new horizons,
new opportunities
annual report
2017
Minds + Machines Group Limited (“MMX” or the “Company”) is
a BVI incorporated company, which is traded on the AIM Market
operated by the London Stock Exchange (“AIM”). The Company
and its subsidiaries (the “Group”) is the owner and operator of a
world class portfolio of top-level domain assets (gTLDs). As a sales
and marketing-led registry business, the Company is focused on
commercializing its portfolio in partnership with its expanding global
network of distribution partners.
The MMX portfolio is currently focused around geographic domains
(e.g. .london, .boston, .miami, .bayern), professional occupations
(e.g. .law, .abogado, and .dds), consumer interests (e.g. .fashion,
.wedding, .vip), lifestyle (e.g. .fit, .surf, .yoga), outdoor activities (e.g.
.fishing, .garden, .horse) and generic names (e.g. .work and .casa). As
a business, the Company works through its expanding international
network of registrars and distribution partners to bring the benefits
of affinity based domain addresses to B2B and consumer audiences.
For more information on MMX, please visit www.mmx.co.
contents
Strategic Report
01 Overview and highlights
02 Executive summary
06 Strategic report
Governance
09 Directors’ report
11 Corporate governance
Financial Statements
13 Independent auditor’s report
17 Group statement of comprehensive income
18 Company statement of comprehensive income
19 Group statement of financial position
20 Company statement of financial position
21 Group cash flow statement
22 Company cash flow statement
23 Group statement of changes in equity
24 Company statement of changes in equity
25 Notes to the financial statements
64 Corporate information
Minds + Machines Group LimitedAnnual Report 2017 financial highlights
a year of growth
1.32m
$15.63m
Domains Under Management
+ 61% (2016: 0.82m)
Gross Billings
- 1% (2016: $15.8m)
$5.63m
Renewal Billings
+ 50% (2016: $3.75m)
$5.28m
Overheads
- 19% (2016: $6.53m)
$5.33m
$3.62m
Accounting Operating EBITDA
+ 509% (2016: -$1.30m)
Billings Operating EBITDA
+ 614% (2016: -$0.70m)
operational highlights
key regions of growth
United States
32% Û14%
of total revenue
(2016: 28%)
Europe
15% Û7%
of total revenue
(2016: 14%)
China
53% Ü9%
of total revenue
(2016: 58%)
With over 5,000 distributions partners selling our domains
we’ve enjoyed considerable growth and market presence.
01
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE executives summary
Introduction
2017 was a year of consolidating the
transformational progress of 2016 so
that a profitable base could be firmly
established for the business on an
increasingly de-risked and proven
business model. This is now enabling
the Group to accelerate its wider
ambitions of scaling profitably within the
registry industry through a combination
of organic growth, acquisition, and
innovation to deliver a long-term annuity
based business.
To that end, the directors are delighted
to announce:
• MMX Group’s first year of
•
unadjusted profitability swinging
from a $4.5million loss in 2016 to a
$3.8million profit in 2017; and
the effective conclusion of the
strategic review with the proposed
acquisition of ICM Registry LLC
(“ICM”). ICM owns and operates four
high value, niche TLDs regulated by
ICANN that in 2017 delivered net
sales of $7.3million, and net income
of $3.5million from approximately
100,000 registrations.
The Directors believe that the acquisition
of ICM, further details of which can
be found in a separate announcement
issued today, will transform the Group by
materially increasing Group profitability
and the overall scale of the business
within the TLD market. The acquisition,
which is subject to ICANN approval, is
estimated to be earnings enhancing in
the current year with further earnings
enhancement being targeted from
cost-synergies, increased operational
leverage and scale efficiencies. The
ICM acquisition consideration will
be $10million in cash, 96,699,235
new Ordinary Shares to be issued on
Completion, of which 75million will
be subject to a four month lock and
21,699,235 to a 12 month lock, and
128,300,765new Ordinary Shares to be
issued on 1 January 2019 and locked until
the 12 month anniversary of Completion.
