Ann: Annual Report FY20, page-20

Sydney, Australia – 27 January 2021 – BrainChip HoldingsLtd (ASX: BRN), a leading provider of ultra-low power high performance AItechnology, today provides the following update in conjunction with itsAppendix 4C lodged for the quarter ending 31 December 2020.

The Company ended the December quarter with US$19.1M in cash compared to US$12.2M in the prior quarter. Subsequent to the quarter the Company increased its cash balance and as of 24 January 2021 had US$21.8M on balance.

1.Cash inflows during January included proceeds fromcustomers for IP and EAP sales, as well as the exercise of employee andinvestor stock options. During the quarter, the Company had net cash outflows from operating activities of US$2.69M compared to US$2.2M in the prior quarter.

2.The increase in expenses was primarily to support theCompany’s validation of the AkidaTM device, the development of evaluationboards to support the Early Access Program, additional sales and marketing expenses as well as public company expenses associated with a significant growth in the Company’s shareholder base. As previously announced, the Company has entered into several additional agreements for its Early Access Program (EAP) and signed it first commercial agreement for the delivery of the Akida intellectual property to a leading Japanese semiconductor company.

3.Further cash receipts from IP and EAP customers areexpected in the quarter ending March 2021.

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Annual Report 2020

We are pleased with the success of the funding arrangement which has placed us in a strong cash position; with US$19.1 million at year end and access to an additional A$34 million.

4. Shareholders should note that the treatment ofthis arrangement as a financial derivative related to the improved share priceand the stronger AUD$ created a US$15.6 million non-cash accounting loss.

5. The POA was amended effective 22 October 2020, notingthat BrainChip had fulfilled its obligation under the original agreement andthat LDA Capital had agreed to increase the available funding to A$45 millionalong with an increase in BrainChip’s minimum obligation to A$20 million,inclusive of any funds received under the first Capital call noted issued priorto the amendment.

6.The Group made a net loss after income tax for the yearended 31 December 2020 of $26,822,049 (2019: $11,310,062). The current yearloss included non-cash losses of $10,137,774 of which $10,014,541 resulted fromthe fair valuation of the LDA financial liabilities (derivatives) recogniseddue to the agreed pricing mechanism. Current year loss also included $5,085,464related to the amortisation of the deferred day one loss on recognition of theLDA Capital put option premium, being the difference between the totalconsideration payable and the derivative asset recognised.

7. Total operating expenses for the year ended 31December 2020 of $11,242,032 increased 2% from $11,004,318 incurred in the yearended 31 December 2019.

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I have extracted the above from the 27 January, 2021 4C and the Annual Report published today 26 February, 2021. I have broken up the important information numbered each point and made bold the text. I will use the numbering I have applied to make the following comments:

1. The 4C confirms that Brainchip has received in January, 2021 additional income from new EAP customers and from the sale of Intellectual Property which is assumed to be Renesas.

2. The increase in expenses in the 4^th quarter 2020 was as a result primarily of work done by Brainchip to validate the AKIDA system on a chip and Boards.

3. Brainchip is expecting further income from the sale of AKIDA intellectual property and EAP customers during 1^st quarter 2021 which ends 30 March, 2021.

4. Brainchip advises that it has for accounting purposes treated the monies it has received under the LDA Capital financing deal as a liability by way of a paper loss even though it received the majority of these funds into its own accounts so the operating loss should for practical purposes be reduced by US$15,600,000.

5. Brainchip after fulfilling the original terms of its capital raise agreement with LDA entered a further agreement with LDA to extend the capital it can raise through them to a total of $45 million dollars US with a minimum draw down of $20 million which after having regard to the approximately $10 million already drawn down by Brainchip it must draw a further about $10 million dollars in the next 12 months but can draw an additional $25 million should it need these funds.

6. & 7. Brainchip after you discount the paper loss actually incurred operating expenses for the 2020 year of $11,242,032 which was just 2% more than in 2019. Pretty amazing given everything that has been achieved by Brainchip in 2020 but highlights just how serious the Board has been in fulfilling its undertaking to shareholders to keep expenses under tight control.

The Board and Management Team of Brainchip are to be congratulated in my opinion for the professional and positive developments that they have caused to occur during the 2020 reporting period.

My anonymous opinion only DYOR.