BrainChip Holdings (ASX:BRN) Year-End Update 2018

Company Presentations

BrainChip Holdings Limited (ASX:BRN) CEO, Louis DiNardo, provides a year-end update.

Louis DiNardo: Good afternoon everyone. This is Louis DiNardo. I say good afternoon here, good morning in Australia and good evening in Europe. Thank you for joining our call. It's the year end update of 2018. I think as you know, we do quarterly updates that we publish each 4C's as well as the half year and the full year report. It seemed appropriate to me to do a year end call, particularly since in Australia you're going into your summer. Good update before you go into your summer and then you'll come back just about the time that we do the quarterly update.

We do five calls a year, which I'm not sure if that's typical in Australia but certainly here in the US every quarter, a lot of public companies hold a conference call and usually it's with analysts that ask a bunch of questions. As you know, I take questions by email. I have them all in front of me and I try to incorporate them into the presentation. Those that I don't catch during the presentation, I'll do a quick review before we end the call to make sure that we don't miss anything. This shouldn't take very long. Again, it's a year end update. You know, we just closed the fourth quarter. We don't even have the numbers in on the fourth quarter yet. I'm not going to talk about the fourth quarter financials. That'll happen with the 4C at the end of January.

Moving on through the deck if I can get this to work, there we go. Then just post the standard disclaimer that you've seen on every call. You can, for some reason some of this looks like it's some typos in there but you can read this at your convenience. Agenda for today, very straightforward agenda. We're going to look at highlights through 2018. Of course we need to look at low lights. We always have to look in the mirror and make sure we understand where we are with respect to where we expect it to be. Business update on very specific things like GPI, like SM Tech, like commercial agreements as well as some of the company names that we've talked about the past. Bring you up to date and make sure that everybody has clarity on where we are. I think, most importantly, the key to development.

I think it's important to recognize that this juncture, we're now at that point where we want to fulfil Peter Van DerMade's vision of building a more and more fixed system on a chip. We'll talk about that at some level of detail in the presentation. You know, Peter's been working on this thing for 10, 12, 15 years. BrainChip's(ASX:BRN)been at it since the test chip, the Snap 64, was demonstrated in late 2016. The culmination of Snap 64 technology, the acquisition of the JAST license where Peter has, Peter and company, the research team, have done in the way of invention since then. Those three things combined are really what brings Akida to the fore.

I'll go into this a little bit more detail in a minute but I think when you think about Akida, you should think about the edge where large volume, high volume devices, whether it's IOT, medical devices, you know, a wide variety. It could be a car, the bumper in a car we consider an edge device because you're sitting out there with the transistor. There isreally no AI solution at the edge today. You could think of this and think of, maybe a little tough to say this, but you could think of Akida or BrainChip(ASX:BRN)as AI at the edge and Envidia like at the edge. That's really what our goal is, just high volume markets with the most compelling solution.

2018 highlights, you know, in many respects 2018 was a great year. We'll talk about the low lights in a moment. We have built a strong team. We have a head count of about 35 people now. 80 per cent of them are research engineering. That is research called product development or engineering. The balance is the three sales guys that we have, a couple of marketing guys that we have, and then the general administrative overhead. The year was very, very productive for an intellectual property. I think you saw a press release a couple of days ago about the, they called it an "Army of Us" provisional patent filing.

Provisional patent, basically, gives you your priority date for all of your inventions. You put all of your claims in one omnibus provisional. Then you have a year to determine how many patents does that spawn. You could have a parent, you could have the children, you could have grandchildren. During that year, you can also add more claims to that patent. It was very important for us to get the provisional filing. Those inventions are very valuable. The value of this company really is our intellectual property not just in the spiking neuro network domain but in the artificial intelligence domain more generally.

We've hired a consultant Shepherd Group to help us with that strategy. We have probably the best patent attorneys in the country, in the US, Stern Kessler out of Washington, DC that worked with Peter and Ale and company in drafting a provisional patent, making sure that we have broad claims but specific enough that the patents will hold. They'll walk us through and help us moving that provisional omnibus patent filing, excuse me, into individual patents over the course of the next year.

In gaming or GPI situation is a wonderful one for us. The ATS system, our advanced table system, we should be production ready with the vision system in January. It's been a lot of work. When I think back to the company acquired SpikeNet in late 2016. I think it was September of 2016. What we really got out of that group was an extremely skilled video analytics team. We would not have been able to do this gaming products, you know, gaming partners international project had we not acquired SpikeNet. We have customer relationships, they tend to be end user relationships because SpikeNet was doing custom more projects. Again it was great insight into what we should do with BrainChip Studio. It gave us a good learning ground out of how to bring a product to market. I'll touch much more detail on GPI in a moment.

In surveillance, we have a strong sales pipeline. I say that and then I'll show you on the next slide that a low light is that we haven't turned that into revenue yet. I think there's no one that has as much angst about that as I do. We do have processes and people in place, such a great opening that pipeline, trials. We got a couple dozen trials that are committed or ongoing through design and inter revenue in early 2019.

