Company Overview: BrainChip Holdings Limited, formerly Aziana Limited, is an Australia-based company, which is engaged in the development of neural computing technology. The Company focuses on its spiking neuron adaptive processor (SNAP) technology and licensing the SNAP technology with technology partners. The Company operates through the technological development of designs segment. The Company's SNAP offer a complete development solution for companies entering the neuromorphic semiconductor chip market. SNAP is a core enabling technology in Neuromorphic semiconductor chips that possesses various applications, such as gaming, cyber security, robotic technology and stock market forecasting, among others. SNAP also implements learning rules in hardware, enabling autonomous features extraction (AFE) directly from input data without the need for any software processing. Its subsidiaries include BrainChip Inc., AZK Merger Subsidiary Inc., Aziana Exploration Corporation and Eternal Resources Pty Ltd.


BRN Details

BrainChip Holdings Ltd (ASX: BRN), a small cap company with market capitalization of approximately $ 131.20 million, is a provider of software and hardware solutions for artificial intelligence and machine learning applications in diverse regions including North America and Europe. BRN (which was formerly known as Aziana Limited) has been providing Spiking Neuron Adaptive Processor that is capable of learning autonomously, evolving itself, and associating information just like the way human brain does. The proprietary technology is efficient and quick, digital and also consumes low power; and these capabilities seem to have an edge over competitors’ products. The stock of the company is trading at low levels and is expected to witness upsurge at the back of improvement in top line performance, return on equity and other key financial metrics over the next two years.


Financial Parameters (Source: Company Reports and Thomson Reuters)

Approves Achievement of Milestone 4 License Agreement: BRN stock had surged after the company’s board of directors had approved the achievement of Milestone 4, which has been the final milestone for vesting management incentives that were approved by shareholders when BRN was listed on the ASX. Overall, there were four milestones attached to the incentives. Milestones 1, 2 and 3 were already previously achieved and all Performance Rights associated with these milestones have been vested into ordinary shares. It is to be noted that Milestone 4 was based on execution of an unconditional binding licensing agreement associated with an upfront payment of a minimum of AU $ 500,000. In January of 2018, BRN had signed a License and Development Agreement with Gaming Partners International Corp (GPI). As per the Agreement, the payment of US$500K (approximately AU$660K) was required for a license to the Company’s technology.  The Company has now received full payment for the upfront license fee and has fulfilled all requirements of Milestone 4. Therefore, the Performance Rights associated with Milestone 4 have now vested into ordinary shares. The group along with GPI, in January 2018, signed the global licensing and development agreement to establish technology for supporting GPI’s advanced ATS (automated table solution) developed to collect and analyze data in real-time scenario. Primarily, the system was being worked upon to combine GPI's exclusive and innovative SMART RFID technology with an advanced visual identification system from BRN’s technology platform. This was done to enable integration of multiple technologies; and it also provides flexibility to meet the evolving technology requirement for data analytics in the gaming industry.


BRN Timelines (Source: Company Reports)

First company to launch the Akida Neuromorphic System-on-Chip (NSoC) in the market: BRN has established itself to be the first one that introduced spiking neural network architecture, the Akida Neuromorphic System-on-Chip (NSoC) to the market. The architecture has helped the company strengthen its position as the leader in acceleration of artificial intelligence (AI) at the edge and the enterprise. Akida NSoC is ideal for edge applications that are related  to advanced driver assistance systems (ADAS), drones, vision-guided robotics, autonomous vehicles, surveillance and machine vision systems. This is because Akida NSoC is known to be a low-cost, small infrastructure and low power driven platform. Akida NSoC’s scalability will allow the users to network many Akida devices together to perform complex neural network training and inferencing for many markets including agricultural technology (AgTech), cybersecurity and financial technology (FinTech). Moreover, it is expected that the artificial intelligence acceleration chipset marketplace will surpass US$60 billion by 2025. Neuromorphic computing can significantly accelerate AI, especially for low-power applications. There are many technical hurdles that can be resolved, and the industry will deploy a new class of AI-optimized hardware over the next few years. Further, BRN is collaborating with major global manufacturers in a multi-market strategy to boost early adoption of the Akida NSoC.