2017 Financial Highlights
MMX Group’s financial highlights for
2017 are as follows:
•
• maiden year of profitability achieved
by MMX with retained profit for the
year of $3.8million compared to a
$4.5million loss in 2016;
operating EBITDA of $5.3million
delivered in 2017 compared to an
operating EBITDA loss of $1.3million
for the ongoing operations in 2016;
operating EBITDA includes
–
$2.1million of one-off income
generated through private
auctions in the period;
•
•
•
•
•
renewal revenue grown 100% in
2017 to $4.8m (2016: $2.4m),
renewal billings growing 50% to
$5.6million (2016: $3.8million);
fixed overheads reduced in 2017
by 19% to $5.3million (2016:
$6.5million);
cash balances at year-end improved
4% to $15.9million (2016:
$15.3million);
year-end liabilities, excluding
deferred revenue, reduced 30% to
$6.2million (2016: $8.9million) with
$3.1million paid in year relating to a
2016 restructured contract; and
Earnings Per Share of 0.55cents
achieved compared to 2016 Group
EPS loss of 0.60cents.
Business Overview
Operational
At an operational level, the key focus in
2017 was to lock-in the revenue gains
of 2016 so as to drive EBITDA growth.
In essence, to prove out the business
model without relying on any significant
new launches in the period. This goal was
successfully achieved by:
• driving domains under management
(“DUMs”) growth by placing
greater emphasis on new standard
registrations across the portfolio
rather than the 2016 focus on high
value premium sales – a strategy
which management believes will
better support future years’ renewal
revenue profile;
Toby Hall
Chief Executive Officer
Michael Salazar
Chief Operating Officer/
Chief Financial Officer
02
Minds + Machines Group LimitedAnnual Report 2017 2017 has created a
profitable platform
from which the
Group can now
accelerate its
development
through a
combination
of organic
growth, strategic
acquisitions and
innovation to deliver
a highly profitable,
long-term annuity-
based business.
•
• delivering upper quartile renewal
ratios across the portfolio so as to
ensure growing renewal revenues;
leveraging insights gained in China
across the rest of portfolio, with an
initial focus on the UK and Europe,
so as to better balance the revenue
contribution from each region; and
• continuing to control fixed overheads
but on the expectation they will
be geared up to drive future
growth as revenue and EBITDA
improvements permit.
As noted above, a key focus of 2017 was
also around driving standard sales across
the portfolio – particularly outside of
China – so as to begin rebalancing the
revenue contribution from each region
as well as to help deepen the potential
renewal revenue base in 2018 and
subsequent years. To that end, the Group
made good progress in Japan gaining
meaningful new registrations for .work
and in the US from .wedding and the
.boston launch. Overall DUMs grew 61%
in 2017 to 1.32million in 2017.
In terms of consolidating the renewal
revenue base, which grew 100% in the
year, the primary focus in H1 was to
achieve a successful first year renewal
season for .vip in China which was
delivered. In H2, MMX once again saw
healthy renewals across all its main
properties in the US and Europe resulting
in renewal revenues for the year growing
from $2.4million in 2016 to $4.8million in
2017 on an accounting basis and 50% on
a billings basis (2016: $3.8million; 2017:
$5.6million).
Encouragingly, the combination of the
renewal activity and the new sales activity
across all the regions has meant that, from
a revenue perspective, the process of
re-balancing the contribution from each
region has started to materialize. In 2017,
the US contribution increased 14% to 32%
of total revenue (2016: 28%), Europe’s
contribution increased 7% to 15% (2016:
14%), and China’s decreased 9% to 53%
(2016: 58%). Management expects this
trend to continue in the current year.
In relation to managing overheads,
management believes 2017 will be
the last year of meaningful reductions
given the Group’s maiden cross-over
into profitability. The goal now will be
to continue prudently strengthening
the team so as to drive growth. To that
end, the trend of building out the team
of senior managers within the business
and introducing greater levels of
accountability to each team member will
continue so that remuneration is more
closely aligned to a specific TLD or bucket
of TLDs. Indeed, the benefits of this
process are now starting to show tangible
results in the current year.
2017 also saw MMX successfully gain
MIIT approval for a further four of its TLDs
- .law, .购物(shopping), .work, and .beer –
allowing the Group to potentially launch
these properties into China. Post year-end,
MMX appointed strategic partners to
spearhead the roll-out of .law and .购物
respectively into the region.
Strategic
At the strategic level, the focus was to
define a long-term strategy for delivering
value to shareholders through a process
that involved exploring all options
available to the business in parallel – asset
sale, acquisition, organic growth and
innovation (see Strategic Review section).
In short, 2017 was about locking down
the operational gains of 2016 both to
ensure a profitable base and prove out
the model, whilst developing a long-term
growth strategy for 2018 rather than
simply launching new TLDs or initiatives
without proper research or game-plans. It
was about developing a long-term growth
strategy to allow the business to develop
sustainable cashflow and from that a
progressive dividend policy over the next
18 months.