A key to IC development, it's on schedule. We expect engineering samples in the second half of 2019. There was a question about why Akida had been delayed a year. It's not been delayed a year. We put an extra quarter into the schedule, a quarter, a few months into the schedule because we were getting so much input from customers, potential customers that we wanted to make sure that we really honed the product definition. I'll talk about that in a few moments. Take an extra quarter or so to get in JAST spot, product definition reduced to practice is far more important than getting it out of quarter early. With the development system, as I think you all know, we launched late in 2018, customers can develop really an assimilated environment what they will see and instil when it comes out.

An important part of the process here as we've talked about before is the Akida ability to do a CNN to an SNN conversion. Not to get into the technical reads but most of the world right now works on convolutional neuro networks. They do that in CPU's or GPU's. It's very math intensive. It's very sequential and deterministic. You know, it's a power hug to be able to take existing CNN's, convert them to SNN's, gives us a quicker time to market rather than trying to evangelise and educate. People had to do native SNN's. We'll talk about native SNN's in a moment, as well.

In the next bullet, the IP acquisition that we did, this was an acquisition of IP that we got from Praxis University in Greece. This may have been the best money that we spent. We spent $35,000, excuse me, 35,000 euros. What we have is a fully functioning native SNN for cyber security doing deep packet inspection, looking for malicious code that's coming across IP traffic. We've had it in our hands for a couple of months now. The results are very, very good. With no malicious code, we're talking about 99.5 per cent accuracy. We're working on when you don't know that it's malicious and you just see something averment, how accurately can you filter that out? That really brings us into the cyber security space much sooner than I would have expected.

Let's go to low lights, BrainChip Studio end user sales, I'll be generous and call it weak. BrainChip Studio OAM sales, I'll be generous and call it weak. There's, again, no one has more angst about this than me. I think what we really learned in bullet number three is that the sales cycle was more extended than what we expected. We expected a sales cycle of six to nine months. It's more like a year to 15 months. I'll say at the same time, that doesn't mean that the pipeline doesn't have credibility. You know, the pipeline is robust. We've got, as I said, better than a couple dozen trials going on or actually either going on or committed to start in January. We've really not lost any of the deals along the way. You know, you have to intercept these end users. It's more like a B of C, a business to consumer sales process than it is an OAM process where it's a business to business. When you're dealing with the police department you have to get into the police department. You've got to get an internal advocate. Once the internal advocate gets on board, you know, you show them a bit of an evaluation. He goes through a trial, he or she goes through a trial. Then you have to deal with the budgeting cycle.

Well, I'm disappointed in the, I'll call it sales or revenue cash receipts. Those are actually three different numbers but disappointed in any regard. Now I'm not disappointed at all in the progress that we've made with the sales pipeline and the progress we're making around the world. You know, when we bought SpikeNet we had customers in France, predominantly Paris but customers in France. Now we're spread throughout Europe. We've got trials going on in Spain, Denmark. You name the country and we've got something going on, UK included as well as here in the United States.

Part of what we had to do as we start to better understand the end usersales environment was really kind of re-tool the sales force. That's when we brought in James Earl. James is in southern California. He's lived his life in law enforcement. He knows which door to knock on when he goes to a police station. They welcome him with open arms. He's been able to get meetings, just about everybody can name the United States that we'll be on the top of your list. Retooling the sales organisation was a big part of what went on mid 2018.

Our sales forecast process, as I'm talking specifically here about BrainChip Studio, our first half is complete. It's a bottoms up forecast. It's been drilled and grinded. It's about as confident a forecast that I think you can come up with until you really have more cycles of learning as we'll get here in the first and second quarter. There's a question about product development and the cost that are going into Studio. Fundamentally, Studio is complete. We announced a revision to Studio just recently. Working on some better facial recognition algorithms. There's not a lot of engineering resources that will be expended on this. It's really about these sales organisation starting to close some waters that are on that sales pipeline.

This is more specific to gaming partners, there will be a press release that goes out on the ASX. I think it'll probably go out tomorrow morning just to give everybody an update. I think, as you know, in January of 2018 we did sign this global licensing and development agreement. That was, again, in support of their mass table systems. As you know, I think they use smart RFID at the table, they also happen to sell table felts or view the layouts, they sell the tables. This ATS is a fully integrated system that takes smart RFID, the video analytics to correlate the smart RFID and provides dashboards to the operating people at the casinos as to what's going on at the table. It's currency security and player behaviour and the optimisation of a table being online as long as possible.

Things about the gaming industry that I never knew, if you take for example the chip tray that sits in front of the dealer, if that chip tray depletes, it takes 45 minutes or longer to get chips out to a table. They have to put in a request, they have to get licensed people to get the chips out, everybody has to do their count and their recount. The ability to do a video look at that chip tray and with some sophisticated analytics, know what the betting patterns have been at the table and put in a pre order for more chips. It would never have occurred to me but that's a very valuable part of the advanced table system.

