTIP (1)
LTIP (12)
Convertible Security
Agreement – note 17(c)
Total
Grant Date
11/03/2019
18/03/2019
30/05/2019
13/06/2019
23/09/2019
23/09/2019
Expiry Date
13/03/2029
18/03/2029
30/05/2029
30/05/2029
23/09/2029
23/09/2029
Exercise
Price (US$)
0.047
0.042
0.069
0.037
0.031
0.035
13/06/2019
26/06/2022
0.081
Number
20,000,000
22,000,000
7,500,000
4,150,000
500,000
500,000
Vested at
year end
-
-
7,500,000
-
-
-
21,868,976
175,068,976
21,868,976
91,656,476
(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) 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.
(4) 4,000,000 unlisted vested options held after the resignation of the Director. The options will lapse if not
exercised by 1 April 2020.
(5) 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.
(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 (7 July 2017) so long as continuous service is provided and expire five years from each vesting
date.
(7) 4,450,000 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;
- 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.
(8) 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.
(9) 7,500,000 options vest on the first anniversary of the grant date, with 1/36th monthly thereafter; 2,500,000
options will vest each anniversary of the grant date.
(10) 7,500,000 options vest on the first anniversary of the grant date, with 1/36th monthly thereafter; 3,000,000
options will vest each anniversary of the grant date.
(11) 7,500,000 options were issued to Mr DiNardo in replacement of cancelled performance rights – refer also
Note 20(e).
(12) 25% vests on the first anniversary of the grant date, with 1/36th monthly thereafter.
(f) Options forfeited and lapsed during the period are as follows:
Type
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Total
Grant
Date
4/12/2015
5/03/2017
31/05/2017
31/05/2017
28/11/2017
5/03/2018
17/07/2018
30/05/2019
01/11/2016
6/9/2019
Expiry Date
21/12/2020
31/03/2022
31/01/2025
31/01/2026
14/12/2022
13/03/2028
17/07/2028
30/05/2029
01/11/2019
06/09/2019
Exercise
Price (US$)
0.172
0.209
0.138
0.138
0.141
0.171
0.108
0.037
0.137
0.052
Number
forfeited
500,000
10,000,000
2,000,000
2,000,000
3,750,000
1,025,000
500,000
500,000
-
8,000,000
28,275,000
Number
lapsed
-
10,000,000
-
-
1,250,000
125,000
-
-
-
-
11,375,000
Number
expired
-
-
-
-
-
-
-
-
7,000,000
-
7,000,000
BrainChip Holdings Ltd
2019 Annual Report
63
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
23. SHARE-BASED PAYMENTS (Continued)
(g) Options pricing model
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(i) Options issued under LTIP - 2019
The fair value of the equity-settled share options granted under the LTIP 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 2019:
Director
Employees
Number of
options
8,000,000
22,000,000
20,000,000
7,500,000
4,650,000
500,000
500,000
Fair value at
measurement
date
$US
0.031
0.038
0.039
0.030
0.042
0.023
0.028
Share price
at Grant
Date
US$
0.037
0.045
0.045
0.037
0.048
0.026
0.032
Exercise
price
US$
0.052
0.047
0.042
0.069
0.037
0.031
0.035
Expected
volatility
(%)
88.4
88.4
88.4
88.4
94.5
94.4
95.3
Risk-free
interest rate
(%)
1.50
1.44
1.44
1.50
1.17
0.96
1.00
Expected
life of
options in
years
10.3
10.0
10.0
10.1
10.0
10.0
10.0
Options issued under LTIP - 2018
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
Employees
Consultants
(ii) Options issued in accordance with Convertible Securities Agreement
The fair value of the equity-settled share options granted in accordance with the Convertible Securities
Agreement is estimated as at the date of grant using a Black Scholes Option Pricing model applying the
following inputs:
Number of
options
Fair value at
measurement
date
US$
Share price at
Grant Date
US$
Exercise price
US$
Expected
Volatility
(%)
Risk-free
interest rate
(%)
Expected
life of
options in
years
21,868,976
0.03
0.053
0.082
92.0
0.98
3
The expected dividend yield for all options granted during the period was nil. The expected life of the share
options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The
expected volatility reflects the assumption that the historical volatility over a period similar to the life of the
options is indicative of future trends, which may not necessarily be the actual outcome.