2017 KPI’s
The 2017 KPI’s therefore very much reflect
the operational priorities of the year:
•
renewal billings grown for a second
year running to $5.6million (2016:
03
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE executives summary
continued
Highlighted KPI’s
KPI
Domains under management - #
Gross Billings - $’000’s
Renewal Billings - $’000’s
Overheads (on a like for like basis) - $’000’s
Accounting Operating EBITDA - $’000’s
Billings Operating EBITDA - $’000’s
2017
2016
% Change
1,320,000
15,633
5,626
5,285
5,335
3,622
821,000
15,800
3,753
6,536
(1,303)
(705)
61%
-1%
50%
-19%
509%
614%
Domains under management
Accounting Operating EBITDA
)
0
0
0
’
(
s
M
U
D
1,450
1,250
1,050
850
650
450
250
)
0
0
0
’
$
(
s
i
s
a
b
g
n
i
t
n
u
o
c
c
A
6,000
4,000
2,000
-
(2,000)
(4,000)
(6,000)
2015
2016
2017
2015
2016
2017
Gross Billings
Billings Operating EBITDA
)
0
0
0
’
$
(
16,000
14,000
12,000
10,000
8,000
6,000
)
0
0
0
’
$
(
s
i
s
a
b
s
g
n
i
l
l
i
B
6,000
4,000
2,000
-
(2,000)
(4,000)
(6,000)
(8,000)
2015
2016
2017
2015
2016
2017
Renewal Billings
6,000
4,000
2,000
)
0
0
0
’
$
(
105%
52%
0
15%
2015
2016
2017
Renewals $
Annual renewals
as a % of OPEX
120%
100%
80%
60%
40%
20%
0%
$3.8million) in turn meaning the
Group was able to achieve a core
milestone of renewal income being
greater than fixed overheads for the
first time;
• domains under management grown
61% to 1.32million (2016: 821,000)
reflecting the increased internal focus
on new standard sales activity and
renewals; and
• fixed overheads reduced for a second
year running to $5.3million from
$6.5million on a like-for-like basis.
However, as a result of the increased
emphasis on standard sales and
renewal activities:
• billings remained broadly flat
at $15.6million compared to
$15.8million for 2016; and
• Cost of Sales were moderately flexed
above the 20% of gross billings
guideline for the first time under
the new management’s tenure as
the Group moved into profitability
at both the billings and accounting
revenue operating EBITDA levels for
the first time – this, however, led to
Cost of Sales being 23% (2016: 16%)
of Gross Billings.
In relation to the billings operating
EBITDA KPI for the ongoing business, in
the 2016 Report & Accounts an adjusted
number was used based on billings
before restructuring costs. In the table
below, an unadjusted number for the
ongoing business in 2016 is shown. On
this unadjusted basis, billings operating
EBITDA for 2017, which excludes gTLD
auction proceeds, swung from a $705k
loss in 2016 to a $3.6million profit in
2017; meanwhile operating EBITDA
on an accounting basis, which includes
gTLD auction proceeds, moved from a
$1.3million loss in 2016 to a $5.3million
profit in 2017. On an adjusted basis, 2016
billings EBITDA for the ongoing business
was $4.2million and on an accounting
basis $3.6million, reflecting that in
2016 there were significantly lower
partner payments that year as part of the
restructuring of one contract.
04
Minds + Machines Group LimitedAnnual Report 2017
Strategic Review
In May 2017, the Group announced the
commencement of a strategic review
to “explore how strategic options might
accelerate shareholder value, in particular
whether and how MMX can participate
in a broader industry consolidation. The
outcome of the strategic review may
therefore include (but not be limited to)
an acquisition by or sale / merger of the
Group.” Whilst many interpreted this to
simply mean the business was up for sale,
the reality is a parallel process was put in
motion from the outset where all of the
options below were fully considered and
advanced in parallel through to the end of
the strategic review:
• asset disposal;
• acquisition;
•
•
focus on organic growth; and
innovation.
Indeed, the Group was in advanced
discussions around the sale of its assets
through to the end of the process.
However, the Board concluded that
the long-term interests afforded
to shareholders from the expected
consolidation in the sector will be best
served in the near to mid-term by pursuing
a strategy based on three key tenets:
• continuing to drive profitable growth
through operational efficiencies
and organic business development
initiatives within the portfolio;
• accelerating scale and earnings
through strategic acquisitions; and
innovation.