We demonstrated with GPI at the MACUL Conference, I guess that was May. Then we did GT Conference in Las Vegas in October. Customer interest was very robust. If you know the gaming industry at all, all of the major players came to a private room, saw the table system and kind of defined some wants around their specific requirements and we're adding enhancements to the video analytics, they're adding enhancements to the smarter RFID, and then the dashboards.

From our side, the video analytic system is targeted for production release in January. That is, all that we needed to do will have been done. We're very production ready. I believe the entire ATS system will be production ready and, you know, I don't know. I can't speak to when they'll have a formal announcement about the production release of ATS. There's a lot of pre-something going on with all the major players in the gaming industry. The license fee was $500,000. It was paid in full in September. There was an engineering fee of $100,000 that's also been paid in full. The original development agreement, that's $600,000 that we've talked about many times, has been paid in full. We received all of the cash.

There has been some spoke prep where they've asked us to do other things, other engineering fees associated with those enhancements will be paid for. We've collected some of that, frankly, in the December quarter. The 600,000 was already in the bank. Then there were some enhancements that needed to be done. That probably will be ongoing for a couple of quarters. Even after production release, I'm sure there's going to be enhancements as they go through cycles of learning.

I'm certain that one of the big questions for all of you listening is the commercial agreement. The development agreement was done, as I said, in 2018. The commercial agreement was expected in November. I mentioned that in the last call. The development agreement is going back and forth between attorneys. The development agreement has nothing in it that's going to change or needs to change. GPI recently announced an agreement to be acquired by Angel, which is a PR of Japan. I'll kind of step back and just an overarching comment, I think this is a good thing for us. The combination of Angel which is a leader in manufacturing cards and the shoes that cards come from, it doesn't sound like very sophisticated technology but if you play blackjack and there is a shoe on the table, it's probably an Angel shoe and it's a smart shoe. Every card has an invisible code on it. When that card comes out of the shoe, it's data logged and the house knows every card that comes out of the deck.

Angel has been working on their own vision system for a while. It has not gotten to a point where it's production worthy. When you think about Angel, which is a private company, I'm going to do this from recollection, I don't have the press release in front of me, I think they paid 110 million dollars. It was $13.05 a share, if my memory is correct. They close in price the day the announcement came out, I believe was in the high $7 range. They paid a very significant premium to potentially acquire. Let's face it, acquisitions aren't done until they're done. There's a bunch of diligence. They've got probably an anti-trust clearance. They did a very substantial premium. A good deal of that premium is, I believe, associated with bringing the ATS system under the Angel logo.

I've met with the Angel chairman and CEO a couple of weeks ago. The chairman, as well with the chairman of GPI, separate meetings and then together meetings. Everybody is excited. I saw no hesitation in the Angel CEO other than when can we get it done? How fast can we get it done? How fast can we get it deployed? They wanted me at the meeting to provide a commitment from BrainChip(ASX:BRN)that we were on board and this acquisition, if it completes, when it completes, that we're on definite board to be their partner. All in all, while it's a little bump in the road on getting a commercial agreement signed and I think that's really because they're going through diligence and they're kind of having to stop all the trains. I think by the time we have our fourth quarter update, we'll have a bunch more clarity on what that process is like. Maybe it'll be done, maybe it won't. You know, our team is working 24 hours a day with the GPI team to get this thing released as soon as possible in 2019. All good things. I think the Angel acquisition for us is actually going to play out quite well.

Now I'm going to talk about SM Tech as I get a lot of questions on this. As you know, in September of 2018 we gave away SM Tech for $609,135 or something like that. They disputed the invoice. We pursued it at a preliminary audit. I call it preliminary, it was an audit. I call it preliminary because what we got from them was inadequate. We did not get complete information. We did not get the information that would allow us to determine when, where, and how things were invoiced through Paygoo. They've been, in my view, a bit obstructionist. I have to be a little careful because we have a non disparagement agreement clause in our agreement. In order to triangulate on this, today we're filing what's called a FOIA request. It's a Freedom of Information Act through the Lockport School District. We're going to see what Lockport has on their books and records to determine who did what to whom, when it happened and what the magnitude was. Lockport will eventually supposed to give us a clean set of books and records. I don't know how long it will take them to respond. I've never done it myself, I've never done a FOIA request. My guess is it should be relatively swift.

Once we have all the information, as much information as we get our arms around, we'll determine what our legal remedies are. You know, if SM Tech doesn't pay up, then they have no what we think is legitimate reason, then we'll pursue whatever legal matters that we need. Again, I'll update shareholders at our call. If something happens sooner, of course, we'll put a press release out. I'll update, a memo, I'll update our shareholders on our fourth quarter 2018 conference call which I think will be the last week of January.