BrainChip Holdings Ltd
2019 Annual Report
64
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
23. SHARE-BASED PAYMENTS (Continued)
(h) Restricted Stock Units issued as share-based payments
The Company granted the following Restricted Stock Units to employees, the fair value of which is estimated
using the share price on the date of the grant. The RSUs are subject to a 2 year vesting period effective from
date of grant.
Number of RSUs
granted
Grant date
2019 : Employees
2,000,000
26/06/2019
2018 : Employees
2,000,000
2,950,000
50,000
300,000
200,000
150,000
200,000
3,850,000
8/06/2018
17/7/2018
6/8/2018
3/9/2018
8/10/2018
19/11/2018
24. COMMITMENTS
Operating lease commitments - Company as lessee
Office lease
Up to one year
Two to five years
More than five years
Fair value at grant
date
$US
0.048
0.107
0.103
0.107
0.089
0.089
0.089
0.088
Number of RSUs
converted
50,000
50,000
-
-
-
-
-
-
-
2019 (1)
US$
2018
US$
-
-
-
-
177,388
-
-
177,388
(1) No activity reported in 2019 as modified retroactive approach adopted in line with AASB 16 Leases – refer
Note 2.
25. CONTINGENT ASSETS AND LIABILITIES
The Group had no contingent assets or liabilities at 31 December 2019 (31 December 2018: $Nil).
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2019 Annual Report
65
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
26. EVENTS AFTER THE BALANCE SHEET DATE
In January 2020, CST converted 136,799 Convertible Securities in exchange for reallocation of Collateral Shares
in accordance with the CSA dated 26 June 2019.
CST also elected to pay for 10,000,000 collateral shares previously sold at A$0.052 resulting in a financial cash
inflow of A$500,000 net of costs in January 2020 and 5,025,521 collateral shares previously sold at A$0.046
resulting in a financial cash inflow of A$230,944 in February 2020.
On 29 January 2020 the Company announced the departure of Dr. Adam Osseiran from the Board of Directors
and his appointment as the Chair the Company’s Scientific Advisory Board. On the same day, Mr Peter van der
Made was appointed to the Board of Directors as Executive Director.
On 14 February 2020, the Company officially received an EAR99 classification for its Akida™ Neuromorphic
System-on-Chip (NSoC), Akida Software Development Environment (ADE) and related technologies from the
U.S. Government. The U.S. Department of Commerce Bureau of Industry and Security (BIS) also established
Akida as not being classified as identified technology for the purposes of the Committee on
Foreign Investment (CFIUS), which could otherwise limit investment. The BIS ruling now allows BrainChip to
export its AI technology, without additional U.S. government license, to non-restricted customers, including to
high-growth customers in countries such as Japan, Korea, China and Taiwan.
No other matters or circumstances have arisen since the end of the financial year which significantly affected or
may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the
Group in subsequent financial years.
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27. AUDITOR’S REMUNERATION
Amounts received or due to be receivable by Ernst & Young (Australia) for:
An audit or review of the financial reports of the entity
Amounts received or due and receivable by non-Ernst & Young audit firms
for:
An audit or review of the financial report of the entity
2019
US$
2018
US$
96,460
96,460
87,370
87,370
9,785
9,785
10,255
10,255
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2019 Annual Report
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
28. OPERATING SEGMENTS
For management purposes, the Group is organised into one operating segment, being the technological
development of designs that can be licensed to OEM (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
2019
US$
2018
US$
12,231
63,343
75,574
722,586
225,403
947,989
Customers representing more than 10% of revenues in the current year amounted to $10,000 of product sales
from an Asian customer and $60,958 of development service revenue from European customers, comprising
Customer A: $22,228 and Customer B $38,730.
In the prior year, customers representing more than 10% of revenues totaled $712,500 from a North American
customer comprising license revenue of $200,000 and development service revenue of $512,500. Development
service revenue includes (i) further development of existing licensed technology and/or (ii) engineering services
for existing licensed technology.
Non-current assets
North America
EMEA
2019
US$
1,104,788
1,076,469
2,181,257
2018
US$
1,018,340
982,188
2,000,528
29. RELATED PARTY DISCLOSURES
(a) Ultimate parent
(b) Subsidiaries
The ultimate legal Australian parent entity and the ultimate legal parent entity of the Group is BrainChip
Holdings Ltd.
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
Country of
incorporation
USA
Beneficial interest
2019
100%
2018
100%
France
100%
100%
(1) BrainChip Holdings Ltd holds 100% of the shares of BrainChip Inc. effective from 10 September 2015.
