Minds and Machines Group investigation and board changes

MMX domains

Further to the announcement of 9 October 2020 (see below), the Minds + Machines Group Limited Board has concluded its formal investigation to determine whether certain revenue associated with a specific contract had been correctly recognised in the year ended 31 December 2019 (“FY-2019”) and the six months to 30 June 2020 (“HY-2020”).

The Board believes that revenue attached to the specific contract has been incorrectly recognised. As previously announced, cash of $1.125m was received in connection with the specific contract and revenue of $938,000 was recognised in FY-2019. Following its investigation the Board believes that any cash sums initially received pursuant to this contract should have been classified as a deposit against future sales and then recognised as revenue as the Company’s partner made sales to end-users. To date, the Company’s partner has made $201,900 of end-user sales under the contract.

In addition to the above, the investigation has identified two additional contracts entered into in FY-2019 totaling $790,000 where receipts were incorrectly categorised as revenue. These contracts were offset with payment contracts that have been recorded as deferred charges or capital expenditures, thereby impacting earnings. The reversal of these amounts will not impact the cash position of the Company.

The financial statement impact of the findings of the investigation is as follows:

FY-2019

HY-2020

Reported

As adjusted

Reported

As adjusted

$(000)

$(000)

$(000)

$(000)

Revenue

18,942

17,227

8,408

8,488

Net Income

4,738

2,843

1,218

1,429

Cash

6,583

6,583

7,296

7,296

Cash inflow from operations

731

481

2,525

2,235

Cash inflow (outflow) from investing activities

161

261

(213)

77

Cash outflow from financing activities

 (4,676)

 (4,526)

(1,599)

 (1,599)

Board Changes

Toby Hall, Chief Executive Officer and Michael Salazar, Chief Financial Officer have, by mutual agreement, resigned from the Board with immediate effect.

Guy Elliott, Non-Executive Chairman has agreed to assume the role of Executive Chairman on an interim basis.

The Board has also appointed Tony Farrow as interim Chief Executive Officer to oversee the day-to-day operations of the Company. Mr Farrow has an in-depth knowledge of the domain name industry, having only recently left MMX where he was COO with responsibility for overall operations, registrar channel support, and integration with registry service provider backends. Prior to its acquisition by MMX in May 2018, Mr Farrow worked for seven years at ICM.  Mr Farrow will not join the Board at this time.

Bryan Disher, independent Non-Executive Director, has agreed to oversee the finance function of the Group and will assume the role of interim CFO until a permanent CFO can be appointed. Mr Disher is a Chartered Professional Accountant, Chartered Accountant (Canada) and who spent 37 years at PwC.

Tender Offer

In the Group’s interim results for the six-month period ended 30 June 2020, announced on 30 September 2020, the Board set out its intention to launch a tender offer of £3.0m in November 2020. Given the investigation and changes to the Board referenced above, the Board believes it is prudent to postpone the proposed tender offer.

The Board remains committed to returning excess capital to shareholders. The Company continues to have a strong balance sheet and surplus cash to its operating requirements.

Further announcements will be made in due course.

The announcement of 9 October 2020:

The Company announces that the Board is commencing a formal investigation to determine whether certain revenue has been correctly recognized. The investigation will focus principally on a specific contract with multiple elements that was entered into in 2019 and relates to whether all requirements for the recognition of revenue had been met prior to 31 December 2019 and 30 June 2020  or whether such amounts should have been classified as a refundable deposit against future sales or deferred revenue at those dates. 

Cash of $1.125m has been received in connection with the relevant contract and revenue of $938,000 was recognised in the year ended 31 December 2019 and $25,000 in the 6 months ended 30 June 2020.

The Board emphasizes that the investigation relates to revenue recognition and the Board does not expect it to have any impact on cash save for a maximum exposure of approximately $1.0m if the amounts received under the contract were to be refundable and no further revenue was generated. The Company had cash of $7.3m at 30 June 2020.

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About Konstantinos Zournas

Studied Computer Engineering and Computer Science in London, UK and now living in Athens, Greece. Love domains and building websites. Went online in 1995, learned about HTML in 1996 and about domains in 2002. Started publishing the OnlineDomain.com blog in 2012.

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