Ann: Product Development and Business Update, page-3

______________________________________________________________________________BrainChip Holdings LtdACN 151 159 812Level 12 680 George Street Sydney NSW 2000T: +61 2 8023 5400 | F: +61 2 9290 9664 | W: www.brainchipinc.comBrainChip Product Development and Business UpdateAkida Product Development is Company’s Primary Focus• Heightened focus on AkidaTM Product Developmento Engineering and marketing resources are focused on the Akidaintegrated circuit (IC) designo Field Programmable Gate Array has been completed for in-housecircuit verification of the Neural Processor Core (NPC)o Company is nearing completion of vendor selection for ApplicationSpecific Integrated Circuit (ASIC) manufacturing• Company Restructuringo Reduction in planned spending of US$1.3mm to US$1.5mm annuallyo Sales and marketing of BrainChip Studio shifted exclusively to selectoriginal equipment manufacturers (OEMs)o Elimination of sales and marketing headcount for end-user saleso Voluntary temporary reduction in certain Executive Compensation• Gaming Partners International (GPI)o Commercial product development continues, including enhancementsand performance benchmarkingo Demonstrations to major gaming operators is ongoing for Blackjackand Baccarato Commercial Agreement remains delayed while GPI is in diligence withAngel Kodo, Kyoto Japan and performance benchmarking andintegration is completedSydney, Australia – 28 February, 2019: BrainChip Holdings Ltd (ASX: BRN), theleading neuromorphic computing company, today provided a product development andbusiness update.Akida product developmentSince inception BrainChip has been committed to providing an artificial intelligencesolution as an integrated circuit.The Company’s acquisition of Spikenet Technologies in September of 2016 has providedsoftware validation of a spiking neural network (SNN) specific to image processing. TheSpikenet research and engineering team have proved invaluable in the area of imageprocessing and have provided significant insight for the development of Akida. ______________________________________________________________________________BrainChip Holdings LtdACN 151 159 812Level 12 680 George Street Sydney NSW 2000T: +61 2 8023 5400 | F: +61 2 9290 9664 | W: www.brainchipinc.comThe Company announced the Akida Development Environment (ADE) and Architecturein the fourth quarter of 2018. The ADE allows users to fully simulate the implementationof the Akida IC and determine benchmark performance in terms of accuracy and powerconsumption in AI Edge applications. Importantly, this allows OEM equipment designprior to the IC introduction.The development of Akida is proceeding well, with refinements from inputs of earlyaccess potential customers. The Company has implemented the Akida NPC in a FieldProgrammable Gate Array (FPGA) for internal use in evaluation. This is an importantstep in the process of developing a complex IC as it provides verification of the logicdesign, thereby improving prospects for a successful implementation prior to incurringmanufacturing expenses.The Company has determined that an Application Specific Integrated Circuit (ASIC)vendor that provides full services, from the layout of the design through all subsequentmanufacturing processes, will be most cost effective, reduce risk and accelerate time-tomarket for Akida in AI Edge applications. The Company expects to select an ASICvendor in the first quarter of 2019 and commence logic circuit design in the first quarterof 2019.BrainChip has made great strides in the Akida design, creating a device that is verycompact, flexible, provides low-latency and is low-power for AI Edge applications. Thedevice can be user-configured for both convolutional and fully-connected networksapplicable to a broad range of visual, data, and sensor applications. Akida will deliver upto 1.2 million neurons and over 10 billion synapses in a low-power chip, expandable to afar greater capacity by utilizing off-chip memory. The details of the design areproprietary and are described in the Company’s currently pending provisional patent. TheCompany is working on a series of patents covering all aspects of the unique Akidadesign in detail.Restructuring and Expense ControlThe Company is implementing a restructuring and series of expense controls to focusresources primarily on the Akida product development.With regard to BrainChip Studio, end-user engagement has provided the Company deepknowledge of customer expectations and insight regarding the human capital and salesprocess required to be successful. However, the Company underestimated the time andeffort to support end-users and the time to achieve revenue from the ongoing trials.The insights gained from end-user engagement has reinforced the Company’s view thatfocusing on OEM customers provides many benefits including a significant reduction in ______________________________________________________________________________BrainChip Holdings LtdACN 151 159 812Level 12 680 George Street Sydney NSW 2000T: +61 2 8023 5400 | F: +61 2 9290 9664 | W: www.brainchipinc.comdirect cost and opportunity cost savings. Taking these valuable learnings into account, theCompany has shifted its focus from end-user sales, to OEM relationships. This allows theprimary focus of the the organisation to be on the completion of the Akida IC. Becausethe Company’s success with OEM partners is highly dependent on their own success inmarketing their platform, the Company intends to partner with those OEMs best able tobring the innovation of a low-power, high-accuracy spiking neural network to itscustomer base. The business model for BrainChip Studio includes license and revenuesharing while Akida includes product, license and royalty revenue.With regard to restructuring and reduction in expenses, BrainChip Studio end-user salesand marketing roles will be eliminated, and discretionary spending will be reduced. Intotal, the changes implemented in this restructuring are expected to result in a decrease of10% to 15% of overall planned spending.The restructuring will not affect research or engineering development resources.In addition, certain key management personnel have agreed to accept a temporaryreduction in their salaries until such time as the board considers the Company to be in aposition to revert to their current market based remuneration.Gaming Partners International (GPI)Following the delivery of the prototype video analytic system to GPI in 2018, theCompany has continued to work with GPI on enhancements to the system and GPI’sintegration of Brainchip’s system with its Advanced Table Solutions (ATSTM). Thiswork is directed at the commercialisation of the complete solution, with productionrelease to follow completion of the these activities.Brainchip is also working towards execution of a Commercial Agreement with GPI inaccordance with the current Joint Development and License Agreement. The existingarrangement provides for the signing of a commercial agreement with the following keyterms:• Minimum term of at least 5 years;• Revenue sharing on sale of systems – 75% GPI; 25% Brainchip;• Brainchip will provide site integration, installation support and softwaremaintenance servicesThe Commercial Agreement has been delayed partly as a result of the diligence processassociated with GPI’s board and shareholders agreeing to be acquired by Angel Kodo, of ______________________________________________________________________________BrainChip Holdings LtdACN 151 159 812Level 12 680 George Street Sydney NSW 2000T: +61 2 8023 5400 | F: +61 2 9290 9664 | W: www.brainchipinc.comKyoto Japan and partly pending the completion of system integration and acceptance ofperformance.About BrainChip Holdings Ltd (ASX: BRN)BrainChip Holdings Ltd is a leading provider of neuromorphic computing solutions, atype of artificial intelligence that is inspired by the biology of the human neuron. TheCompany’s revolutionary new spiking neural network technology can learnautonomously, evolve and associate information just like the human brain. Theproprietary technology is fast, completely digital and consumes very low power. TheCompany provides hardware focused solutions that address the high-performancerequirements in civil surveillance, gaming, financial technology, cybersecurity, ADAS,autonomous vehicles, and other advanced vision systems.www.brainchipinc.comCompany ContactRobert BeachlerSVP Marketing and Business [email protected]+1 (949) 330-6750