•
In summary, the Board continues to see
consolidation as a major theme in the
sector over the near to mid-term. Further,
the Board believes the proposed ICM
acquisition, announced today, combined
with other developments in the Group
that will increasingly seek to bring
innovation to the sector, will allow the
enlarged Group to better participate in
this dynamic.
Accelerating Scale
Management believes the proposed
acquisition of ICM will significantly
enhance earnings in FY 2019 and will
likewise contribute positively to H2 2018.
Management further believes it will enable
the Group to build on its core business,
extract significant synergies across the two
businesses, and meaningfully build its non-
China billings base.
Key characteristics of ICM’s unaudited
2017 file tax returns are:
•
renewal revenue in excess of $5.7m
representing 78% of their total revenue;
• premium revenue under 14% of total
revenue $7.3m; and
• net income of $3.5million.
Indeed, as a result of the proposed
acquisition, management is confident
that MMX’s position as a leading
portfolio registry business will be further
strengthened and its renewal revenue and
EBITDA significantly boosted. This will
create a stronger platform from which to
bring greater innovation into the industry
and allow the Group to participate more
actively in industry consolidation.
Indeed, management is deeply
encouraged by the support of its major
shareholders for this strategy as reflected
in the $3million Facility, announced today,
which has been made available through a
vehicle associated to the Group’s second
largest shareholder.
Innovation
In terms of Innovation, management
believes a key driver of future domain
usage will be the development of new
services and applications where a domain
name will represent more than simply a
website address or email address suffix.
To that end, MMX expects to continue
establishing commercial partnerships
with relevant third parties where their
underlying technologies, or platforms,
provide innovative solutions to specific
end-user groups for a given TLD or
cluster of TLDs. An exploratory first step
in this direction was taken in 2017 with
MMX’s investment into DigitalTown, an
early-stage business that is developing
local search solutions that directly relate
to MMX’s geo TLDs as well as certain of
its vertical properties.
During 2018, MMX anticipates to
increasingly forge innovative partnerships
that have the potential to deliver
meaningful value to the Group, and in
turn its shareholders. In particular, MMX
is watching the blockchain environment
closely. In H2, the Group expects to launch
the first of its Innovation based projects.
Conclusion
Looking into the current year, whilst
MMX continues to see good progress
across each of its geographic regions,
the Group will continue to be heavily H2
weighted, a characteristic that will be
accentuated in the current year by the
potential half-year contribution of the
ICM acquisition and anticipated launch of
one new innovation based project in the
second half of this year.
In summary, 2017 has created a
profitable platform from which the Group
can now accelerate its development
through a combination of organic growth,
strategic acquisitions and innovation
to deliver a highly profitable, long-term
annuity-based business.
Toby Hall
Chief Executive Officer
3 May 2018
Michael Salazar
Chief Operating Officer/
Chief Financial Officer
3 May 2018
05
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
strategic report
to the members of Minds + Machines Group Limited
Cautionary statement
This Strategic Report has been prepared solely to provide
additional information to shareholders to assess the Group’s
strategies and the potential for those strategies to succeed.
This Strategic Report contains certain forward-looking
statements. These statements are made by the directors in good
faith based on the information available to them up to the time
of their approval of this report and such statements should be
treated with caution due to the inherent uncertainties, including
both economic and business risk factors, underlying any such
forward-looking information.
This Strategic Report has been prepared for the Group as a whole
and therefore gives greater emphasis to those matters, which are
significant to MMX and its subsidiary undertakings when viewed
as a whole.
Review of the Group’s Business
The Business Model
Minds + Machines Group Limited operates in the domain name
industry and provides end-to-end domain services generating
revenues across multiple business lines.
In total, 24 of the 28 uncontested domains in which the Group has
a commercial interest have entered General Availability, resulting
in the Group having over 1,320,000 domains under management
at the year end.
The Group currently has an interest in 4 contested generic top-
level domains (gTLDs). The Group:
• Wholly-owns, or majority owns, 3 contested gTLDs; and
•
Is in partnership for one gTLD.
Registry Business
A registry is the authoritative master database of all Domain
Names registered for each Top Level Domain (“TLD”) operated
by a Registry. The registry allows the Domain Name System to
route internet traffic to and from connected devices anywhere in
the world.
The registry generates revenue by selling domain names to
registrars on a recurring subscription basis. Registrars in turn sell
domain names directly to consumers. Prices from the registry to
the registrar are considered wholesale prices, which are set by the
registry. Each registration, known as a second level domain (SLD),
has a registration period from 1 to 10 years. At the end of each
registration period, in order for the SLD to continue working, the
consumer must renew it by paying a registration renewal fee. As
required by ICANN, a registry must wholesale SLDs to all ICANN-
accredited registrars on the same pricing, terms, and conditions.