Akida NSoC Architecture (Source: Company Reports)

License to Cybersecurity Technology: BRN has lately signed an agreement with the Democritus University of Thrace, located in Greece. The agreement consists of a license to their cybersecurity technology and their researchers’ support in porting the technology to the Akida Development Environment. The cybersecurity technology comprises of the data-to-spike convertors and is specifically designed for network intrusion and anomaly detection using a spiking neural network (SNN) that can be accelerated by the Akida Neuromorphic System-on-Chip (NSoC). The transaction consideration will be incurred over several quarters and will not have a material impact on the Company’s cash position.

Signed the Partnership with Telesikring to deliver AI-powered Video Analytics to Police and Security Customers across Scandinavia: BRN has signed a strategic partnership with Telesikring, which is  Denmark’s largest Danish-owned installer of security solutions for small, medium and large companies. Both the companies are expected to jointly address the growing needs of law enforcement and end users to efficiently and quickly classify suspects using the latest award-winning AI powered software platform for object recognition and facial classification, BrainChip Studio. Under the terms of the partnership, Telesikring will agree to promote, install, and support BRN’s growing portfolio of AI-powered software and hardware solutions across their existing and new video security customer base. Therefore, the new alliance is expected to boost object search and facial recognition video solutions. Further, securing Telesikring as the company’s first Technical Sales Partner in Scandinavia will help to expand BRN’s presence in the Scandinavian video surveillance and security industry, which the company plans to extend across the region. Meanwhile, the Danish security market, incorporating video surveillance services, is currently valued at DKK 475 million (around US$75 million), as per Statista. The market is projected to grow to DKK 845 million (around US$133 million) by 2022.

Cash Flow at the end of the September quarter: The Company had ended the September 2018 quarter with a cash balance of US$9.995M. The Cash receipts for the September quarter were US$246,000. The company’s headcount at the end of the September quarter was 35 fulltime employees and two fulltime contractors in sales and marketing. Further, in the June quarter the Company had invoiced SNTech US$609,135, which was based on an existing Licensing and Development Agreement. SNTech has disputed regarding the invoice and the company had initiated a full audit of SNTech’s books, records and source code. The results of this audit are expected in November 2018.

Further Developments during the September Quarter: During the September quarter, Civil Surveillance and Public Safety engagements have expanded significantly in the US and Europe regions as the Company’s sales related activities have enhanced and include end-user coverage in all major markets. The major metropolitan law enforcement agencies throughout Europe and the US have ongoing or pending trials of BrainChip Studio, which is expected to reach completion in 2018 and early 2019. Original Equipment Manufacture engagements are strong and include surveillance manufacturers, global server providers and global storage providers that currently serve the Civil Surveillance, Public Safety and Media and Entertainment markets. The first commercial agreement with a large surveillance manufacturer is expected by year end 2018. Moreover, during the September quarter, Gaming Partners International joint development are going on as per schedule. The Advanced Table Solution was well received by customers at the Las Vegas G2E Conference in October of 2018. The Company plans to execute a Commercial Agreement with GPI in November 2018 in anticipation of ATS installations in 2019.  The agreement will provide BrainChip a revenue share of 25% of all ATS deployments that include the vision system. The agreement is anticipated to have a term of 10 years.  Revenue is expected to be ongoing on a dollars per table per day basis.

Departure of Chief Financial Officer: BRN’s Chief Financial Officer, Ryan Benton has left the Company on 14 September 2018 to pursue other interests. The company has initiated a global search for a seasoned professional to join BRN’s leadership team.


AI based chipset Forecast (Source: Company Reports)

Future Outlook: BRN, in the December quarter of 2018, anticipates an increase in cash receipts from OEMs, System Integrators and other partners. The Company’s sales pipeline is growing and now comprise of over 500 leads, 105 active accounts, 55 qualified opportunities and 17 design wins. The Company currently supports approximately 21 committed or active trials for which most are covered by Non-Disclosure Agreements.

Stock Recommendation: BRN stock has fallen 21.88% in three months as on November 01, 2018 and is trading at a low level. The company’s stock has support at $0.11 and resistance at $0.20. The company has lot of things in the pipeline and operates in  an environment, that requires constant innovation. The group has also planned for sampling of Akida in 2H 2019. The group is expected to witness positive Earnings per share, return on equity and invested capital in next two years; and these can boost the stock in terms of a double digit rise (%). Based on the foregoing, we give a “Speculative Buy” recommendation on the stock at the current price of $0.125.
 

BRN Daily Chart (Source: Thomson Reuters)

 
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