Brainchip's current Board, Chair and CEO subscribe to the view that for any contract relating to a sale to be an ASX regulated Continuous Disclosure announcement it must be one where it is for a defined material sum of money or it is for a material sum of money which they can calculate by the application of mathematics to the known facts.
An unqualified sale of IP for $AU500,000 cash would qualify as would the unqualified sale of AKD1000 chips at $US10.00 each for a production run of 100,000 units over a three year customer sales cycle.
Where Brainchip enters a contract with a customer that is entering a new market or an existing market with a entirely new product where demand for it cannot be established by referring to an existing sales history Brainchip argues they cannot by the application of mathematics to past sales histories reasonably calculate a contract value upon which the market could be expected to rely or then verify by due diligence.
I mentioned earlier the statement by the CEO and Chair that Brainchip runs a flexible sales model and as such it is reasonable to take into account normal practises that are applied to what this flexible sales model might look like. It is very common for companies to amortise costs over a product life.
So common sense suggests that as Cvedia and Brainchip have announced that Cvedia is incorporating the AKIDA neuromorphic IP into the Cvedia RT and no lump sum IP payment has been recorded via an ASX announcement that this fee under a flexible sales model may have been dealt with in at least one of the following ways:
1. It has been amortized over the product life as part of the agreed royalty payment; 2. It has been amortized to be paid as part of the first 1 million product sales royalties; 3. It has been deferred and made payable on the sale of the first 1 million units; 4. It has been waived in consideration for Cvedia taking the risk on introducing a new product in a nascent market.
The above is not a finite list of ways it might be dealt with, nor can it possibly be as the term 'flexible sales model' denotes the idea that all things are open for discussion and agreement between Brainchip and the customer.
Throw away lines about accounting practice cannot be taken seriously in circumstances where Brainchip is not an established commercial operator with a lengthy sales history operating within strict established sales guidelines. In a few years when the flexible sales model becomes less flexible as it establishes itself in the market then there might be sufficient history around how sales are conducted for an auditor to question departure from the normal practice but at this stage the clue to what is normal for an auditor is to be found in the word flexible.
To understand the approach being taken by Brainchip it is very useful to read the full decision in the unsuccessful appeal by GetSwift against its ASIC prosecution. It is a reasonably complex factual matter but His Honour was able to make it easy to understand in his judgment. The real and substantive issue was that GetSwift announced a sale for a large what would have been 'material' sum of money. What it did not announce and in fact hid from the market was that this sale was conditional upon the party concerned obtaining finance to complete the deal. Further it did not reveal that the party had already been rejected by one source of finance. This case made clear that the word 'material' has to be properly satisfied before a company can claim an event as price sensitive. Brainchip has embraced fully the ASX requirement for materiality.
Despite the claims here about my being enamoured with the company and its people I do not agree with the interpretation of the Continuous Disclosure Rules adopted by Brainchip and have wasted considerable time attempting to communicate why I believe they are overly jealous in their application of same without success.
To be clear I am not of the view that they are wrong when it comes to announcing contracts such as the one that must exist with Cvedia but where they extend their approach to such things as technology developments.
Brainchip is a technology company and it is quite clear that something like Ericsson successfully building a prototype of a ZeroEnergy AKIDA Camera for 5 &6G uses is a material technological development that could be announced on the ASX as price sensitive. The work done by ISL with AKIDA and radar that it speaks about publicly also meets the material definition. There are many other examples including the ANT61 disclosures, EDGX winning a ESA contract and the published works of Tata Consulting Services now over many years.
Leaving that to one side and despite the statements of the CEO about being happy on the ASX it is clear to all that Brainchip is becoming increasingly Americanised. The ASX and its shareholders are not the priority and the only way to ensure we retain some relevance is through the continued Australian membership of the Board. The ASX Rules state that an Australian listed company must have two Australian Board members. Brainchip currently has three. Whether you like them or think they are lazy or whatever if you vote against their presence I would lay odds you will not see three Australian Directors when the dust settles.
Remember traders love volatility in a solid companies share price as it presents trading opportunities. Remember this every time a trader shareholder tells you that you need to do something that you know will cause the market to react either positively or negatively to that action.
My opinion only DYOR
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BRN Price at posting:
30.5¢ Sentiment: Hold Disclosure: Held
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