(c) Other entities
The consolidated financial statements include the following entities controlled by BrainChip Holdings Ltd:
Beneficial interest
2018
-
Name
BrainChip Long Term Incentive Plan Trust (1)
Country of
registration
Australia
2019
-
(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.
BrainChip Holdings Ltd
2019 Annual Report
67
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
29. RELATED PARTY DISCLOSURES (continued)
(d) Key Management Personnel compensation
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Total remuneration paid to KMP of the Group during the year are as follows:
Short-term employee benefits
Share-based payment
Related party transactions with KMPs of the Group are as follows:
There were no related party transactions with KMPs of the Group.
2019
US$
1,994,008
713,016
2,707,024
2018
US$
1,986,750
5,917,796
7,904,546
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(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 2018: $Nil).
30.
PARENT ENTITY INFORMATION
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Information relating to BrainChip Holdings Ltd
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Issued capital
Other contributed equity
Accumulated losses
Share-based payment reserve
Option premium reserve
Foreign currency translation reserve
Other reserves
Total shareholders’ equity
Net loss of the parent entity (1)
Total comprehensive loss of the parent entity
2019
US$
2018
US$
6,373,463
3,538,746
9,912,209
(815,859)
-
(815,859)
9,096,350
318,207
8,879,309
9,197,516
(87,099)
-
(87,099)
9,110,417
89,961,546
2,025,617
(121,309,888)
38,189,372
480,731
-
(251,028)
9,096,350
80,383,215
2,025,617
(109,836,277)
36,308,159
480,731
-
(251,028)
9,110,417
12,563,187
12,563,187
15,239,650
15,239,650
(1) At the reporting date investments and loans receivable from controlled entities net of provision for impairment
totalled $3,537,745 (2018: $8,879,309). Impairment expense of $8,684,413 (2018: $7,742,170) was
recognised for the year ended 31 December 2019.
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
BrainChip Holdings Ltd
2019 Annual Report
68
Directors’ Declaration
In accordance with a resolution of the Directors of BrainChip Holdings Ltd, I state that:
In the opinion of the Directors:
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(b)
(c)
(d)
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(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 2019 and of their performance for the year ended on that date; and
complying with the Australian Accounting Standards (including the Australian Accounting
Interpretations) and Corporations Regulations 2001; and
the financial statements and notes also comply with International Financial Reporting Standards as
disclosed in note 2(b) and;
subject to the matters described in note 2(a), there are reasonable grounds to believe that the
Company will be able to pay its debts as and when they become due and payable; and
this declaration has been made after receiving the declarations required to be made to the Directors in
accordance with section 295A of the Corporations Act 2001 for the financial year ended 31 December
2019.
On behalf of the Board.
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Emmanuel T. Hernandez
Chair
California, U.S.A., 25 February 2020
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2019 Annual Report
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Ernst & Young
11 Mounts Bay Road
Perth WA 6000 Australia
GPO Box M939 Perth WA 6843
Tel: +61 8 9429 2222
Fax: +61 8 9429 2436
ey.com/au
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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 2019, the consolidated statement of profit or loss and other comprehensive income, the
consolidated statement of changes in equity and the 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 2019 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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
PT:KW:BRAINCHIP:046
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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 matters described below to be the key audit matter to be
communicated in our report. For the matters below, our description of how our audit addressed the
matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of material
misstatement of the financial report. The results of our audit procedures, including the procedures
performed to address the matters below, provide the basis for our audit opinion on the accompanying
financial report.
Convertible notes
Why significant
How our audit addressed the key audit matter
As disclosed in Note 17 to the financial
statements, the Group has entered into an
unsecured Convertible Securities Agreement
(“CSA”) with CST Capital Pty Ltd (“CST”), under
which the Company has issued convertible
securities with a face value of US$2,850,000
(“Convertible Securities”) to CST for a term of
12 months.
The accounting treatment and the valuation of
Convertible Securities were complex due to
significant judgement involved in identifying and
valuing derivatives embedded within the
Convertible Securities.
At year end the Convertible Security and
associated embedded derivatives were valued at
US$0.6 million and US$0.2 million respectively.
As such this matter was determined to be a key
audit matter.
Our audit procedures included the following:
► Evaluated the Group’s accounting treatment of
the Convertible Securities.
► Reviewed the Group’s valuations of the
Convertible Securities, including assessing the
methodology used for the valuations.
►
Involved our valuation specialists and considered
the reasonableness of the assumptions used in
the valuation by agreeing key inputs such as
maturity, repayment and conversion terms and
pricing to the agreement; as well as assessing
volatility used in the valuation by reference to
historical share price information.