Pricing for each SLD is based on the Group’s determination
of whether it is a geographical gTLD, a defined and restricted
market (e.g. .law), a niche market (e.g. .yoga), or a generic market
(e.g. .work). Pricing is further adjusted by other factors such as
the pricing of other SLDs in other new gTLDs that end-users are
likely to view as being comparable (e.g. .site vs. .web vs. .website),
or pricing to match the targeted market of the gTLD (for instance
.luxe focuses on the luxury market which demands premium
prices). Further, some SLDs are considered premium names (e.g.
hotel.TLD) which command a higher annual price.
The Group shares wholesale revenues from certain gTLDs
(including its geographic gTLDs) and retains all the wholesale
revenue for its other wholly-owned gTLDs.
Registry Service Provider
Minds + Machines Group currently has legacy Registry Service
Provider clients however, the systems and processes necessary to
manage this function have been outsourced to Nominet. Minds
+ Machines still maintains a small revenue stream from its two
clients to manage Nominet on their behalf.
Reseller Registrar Business
The Group discontinued its previous retail registrar business
in 2016. The Group continues to provide ‘Reseller’ services for
.law and .abogado second level domain names, however it has
outsourced the back-end platform to a third-party provider, Instra.
Future developments, strategy and objectives
Please see the Executive Summary.
Key performance indicators
We track several Key Performance Indicators (KPI) against set
KPI targets to help the Board and management evaluate the
performance of our overall business. Please refer to the
Executive Summary.
Principal risks and uncertainties
There are a number of potential risks and uncertainties,
which could have a material impact on the Group’s long-term
performance and could cause actual results to differ materially
from expected and historical results. The Group’s risk
management policies and procedures are also discussed in the
Corporate Governance Statement.
The market for gTLDs is uncertain, the Group may
fail to attract sufficient new customers
The level of demand for new second level domain names for those
gTLDs in respect of which the Group either provides registry
services or has an economic interest as the gTLD applicant may
be less than expected or the new gTLDs may not generate the
levels of second level domain name sales anticipated by the Board
in which case the Group’s revenues and profitability may be
adversely affected.
06
Minds + Machines Group LimitedAnnual Report 2017 The Group closely monitors the industry to judge the level of
interest and potential revenue and acts accordingly to ensure that
it retains sufficient capital to operate.
The Group derives significant revenue from certain
geographic regions that are subject to strict
compliance requirements
The Group derives significant revenue from China, where as a
registry, it is subject to strict reporting requirements and where
its customers may be subject to certain currency restrictions.
These requirements could impact the Group’s ability to pursue
business opportunities in the region.
The Group maintains a strong presence in the region with offices
in Xiamen and Beijing and employs highly qualified and well
connected personnel. In addition, the Group has forged strong
relationships with several Chinese based business partners to
ensure that opportunities are taken advantage of as presented.
The Group and / or its customers may fail to meet
certain contractual obligations
The Group currently has certain contractual commitments for
specific TLDs that provide for minimum revenue guarantees.
If total revenues from those specific TLDs do not reach the
minimum annual revenue targets the Group must reallocate
revenues from other areas of its portfolio to ensure appropriate
payment of such commitments. Further, the commitments may
create a significant barrier to achieving overall profitability and
could result in certain impairments to future financial statements.
The industry has adopted a new approach on the sale of certain
high value ‘premium’ names by extending credit terms. The group
has followed such industry practices and has worked on extending
credit terms to certain customers. In any extention of credit there
is an inherent risk that payments may not be collected.
The Group determines the creditworthiness of certain customers
prior to extending credit.
The Group depends on technology and advanced
information systems, which may fail or be subject
to disruption
As a registry, the Group is dependent on the performance of
software registry system and underlying databases, together with
its back-up systems and disaster recovery plans, to ensure that
critical registry functions are available to end users, registrars
and other parties that must have access to those functions
in the event any circumstance arises that materially impacts
the operation of the primary registry system. The integrity,
reliability and operational performance of the Group’s IT systems,
whether in-house or outsourced, are therefore critical to the
Group’s operations. The Group’s IT systems may be damaged or
interrupted by increases in usage, human error, unauthorized
access, natural hazards or disasters or similarly disruptive events.