Other questions, I've just tried to capture what came in as questions as well as things that I thought were necessary to cover. You know, we talked I guess it was two or three quarters ago about Quantum Corporation. It's a large storage supplier. They were looking to integrate BrainChip Studio with what they call their StorNext Platform. At the time they had two businesses. Both were very interested in using BrainChip Studio to triage massive amounts of video and create metadata. Then when they had to do a search, they didn't have to go back to raw files. One was the surveillance business and one is what they call media and entertainment.

There's been a lot of change at Quantum in the last nine months or so. They've targeted their focus at their core competency or the core business of media and entertainment. That's not a downside for us because that's where, frankly, that's where their greatest strength is. The same requirement exists to create metadata as a triage so that when you, you know, the NBA or a NASCAR or your baseball league game, you want to be able to search massive amounts of recorded video and creating metadata allows you to do that far more quickly. The Quantum Corporation, I think that's still a very live and well engagement. I would maybe call it co-marketing in that BrainChip Studio would be bundled with the StorNext platform at some point. It would be integrated and we'd be behind the scenes and no one would see BrainChip Studio. It would just be a Quantum product.

It was found to us a kind of similar application although it's a cloud based application for searching any type of video that an end user would want. It could be law enforcement, it could be media and entertainment. Some stuff can't go to the cloud because of privacy concerns. The integration, I'm saying nearing completion. We had to modify a doper which is kind of like a plug in so that you can just plug BrainChip Studio into their existing system. Our priorities for the last quarter or so have been keeping engineering focused on getting GPI done as well as keeping as many engineers as we could on the Akida development. I think this is nearing completion and it should be a matter of weeks before that's launched. We did recently acquire, as well, I don't think that has any impact on us.

The only commercial agreement is with a VMS provider. I'm hoping once the contract gets signed and I wanted to see it signed in November. Legalsgot in the way and there's redlines going back and forth. All the business issues are resolved, it's more about identification and warranties and all kinds of legalistic stuff. It got caught up in the holidays. Everybody's back to work now. I think once the contract gets signed, we'll be able to put the press release out, name the vendor. It is one of the large VMS, VMS being video management system. Where all the cables come back, whether it's from surveillance or from whatever video streams. The first thing it hits is a video management system. Putting, again, kind of as a triage the ability to set up search criteria as a video is being ingested is really what the VMS suppliers want to add. Basically, to their portfolio so that they can differentiate themselves from one another. There are some very large players in this space. This is one of the larger. It would be nice to get two or three of the largest. That's what we're working on.

We have a question about Safran. Safran has continued to buy licenses but bits and pieces here and there. They, I guess this is kind of French thing. They had to take the large deployment and they had to put it out for tender offer. The tender offer was written around our specification. We've actually signed a purchasing agreement. You know, it's not numbered units. It's not pricing. It's, here's how we will do business going forward. My feeling on this is we're probably looking at a couple hundred, maybe 300 channels to start. Then share, pretty soon we'll have arm wrestle over pricing but somewhere between 1000 and 2000 bucks a channel. For their first large bite, I think that'll be very healthy for us. Again, remember, all of these things that we're talking about are basically meeting 95, 97 per cent gross margin. It all falls through as profit. Particularly in the case of Studio where we're not doing any incremental engineering. All we have to do is pay the sales guys.

Yvelinesis a restart. The deployment is not moving forward as far as we can tell. It looks like they're going to hit a restart what analytics they want, how they want to architect the system. I'd take it out of our forecast but it doesn't mean it's dead. It just means we need to re-win. We know the application, we know the people. It's just going to be a tedious process. There were a lot of questions about NDA's. There was an interesting question about NDA's. We have dozens of NDA's. You know, all of which, not all of which, most of which at this point were associated with BrainChip Studio. The question was that at the request of the customer or was that our request? Those were all at the request of the customer. You know, we don't need an NDA for BrainChip Studio. Customers wanted to keep their privacy intact. Some, as we move to deployment and full scale deployment, they'll be quite comfortable with us talking publicly.

The NDA's that we request right now are associated with Akida, particularly prior to filing provisional patent. Provisional patent sets your priority date. When you lay claim to the invention or the novelty, if you talk about those things before you file a provisional, you're not going to get your patent. It's already in the public domain. If you want to view that, the only way to do that is under NDA's. When you talk to big companies, we got inbound traffic which was really remarkable on Akida. You know, we've had meetings. None of these are moving more than we move further than meetings and get to know one another. We've had meetings with companies like HP, for example. HP doesn't want to sign an NDA. They want to keep things, tell us what you want, tell us in the public domain. It was, get our appetite wet and then we'll move the ball forward. In that case, we're quite comfortable because it's all in the public domain.

In other cases, large companies wanted to go a little bit deeper and protect our IP as a provisional patent was being drafted. We asked them to sign NDA's. I talked about the trials. The trials, it's a matter of intersecting at the right time. Do they have the people ready? Do they have the resources in place? How active the trial which typically runs about 90 days. Where are they in their budgeting process and what kind of deployment would they have? These are things that people ask questions about and I'll talk about a few more customers or potential customers in a couple of minutes.

