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

Several Developments will Drive Future Growth: BrainChip Holdings Limited (ASX: BRN) had earlier reported the performance for the quarter ending September 2018. The release stating the performance of the September 2018 quarter contained information about the developments which the company has gone through. During the quarter, the company entered into the strategic partnership with Telesikring to deliver Al-powered Video Analytics to Police and Security Customers across Scandinavia. Along with this, the company also announced its other developments such as introducing Neuromorphic System-on-Chip Architecture, the license of Cybersecurity technology from Thrace University, and demonstration on its vision system with the GPI’s Automated Table Solution which was at G2E gaming conference. In our view, these developments will drive the future growth and support to generate revenue in years to come. Talking about the company’s cash flow statement, net cash used in the operating activities amounted to $1.64 million in the September 2018 quarter largely because of the payments made. The company had given payments for advertising and marketing, product manufacturing and operating costs as well as research and development. However, the company had also made payments towards administration and corporate costs as well as staff costs. At the end of the September 2018 quarter, the company had a cash balance amounting to US$9.995 million. During the same period, its cash receipts stood at US$246,000.Further, the company estimated cash outflow for the next quarter of approximately $2.40 Mn, comprising of R&D expenses, product manufacturing cost, advertising and marketing cost, employee cost, administrative and corporate costs, and other expenses.


 
BrainChip Studio Development History (Source: Company Reports)

View of Broader Markets: In the report for the September 2018 quarter, BrainChip Holdings had also given the broad overview of the markets. The company had stated that the automotive developments are progressing with respect to the multiple multinational companies which are in the business of third-party suppliers and automotive manufacturers. In terms of the engagements, BrainChip Studio and Accelerator witnessed demonstrations during the time period. However, Akida architecture, as well as the development environment, were used for the purposes of Advanced Driver Assisted Systems and Autonomous Vehicle developments. The company had also stated that, with respect to Advanced Driver Assisted Systems as well as Autonomous Vehicle developments, third-party providers and automotive manufacturers are customers of high-value which are having the critical needs to use the AI solutions in the automobiles. With respect to the Civil Surveillance and Public Safety, the engagements are on the rise when it comes to Europe and the US market because the sales organization of BRN has been expanded. The company’s BrainChip Studio has been witnessing trials with regards to major metropolitan law enforcement agencies.

Synergistic Agreement with SoftCryptum: Recently, BrainChip Holdings Limited had made an announcement related to the signing of an agreement with SoftCryptum. As per the press release dated January 8, 2019, the company stated that an agreement had been entered with SoftCryptum so that it can sell its AI-powered video analytics solutions to the government agencies which are present in Belgium, France as well as Switzerland. The press release also threw light on the business of SoftCryptum. The release stated that SoftCryptum is engaged in the business of selling security as well as data analytical solutions. The sale is made largely to the government agencies which are in the need of video as well as image content analysis tools for the purposes of CCTV footage.

The commissioning of the company’s video analytics solution, which happens to be based upon spiking neural networks, had been done by the numerous European government agencies to support them in the process of investigations. The top management of SoftCryptum had stated that they would be utilising the expanding customer base so that the adoption pace of BRN’s technology increases. We expect that BrainChip Holdings is expected to get benefitted by this partnership moving forward. SoftCryptum happens to have robust network of contacts when it comes to Law Enforcement, Defense as well as Intelligence Agencies which could drive quicker adoption of BRN’s technology.

Business Update Related to Gaming Partners International:  Recently, the company announced about business update related to Gaming Partners International (GPI) wherein GPI demonstrates the integrated vision system at the G2E gaming conference in Las Vegas, Nevada and received a good response by the customers from the conference. BrainChip Holdings Limited also stated that the license fees amounting to US$500,000 had also been given in full in the month of September 2018. The engineering fees amounting to US$100,000 is paid and both the companies have decided on the additional engineering fees which are related to enhancements as well as additional work.