Furthermore, Group’s current systems may be unable to support
a significant increase in online traffic or increased customer
numbers, whether as a result of organic or inorganic growth of
the business. Any failure of the Group’s IT infrastructure or the
telecommunications and/or other third party infrastructure on
which such infrastructure relies could lead to significant costs and
disruptions that could reduce revenue, harm the Group’s business
reputation and have a material adverse effect on the operations,
financial performance and prospects of the Group. The Group has
in place business continuity procedures, disaster recovery systems
and security measures to protect against network or IT failure or
disruption. However, those procedures and measures may not be
effective to ensure that the Group is able to carry on its business
in the ordinary course if they fail or are disrupted, and they may
not ensure the Group can anticipate, prevent or mitigate a material
adverse effect on the Group’s operations, financial performance
and prospects resulting from such failure or disruption. In
addition, the Group’s controls may not be effective in detecting
any intrusion or other security breaches, or safeguarding against
sabotage, hackers, viruses and cybercrime.
The Group has invested and continues to invest in ensuring that
its technology and advanced information systems, whether in-
house or outsourced, are performing as expected and can support
growth of the business.
Dependence on key personnel
The Group has a small management team and the loss of any key
individual or the inability to attract appropriate personnel could
adversely impact upon the Group’s future performance.
The Group offers competitive compensation package’s including
share options to retain and attract key personnel.
The Group depends on a number of third parties for
the operation of its business
The Group relies on cloud based services from third party suppliers
in order to provide its registry and RSP services which, if faulty and
thereby causes errors or a service failure, could adversely affect
the Group’s operating results or harm its reputation. Furthermore,
the Group has key contractual relationships with a number of
third parties including suppliers, partners, banks and payment
processors. In particular, the Group relies on key suppliers in order
to carry on its operations including, but not limited to, Domain
Name System (DNS) services, co-location facilities, Distributed
Denial of Services (DDoS) migration services, security vulnerability
assessment services, site and data escrow. The failure of one or
more of these third parties may have an adverse impact on the
financial and operational performance of the Group. Similarly, the
failure of one or more of these third parties to fulfill its obligations
to the Group for any other reason may also cause significant
disruption and have a material adverse effect on its operations,
financial performance and prospects.
07
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE strategic report
to the members of Minds + Machines Group Limited
continued
The Group puts in place contracts with certain key clients
to ensure continued business relationships. The Group also
meets with individual management from our strategic partners
periodically throughout the year to ensure the continued
alignment of business goals and objectives.
Going concern basis
The Group’s forecasts and projections, taking account of the gTLD
program show that the Group should be able to operate within
the level of its current funding. At the year-end, the Group had
$15.9 million held as cash and cash equivalents. The proposed
acquisition of ICM (referenced in the Executive Summary) for a
cash consideration of $10million (plus new Ordinary Shares) has
also been considered. The cash consideration is expected to be
funded via existing cash reserves. The Group is forecast to be
cashflow generative on a standalone basis and it is anticipated
that the proposed acquisition of ICM will augment the enlarged
group’s cash generation. In order to maintain additional liquidity,
particularly immediately upon consummation of the proposed
transaction the Group has entered into an unsecured general
purpose $3m working capital facility that can be drawn down post
completion of the proposed acquisition. The Directors do not
have any current intention of drawing down this facility.
On the above basis, the Directors have a reasonable expectation
that the Company and the Group have adequate resources to
continue operational existence for the foreseeable future.
Thus they continue to adopt the going concern basis of accounting
in preparing the annual financial statements.
Approval
This report was approved by the Board of Directors on 3 May
2018 and signed on its behalf by:
Michael Salazar
Chief Operating Officer/Chief Financial Officer
3 May 2018
08
Minds + Machines Group LimitedAnnual Report 2017 directors’ report
The Directors present their annual report on the affairs of the
Group, including the financial statements and auditor’s report, for
the year ended 31 December 2017. The Corporate Governance
Statement set out on pages 11 to 12 forms part of this report.
Details of significant events since the balance sheet date are
contained in note 33 to the financial statements. An indication
of likely future developments in the business are included in the
Strategic Report.
Information about the use of financial instruments by the company
and its subsidiaries is given in note 30 to the financial statements.
Dividend
The Directors do not recommend payment of a dividend as a
result of the financial performance for the year ended 2017
(2016: Nil).
Capital Structure
Details of the issued share capital is shown in note 28. The
Company has one class of ordinary shares, which carry no right to
fixed income. Each share carries the right to one vote at general
meetings of the Company.