I'm going to jump to Akida. This really, this is the heart and soul of the company. BrainChip Studio spawned out of the acquisition with SpikeNet. We didn't buy SpikeNet to get their customer, custom software and create BrainChip Studio. We bought SpikeNet so that we could have a very skilled video analytic team that, at the time, we had Snap 64. At the time we could integrate and have, you know, end to end use cases that we could show customers. That was never going to happen on Snap 64. Snap 64 was FPGA with 9000 neurons and I think it was 10 million sinaps. That's not enough neuro fabric to implement any real world design. Compare that to Akida. Akida is 1.2 million neurons. 9000 versus 1.2 million. Maybe 10 million sinaps compared to 10 billion sinaps. With 1.2 million neurons and 10 billion sinaps, you can do a whole lot of processing.

As you know the development environment was launched. We've got feedback, we're adding some enhancements. If we want to see some analytics as to what's going on in inside the neuro fabric as they're running their scripts, so we're working with collaborative relationships to put enhancements in that make the development environment as robust as possible so that you can today start designing for Akida which we're going to sample, engineering samples in the second half of 2019. You know, if you look at the bottom right hand corner here, this is the Akida development environment. The dark blue at the bottom is the Akida execution engine. That's the 1.2 million neurons, the 10 billion sinaps, the data to spike converter which I'll touch on in a minute with respect to this IP we acquired from Praxis University. That they have a spike converter is a very powerful invention or novelty. Taking data of any sort, we're very good with video. We take pixel data, we turn it into spikes. We got BrainChip Studio or it can happen in Akida will far exceed what happens in BrainChip Studio. Data can come from lidar, radar, ultrasound. It can come from pressure, vibration, temperature. It could come from sound.

Those data to spike converters are really what allows us to take virtually any application where you've got large amounts of data, you want to correlate it, you want to recognise repeating patterns and correlate. The execution engine also includes the training methodology. I think very unique is that this will have many, well not many, several training methodologies. We'll be able to do on chip inference which is basically deep learning large data sets. You train with, you train on middle network on a large external data set. Then you put classifiers. I've got, you know, 10, 100,000 images. This is 1000 images that I'm looking for, I'm training the network. What's very typical on the deep learning environment and convolution middle networks. It's going to be very unique to Akida.

We'll do unsupervised, autonomous learning. We'll do supervised, autonomous learning so that if you put Akida in an edge application, if you first want to train it with a known data set, that's great. If you want -- and Akida you can do this -- you want it to learn incrementally as it ingests knowledge... We'll see a repeating pattern. We won't know what it is but we'll flag that pattern. Then someone will label it and say, "Well, that to me looks like a cat." Or, "That's a dog," or, "That's a person." “It’s a tree.” You know, all of those would probably have been in the original data set, but you get the example. Now you've incrementally enhanced the knowledge of the AI edge device. That's going to be very, very unique. We've tried to make this as easy as possible for end users. All of the interfaces and tools are very well known, very well wornpath -- Python scripts. We'll have a modelzoo where we'll have things that we've developed internally or collaboratively. These are millimetbasic applications. So it works well on MNIST, CIFAR-10, GoogLeNet. When the cyber thing is done, we'll add cyber security. This is basically a repository of developed applications.

I'm not going to go through what's on the left, this is the Akida architecture. I will say that it's very complex. What we managed to squeeze into this chip is really remarkable. You know, we're right now we're back to the bullets. The FPGA design is virtually complete. I do want to remind everybody that the FPGA design is for us internally, for us to debug and make sure that the logic works. FPGA has got 100 times less density than the basic that we'll built. You know, some customers may want to play with it but they won't be able to run a full application on it. You know, if you're going to take 100 to one, you're going to reduce 1.2 million neurons by 100 times. They're going to reduce 10 billion sinaps by 100 times. For us internally it's what we do to make sure it works before we move to the next step which will kick off in January, which is called a hardened IC, the logic design for the Akida device. It'll give us more confidence that everything is risk reduced and then we'll go into the logic design. You know, we've got something that we've really got our arms around.

Many facts are repetitive, well there's a few questions about this and apparently there's something called WikiChips which I did go take a quick look at when somebody sent me the link. From recollection, most of it looked reasonably well done. At the bottom, I guess there was some blanks that had to be filled in. Whoever generated that Wiki page said that we had selected TSMC as a vendor. TSMC is a fad. They wouldn't really be, they would only be a vendor for wafers. We are in the middle of that vendor selection process. Not just a vendor selection itself, you know, TSMC, Landry's, pick your choice. The process technology is something that is really important for us to destil right now. I don't want to go into too much science conductor talk but Moore's Law, as things get smaller and smaller and smaller and smaller, and today the bleeding edge is 14 millimetres, that's not actually a bleeding edge anymore. Close to bleeding edge is 14 millimetres. In fact, summer actually down to seven millimetres now. It's great because you make things very small but the mask sets are extremely expensive. The wafers are extremely expensive.