Focusing on Protecting Intellectual Property: BrainChip Holdings Limited had recently released a press release which contained information related to the company’s plans of strengthening the Intellectual Property Protection. The company had made an announcement about the filing of omnibus provisional US patent application. As per the release, the filing had been done with USPTO (or United States Patent and Trademark Office). The company stated that it is planning to safeguard numerous inventions which had been made and which are present in Akida Neuromorphic System-on-Chip (or NSoC).

According to BrainChip Holdings, one of the primary strategies of the company is safeguard the intellectual property. This is because its success is dependent upon largely on the maintenance of proprietary nature with respect to the foundational technology. The intellectual property portfolio (patent portfolio) of the company also consists of 10 other patents which had been filed or granted and cover innovations with regards to neuromorphic computing and includes autonomous feature extraction, autonomous learning, neural processor acceleration as well as pattern recognition.  In the United States as well as in other countries, there are plans that the company would be making more patent applications.

Robust Customer Base: BrainChip Holdings Limited happens to possess a robust customer base, and the company is engaged in selling the products with the help of original equipment manufacturers, integrators as well as other partners. The company is also having a wide customer base on a global basis. Its customers include Rockwell Collins, Advisian, Police Nationale, Airbus, Cisco, Safran, and many others. Hence, we believe that the diversity of BRN’s customers will support topline growth in years to come.

 
Robust Customer Base (Source: Company Reports)

Business Update Related to SN Tech: BrainChip Holdings Limited had also provided an update related to the business with SN Tech. As per the update, US$609,135 had been invoiced by BrainChip Holdings to SN Tech for the purposes of the deployment at Lockport School District which happens to be in the New York state. However, BrainChip Holdings had even conducted an audit of the books as well as records of SN Tech after the invoice was disputed by SN Tech.
A preliminary audit got concluded in the month of November 2018 and it was revealed that the information was not complete. BrainChip Holdings further requested for the information from Lockport School District via FOIA (or Freedom of Information Act) request. This was made so that BrainChip Holdings can get information related to involved parties, deployment as well as the payments made by the Lockport. BrainChip Holdings Limited had stated that they would be analysing the legal remedies.  

Akida-Product Development- A Growth Catalyst: As per the presentation for the year-end update, BrainChip Holdings provided some insights related to Akida. With respect to the development environment, it has been launched and the company process of the enhancements is ongoing. The company added that the FPGA Design is expected to complete in the month of January for the purposes of the internal logic evaluation. With regards to the manufacturing plan, the company stated that the vendor, as well as process selection, is expected to be done in January.  

   
Akida at the Edge AI: Product Development (Source: Company Reports)

Stock Recommendation: In the last three months, the stock has been down by around 28.15% and is trading close to its low levels. The technical indicator, Moving Average Convergence Divergence or MACD has been applied on the daily chart of BrainChip Holdings Limited, and default values were considered for the purposes. As per the observation, the MACD line has crossed the signal line and has moved in the upward direction after the crossover which signifies the bullish momentum. Also, Exponential Moving Average or EMA had been applied by using the default values and it was seen that the stock price is about to cross the EMA. Further, the company is expected to get supported by the robust customer base and by the agreement which has been signed with SoftCryptum. With the help of SoftCryptum, the company is expected to witness higher adoption of technology. In addition to these factors, the company might also benefit with the help of its strategy of safeguarding the intellectual property. From the analysis front, the company has witnessed improvement in its cash cycle on YoY from 572 days to 194 days as of June 2018 over the prior corresponding period. The current ratio substantially increased from 4.60 to 12.09 in 1HFY18 over the prior corresponding period. Moreover, BRN is also making efforts to improve its ROE. Hence, we give a “Speculative Buy” recommendation on the company at the current market price of A$0.092 per share, considering aforesaid facts and current trading scenario.


BRN Daily Chart (Source: Thomson Reuters)

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