There are no specific restrictions on the size of a holding nor on
the transfer of shares, which are both governed by the general
provisions of the Articles of Association and prevailing legislation.
The directors are not aware of any agreement between holders
of the Company’s shares that may result in restrictions on the
transfer of securities or on voting rights.
Details of employee share schemes are set out in note 29.
No person has any special rights of control over the Company’s
share capital.
With regard to the appointment and replacement of directors,
the Company is governed by its Articles of Association, the BVI
Companies Act and related legislation.
Directors
The Directors who served during the period and since year end
are set out below:
Executive Directors
Toby Hall
Michael Salazar
Non-Executive Directors
Guy Elliott
Henry Turcan
Directors’ Remuneration
The Group remunerates the Directors at a level commensurate
with the size of the Group and the experience of its Directors.
The Remuneration Committee has reviewed the Directors’
remuneration and believes it upholds the objectives of the
Company with regard to this issue. Details of Director’s
emoluments are set out in Note 13 to the financial statements.
Directors’ Interests
The total beneficial interests of the serving Directors at the year-
end in the shares and options of the Company during the period to
31 December 2017 were as follows:
Director
31 December 2017
Options*
Shares
31 December 2016
Options*
Shares
Toby Hall
500,000 10,500,000
500,000 7,500,000
Michael Salazar
1,925,050 10,500,000
1,975,050 7,500,000
Guy Elliott
23,300,000
- 20,250,000
Henry Turcan
-
-
-
-
-
* Terms of the options have been disclosed in Note 29 to the financial statements.
Directors’ Indemnities
The company has made qualifying third-party indemnity
provisions for the benefit of its Directors, which were made
during the year and remain in force at the date of this report.
Corporate Governance
A statement on Corporate Governance is set out on pages 11 to 12.
Environmental Responsibility
The Company is aware of the potential impact that it and
its subsidiary companies may have on the environment. The
Company ensures that it, and its subsidiaries, at a minimum
comply with the local regulatory requirements and the revised
Equator Principles with regard to the environment.
09
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
directors’ report
continued
Employment Policies
The Group is committed to promoting policies which ensure that
high-calibre employees are attracted, retained and motivated, to
ensure the ongoing success for the business. Employees and those
who seek to work within the Group are treated equally regardless
of sex, sexual orientation, marital status, creed, colour, race or
ethnic origin.
Health and Safety
The Group’s aim is to achieve and maintain a high standard of
workplace safety. In order to achieve this objective the Group will
provide training and support to employees and set demanding
standards for workplace safety.
Annual General Meeting (“AGM”)
This report and financial statements will be presented to
shareholders for their approval at the AGM. The Notice of the
AGM will be distributed to shareholders together with the
Annual Report.
Statement of disclosure of information to auditor
As at the date of this report the serving directors confirm that:
• So far as each director is aware, there is no relevant audit
•
information of which the Company’s auditor is unaware, and
they have taken all the steps that they ought to have taken as
directors in order to make themselves aware of any relevant
audit information and to establish that the Company’s auditor
is aware of that information.
Auditor
Mazars LLP have expressed their willingness to continue in office
as auditor and a resolution to reappoint them will be proposed at
the forthcoming Annual General Meeting.
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Directors’
Report and the financial statements in accordance with applicable
law and regulations.
The Directors are required to prepare financial statements for
each financial year. The Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and Company and of the
profit or loss of the Group and Company for that period.
In preparing these financial statements, the directors are
required to:
•
select suitable accounting policies and then apply them
consistently;
• make judgments and accounting estimates that are
•
reasonable and prudent;
state whether IFRS has been followed, subject to any
material departures disclosed and explained in the financial
statements;
• provide additional disclosures when compliance with specific
requirements in IFRS is insufficient to enable users to
understand the impact of particular transactions, and other
events and conditions on the Group and Company’s financial
position and financial performance; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Company and enable them to ensure
that the financial statements comply with applicable law. They
are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Electronic communication
The maintenance and integrity of the Company’s website is
the responsibility of the Directors. The work carried out by the
auditor does not involve consideration of these matters and,
accordingly, the auditor accepts no responsibility for any changes
that may have occurred to the financial statements since they
were initially presented on the website.
The Company’s website is maintained in accordance with AIM
Rule 26. Legislation in the British Virgin Islands governing the
preparation and dissemination of the financial statements may
differ from legislation in other jurisdictions.