We have to look at these cross over points of what die size based on what process technology. Can I hit the lowest power possible so that I can be on an edge device? If we're package limited, meaning that we need somebody that interconnects on package, if there's interconnect mean that the package has to read 15 millimetres by 15 millimetres, then why try to get the timing's die in the package? Go for the cheapest mass set and go for the cheapest wafer provided that you can get low power and all of the electrical characteristics. We're in that process now. It'll probably conclude in January. Might stretch out a little bit longer. It's not, it's not that important in the development as much as it is getting our team in place and making sure that the design of what we're doing is following the design rules of whatever fad would be in play.

You know, manufacturing process for semiconductors, there's a lot of pieces to it. You know, when we go from logic design which we'll call RTL. If we go from RTL, you know, then you have to go through synthesis and verification. Those are two very big steps. Then you have to go through physical design which is placed in or out. It's a very expensive part of the process and it's, we're literally laying out all the wires so to speak. Once you got that done, you have to cut your mask set. Once you cut your mask set, then you launch that into a fad. It comes out, you slice it and dice it into chips into die. Then it goes off to package. We call it assembly. It goes into assembly. Then it comes out and goes into test. There's a whole bunch of vendors.

There's an opportunity for us to go down a different path which is a pretty well worn path for formidable fabulous semi conductor companies where they'll turn key with, I'll give you names of companies. We haven't selected anybody. You could do it with Toshiba. You could do it with Samsung. There's a company called Open-Silicon. They do cradled from beginning to end of that process. They deliver you a landed IC. Your cost for the IC is going to be a little higher. You will have saved the capital cost of the expensive mass set. You'll pay them NRA, non occurring engineering. Those are decisions that we're going through now. Neil's done this many, many times. I've done this many, many times as has Bob and Peter. We've got our matrix all built out. We'll select what we think are the best vendors and what is the best route. Either go turn key or try to, you know, build an, as I said, and all of the infrastructure that goes in place, the added risk that goes in place. It really feels like a turn key provider is probably for a first IC the most likely choice but we haven't made that decision.

A little bit more about Akida. I want to make sure that people really understand the opportunity for Akida is incredible. The AI market today is really based on what's to the right, a little RNJ I guess you'd call it. It's in the data centre. You've got companies like intel with their CPU. They also acquired a company called Altera which is an FPGA company that they use for acceleration. They've got a couple with Xilinx which is an FPGA company for acceleration. Envidia has moved it to a GPU for acceleration. We've got startups that are probably the same kind of page that we are, companies like Graphcore and Grock raising lots and lots of money. You know, they have hundreds of people working on this stuff. In a lower data centre, it'd be very high SP. It really be based on their accuracy and whatever latency, low latency that they can deliver.

I'm going to talk a little bit about how Akida as a software solution could potentially actually generate revenue for us even before the IC comes out. Let's put that aside for a second. In a data centre arena, you've got big data which is, you know, financial technology, agricultural technology, manufacturing technology. You've got cyber security for infrastructure and small business. With what we've got out of the three university cyber security which is a native SNM. It's not a standard SNM conversion. What we're excited about is the data to smart converter is proven to take cyber security data and turn it into spikes. Then process those spikes with high accuracy. That could be an opportunity for us to do something like a GPI solution where we take our software, we put a wrapper around it and we pick a customer or two that really are on the leading edge or dominant players in the cyber security mark and partner with them. I'll touch on that again.

What I want to focus on is the edge. It's a really large volume, if you look at IOT itself, the number's mind boggling. In 2025, the forecast is 200 billion connected IOT devices. When you think about 200 billion, there's going to be a lot of that int consumer space, extremely low price but there's a lot of opportunity for us in vision, surveillance, robotics, drones, advanced driver assisted systems. These are places in vision where we've got a great expertise, again hearkening back to my comment about SpikeNet. IOT, industrial consumer, medical. That is going to be our primary focus. That's going to be our primary targets. I'll show you some representative customers. Not leading you to believe that these are our customers yet but I'll give you some sense of who it is in that universe that we would be talking to.

I have to put it in one pretty picture, ADAS, you know, autonomous vehicles, it's kind of a sexy thing to talk about. We're not going to, they'll make no money on autonomous vehicles for many, many years. You know, it's going to be a slow roll out. It'll start with very controlled environments, port authorities and other places where there's not people walking around and other cars driving around. ADAS, there's five levels. ADAS level one, two, and three are in large volume now. You buy a car today and it's got radar in its bumper so that when you're backing up and you're trying to park, it can give you distance between you and the curb. Some of the cars these days can actually park themselves. There's many, many sensors in a vehicle that are not necessarily related to autonomous vehicles. It's about driver assisted systems.