We also assessed the adequacy of the presentation
and disclosures included in Note 17 to the financial
statements.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
PT:KW:BRAINCHIP:046
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Share-based payment
Why significant
How our audit addressed the key audit matter
As disclosed in Notes 20 and 23 to the financial
statements, the Group has awarded significant
share-based payments to employees, Directors,
consultants and CST during the year,
contributing to a total share-based payment
expense of approximately US$1.6 million and a
reduction in debt of US$0.3 million.
The valuation of share-based payments is
complex and involves the use of subjective
assumptions that have a material effect on the
financial statements. As such this matter was
determined to be a key audit matter.
We assessed the Group’s determination of share
based payment expense to ensure the balances were
calculated in accordance with the applicable
Australian Accounting Standards.
We involved our valuation specialists to assess the
Group’s calculation of the fair value of share-based
payments issued during the year, including assessing
the key assumptions used.
We also assessed the adequacy of the disclosures
included in Notes 20 and 23 to the financial
statements, including whether the classifications and
disclosures were presented in accordance with the
applicable Australian Accounting Standards.
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 2019 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:KW:BRAINCHIP:046
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In preparing the financial report, the directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters relating to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgment and maintain professional scepticism throughout the audit. We also:
►
►
►
►
►
►
Identify and assess the risks of material misstatement of the financial report, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
PT:KW:BRAINCHIP:046
Page 5
We communicate with the directors regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated to the directors, we determine those matters that were of most
significance in the audit of the financial report of the current year and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should
not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Report on the Audit of the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in the directors' report for the year ended
31 December 2019.
In our opinion, the Remuneration Report of BrainChip Holdings Ltd for the year ended
31 December 2019, 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
26 February 2020
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A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
PT:KW:BRAINCHIP:046
Additional Shareholder Information as at 24 January 2020
(a) Top 20 Quoted Shareholders
%
Number of
shares
MR PETER AJ VAN DER MADE
13.18
176,305,508
MR ROBERT F MITRO
MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED (1)
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
MR ANIL SHAMRAO MANKAR & MRS MEENA ANIL MANKAR
(1)
CST CAPITAL PTY LTD
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
NERONA PTE LTD
MR PAUL GLENDON HUNTER
MS CRISTINA M MITRO
MS VELIA MITRO
CROSSFIELD INTECH NOMINEES PTY LTD
MR ADAM OSSEIRAN + MRS REBECCA OSSEIRAN-MOISSON
MR LOUIS DINARDO
AJAVA HOLDINGS PTY LTD
MR JEFFREY BRIAN WALTON
ZERO NOMINEES PTY LTD
BNP PARIBAS NOMINEES PTY LTD
8.99
7.47
1.72
1.70
1.70
1.58
1.38
0.98
0.75
0.75
0.75
0.70
0.70
0.56
0.44
0.41
0.41
0.38
120,202,500
99,920,715
22,983,041
22,750,000
22,679,381
21,180,843
18,504,946
13,159,500
10,000,000
10,000,000
10,000,000
9,338,500
9,338,500
7,500,000
5,860,281
4,100,000
5,477,265
5,123,765
Total
44.55%
595,824,745
(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
162
2,249
1,693
4,678
1,411
Number of
shares
35,606
7,750,173
13,809,213
171,985,663
1,143,795,008
10,193
1,337,375,663
%
-
0.58
1.03
12.86
85.53
100.0
There are 3,397 holders with less than a marketable parcel of ordinary shares based on the Company’s closing
market price of $0.054 on 24 February 2020.
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75
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Additional Shareholder Information as at 24 January 2020
(ii) Distribution of unquoted securities
Number of
Option
holders
Number of
options
Number of
perfor-
mance
rights
holders
Number of
perform-
ance
rights
Number of
restricted
stock unit
holders
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
-
-
-
6
8
-
-
-
548,424
174,520,552
Total
74
175,068,976
-
-
-
-
-
-
-
-
-
8
16
24
-
-
Number of
restricted
stock units
-
-
-
600,000
5,200,000
5,800,000
(c) Substantial Shareholders
MR PETER AJ VAN DER MADE
MR ROBERT F MITRO
MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED (1)
%
Number of
shares
13.18
176,305,508
8.99
7.47
120,202,500
99,920,715
(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.
BrainChip Holdings Ltd
2019 Annual Report
76