I'm going to talk in a minute about a few ways for us to get in here. We can deal directly. I mean, we are talking directly to all the major automobile manufacturers. In the case of the sensors, they tend to buy those modules from first tier vendors. We've talked about companies like Active and Valeo and Continental. It's far easier for us to intersect with module manufacturers. Then if you peel it back even further, there's the sensor manufacturers who provide integrated sub systems for the modules. Then you've got companies like Analog Devices, NXP, ST Micro, ON Semiconductor. They're looking to add more value so they can harvest as much out of that module universe as they can, as well. Our focus is going to be level one, two, and three ADAS. Certainly we'll continue to work on autonomous vehicles. It's fundamental and the same applications. We want time to money.

We can look in the top right hand corner, medical devices. This happens to be a hot spot for me. There are an increasing number of remote medical devices, whether it's heart monitors, blood pressure monitors, diabetes insulin pump, constant glucose monitors. These things are all becoming IOT devices. They talk to the iPhone and the iPhone talks to the cloud. It can tell you what to do when your blood pressure hits 145 over 110. Bottom right hand corner is really just the IOT universe. We can see all of the sensor inputs. Many of which are appropriate for us. Some we'll have to take a deeper dive into. When you look at position, machine and vision in particular is a hotspot for us, acceleration. You can look at the slide. I do think that at some level, at the edge, there will be cyber security.

I talked about us taking the Praxis University IP, productising it within the Akida development environment. Maybe productising it, let the GPI solution for a couple of key customers. They're still doing things at the enterprise, not at the edge, but cyber security is going to be important at the edge as well. The denial of service attacks that hit the US government, I guess at this point probably 15 months ago, took their major, major players because they launched a denial of service attack from like 10 million IOT devices. We're able to get malicious code during firmware updates into IOT thermostats, IOT doorbells, IOT devices of all sorts. At the time, led all to launch requests to a specific DNS all at one time and basically brought that facility down. You know, I don't remember the major players but I think the Twitters of the world, they were all impacted as well.

Akida at the edge which BrainChip is and Akida at the edge, there's not a lot of competition because the spiking neuro networks are, we believe, the best way to reduce power dramatically and provide enough processing power to do some very sophisticated things at the edge. You know, they're an automobile. They're not sending four 4K camera and video streams which hog the bus and suck up CPU power in your trunk. A lot of that decision making could be done at the edge or at minimum, the metadata we said, I just took them four video, four 4K video streams. Really all I saw was there was a kid in front of the car. That's the only data that has to go back. You don't have to send the entire data stream from all 4K cameras. You just send the metadata back.

The next slide, again, these are representative potential customers. I wanted to give you some names just so you get a sense of the universe. When you look at the edge, this could be Akida as an integrative circuit, one that comes out. Another opportunity for us to fester time to money is in some of these applications, they're not going to buy an integrated circuit. When you look at a cell phone, you tear it open, there's probably three integrated circuits in there. They're not going to add another out of sympathy. As we talked about with one of the Chinese cell phone manufacturers, they would entertain to get our IP block, integrating it into one of their customer IC's and then pay us a royalty, an upfront license fee and a royalty. This wouldn't be just limited to the cell phone environment but there's lots of environments where they do their own custom chip because they want to reduce this, you know, the IC count in whatever the application is. It can be a revision, some of these camera manufacturers we'll talk about in a moment. At the edge would be Akida as an integrated circuit or potential an IP block.

To give you example of names, Envision, company called Hikvision and Dahua. Those are the two largest surveillance camera manufacturers in the world. Both are in a place called HangzhouChina. They've been in business for a long time. They would be potential IP plays. They might be integrated circuit plays. ON Semi is used to be part of Motorola 20 years ago, spun out. It's a semi conductor company, very large. They are a major player. I won't quote Dominic because Dominic uses another word, but they're a major player in any senses. They have the ability to co package, sold together. They integrate on IP. I just use ON as an example. There's several in that space, as well.

You know, just as one, maybe first tier suppliers in the automotive industry Valeo. Again, it could be Active, it could be continental. There's a handful of first tier suppliers. Then IOT, again, ON because they're very big in transducer, transducer conditioning. At the edge, analog devices, smart transducer is really one of their strengths. They've been doing that for a long time. Then there's Bricks, we'll call them Bricks. NXP, that's the semiconductor division, formally electronics. It's kind of what you do in the French, Italian company which is also very good at sensing those sensor technologies.

Data centres that said Akida software is, looking at companies like Silence which was just bought by Blackberry, Cisco approved point, I could name 15. I just picked three kind of off the top of my head. Big data, financial technology, agricultural technology, manufacturing, data is data patterns or patterns. With the acquisition of the IP and at Praxis, we probably accelerated our opportunity in cyber security by a year or two. Again, I think it was the best $35,000 we spent.

We've got some questions on the competitive landscape. Across the top are, you know, kind of the private or in our case public but public startupAkida. There's a company called AS Cortex. They do a device with interesting front end use, and analog multiplier, and what they call sub threshold logic which is adjunct gates at.2 volts. It's a very low powered device. I don't see them as a competitor. I don't think they have enough horse power. We've got a lot of horsepower in a very low powered device in Akida. You asked about, they call them GrAI Matter Labs. I think that's the way they pronounce it. It's really, this is really a universal research project. ETA Compute, ETA Compute is still doing mathematical computation. They're not doing the spiking all that work. They do have very, very low power consumption. Again, from what we've seen, they're not going to be a competitor for the applications that we're going to claim. They're just not likely not going to be enough horse power.

Of the big companies, you've got MovidiusTegra and we've got, Intel bought a company called Movidius. Again, these are using matrix multiplication and lots of computation. They'll never get the power man to the place that it will be. I think in applications or use cases where you can run an SMN to solve the problem. You know, we'll be at the shoulders. This is all about our event based which we are. Or you're trying to do math based at the edge of IOT solutions. RVO, we're getting lots of validation from our initial customer contacts. You know, if you can be in the event based world, solve the use case and win us the lowest power possible, that's a win, win, win, win. Low power, low cost, small die and, frankly, lower development cost. I know it's costing us millions of dollars, you know, a quarter to run this company. We think about the private companies that we do on Enterprise or cloud stuff. It's always at two or 300 million dollars, with two to 300 employees, 400 employees, probably going higher. While the burden's never comfortable, we're far more cash efficient than many of the players that we've talked about.

This is a summary of I believe we've got a strong team. We've done a lot of work this year. Our research team is five or six deep. The development team is primarily focused, located in Newport Beach. We've got well protected, intellectual property. This provisional patent has, I think it's gotten 18 filings in it and we'll hire and we'll subdivide into multiple patents. We have a good foundation at BrainChip Studio. I was disappointed as anybody about the lack of revenue in 2018. I think we just did not understand the sale cycle, the trials are there, the design ones are there. Eventually that will turn into revenue. We just really, we really missed it on the sales cycle and the process for law enforcement and homeland security or national security.

There's probably interest that we're getting for Akida to edge from global companies, it is remarkable. I mean, to use the old expression, the phone ringing off the hook but it would be hard for me to pick a major global company that's interested in the edge that we haven't had contact with. You know, contact means we traded emails, we've made visits, and we're moving to you know, can we take some use cases as proof of concept, work with your on our development environment, show you what the benefit on performance is. All in all, revenue was disappointing. I'll say it again and again. I think that this year was a very big year for the company building the strong team, protecting its intellectual property, and getting Akida well on its way to being a reality which is really a vision Peter had for this company from the beginning and why all of us joined.

This is always awkward for me at the end because I feel like I'm talking to myself. Let me, just to make sure I did not miss anything major. I got the list of questions here. This is an interesting question, can you guarantee to the shareholders that none of BrainChip's technology has been stolen by SM Tech? I don't know if I can use the word guarantee but we're highly confident. That was part of, when we say audit books and records, it also included auditing software. Now, as I said, there were deficiencies in what we got from them. We'll see what we get back from the FOIA request to Lockport School District. This was... The very first thing that came to mind for me and when this dispute started so our legal folks have been all over this.

This is an interesting question, is there a possibility that any French agreement could be delayed to the unrest in France? I don't know. I do know that there's a lot of push back on privacy concerns. Maybe those privacy concerns will now intersect with the unrest. Here, given the original ban imposed on ZTE and the recent arrest of Huawei’s CFO or are they still talking to the Chinese cell phone manufacturer, we'll talk. We'll continue to talk. We're not going to show them anything. At the very least, we're going to go back to school and understanding what the cell phone from the standpoint of AI at the edge what the requirements are. You know, maybe we take those cycles of learning and we go to Korea or we go to Cupertino, some place else.

Do you feel BrainChip's profile is a specialist in SNM technology prior or otherwise and being noticed by the right people like the benefit shareholders? I think absolutely. As I said, the conversation started with major companies in basically all those vertical segments. Talked about Quantum. We talked about Quantum and what's going on at Quantum. I did mention, I don't know, maybe two or three quarters ago at this point that when the press release about our collaboration with Quantum went out, literally the next day we got a phone call from one of the top five in the storage, in the top five areDell, Hitachi, Nedap, IBM, and HP. I can't name which of the five but they've continued to move very nicely. We actually just got off the phone with Bob Beachler this morning. They expect to shift an accelerator card and then playing with the studio software on a server and now want to understand what kind of sweep that they could get with the accelerator sweep. I say it should this week, maybe it's already went to the media, be out next week.

I think that covers pretty much everything. If we get any feedback, again, so we're going to sign off now. Again this was kind of an interim call. Everybody in Australia, enjoy your hot summer. We'll be back on for a conference call after we put out the 4C in late January. Thank you very much.


Ends