On behalf of the Board:
Michael Salazar
Chief Operating Officer/Chief Financial Officer
3 May 2018
10
Minds + Machines Group LimitedAnnual Report 2017 corporate governance
The Board is committed to maintaining high standards of
corporate governance. Whilst the Company is not required to
adopt the UK Corporate Governance Code, the Company’s
corporate governance procedures take due regard of the
principles of Good Governance set out in the 2014 UK Corporate
Governance Code in relation to the size and the stage of
development of the Company.
Board of Directors
The Board of Directors currently comprises two
Executive Directors and two Non-Executive Directors, one
of whom is the Chairman. The Directors are of the opinion
that the Board comprises a suitable balance and that the
recommendations of the Combined Code have been implemented
to an appropriate level. The Board, through the CEO and COO
/ CFO in particular, maintains regular contact with its advisers
and public relations consultants in order to ensure that the Board
develops an understanding of the views of major shareholders
about the Company.
Board Meetings
The Board meets regularly throughout the year. For the year
ended 31 December 2017, the Board met 7 times in relation
to normal operational matters. The Board is responsible for
formulating, reviewing and approving the Company’s strategy,
financial activities and operating performance. Day to day
management is devolved to the Executive Directors who are
charged with consulting the Board on all significant financial and
operational matters.
All Directors have access to the advice of the Company’s solicitors
and other professional advisers, as necessary, and information
is supplied to the Directors on a timely basis to enable them to
discharge their duties effectively. All Directors have access to
independent professional advice, at the Company’s expense, as
and when required.
Board Committees
The Board has established the following committees, each which
has its own terms of reference:
Audit Committee
The Audit Committee considers the Group’s financial reporting
(including accounting policies) and internal financial controls.
The Audit Committee comprises two Non-Executive Directors,
Henry Turcan (Chairman) and Guy Elliot. The Audit Committee
is responsible for ensuring that the financial performance of the
Group is properly monitored and reported on.
Remuneration Committee
The Remuneration Committee is responsible for making
recommendations to the Board on Directors’ and senior
executives’ remuneration. It comprises two Non-Executive
Directors, Guy Elliott (Chairman of the Remuneration
Committee), and Henry Turcan. Non-Executive Directors’
remuneration and conditions are considered and agreed by the
Board. Financial packages for Executive Directors are established
by reference to those prevailing in the employment market
for executives of equivalent status both in terms of level of
responsibility of the position and their achievement of recognized
job qualifications and skills. The Committee will also have regard
to the terms, which may be required to attract an equivalent
experienced executive to join the Board from another company.
Internal controls
The Directors acknowledge their responsibility for the Group’s
systems of internal controls and for reviewing their effectiveness.
These internal controls are designed to safeguard the assets of
the Company and to ensure the reliability of financial information
for both internal use and external publication. Whilst they are
aware that no system can provide absolute assurance against
material misstatement or loss, in light of increased activity and
further development of the Company, continuing reviews of
internal controls will be undertaken to ensure that they are
adequate and effective.
Risk Management
The Board considers risk assessment to be important in
achieving its strategic objectives. There is a process of evaluation
of performance targets through regular reviews by senior
management to forecasts. Project milestones and timelines are
regularly reviewed.
Risks and uncertainties
The principal risks facing the Group are set out below. Risk
assessment and evaluation is an essential part of the Group’s
planning and an important aspect of the Group’s internal control
system.
Business risk
• The market for gTLDs is uncertain and the Group may fail to
attract significant new customers;
• The Group derives significant revenue from certain
geographic regions that are subject to strict compliance
requirements
• The Group may fail to meet certain contractual obligations;
• The Group depends on technology and advanced information
systems, which may fail or be subject to disruption;
• Dependence on key personnel; and
• The Group depends on a number of third parties for the
operation of its business.
11
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE corporate governance
continued
General and economic risks
• Contractions in the world’s major economies or increases in
the rate of inflation resulting from international conditions;
• Movements in the equity and share markets in China, United
States, and United Kingdom and throughout the world;
• Weakness in global equity and share markets in particular,
in the United Kingdom, and adverse changes in market
sentiment towards the internet and technologies industry;
• Currency exchange rate fluctuations and, in particular, the
relative prices of US Dollar, the Euro, and the UK Pound
Sterling;
• Exposure to interest rate fluctuations; and
• Adverse changes in factors affecting the success of internet
and development operations, such as increases in expenses, to
delays in the development or adoption of new standards and
protocols to handle increased levels of Internet activity or due
to increased governmental regulation.
Funding risk
The Group or the companies in which it has invested may not
be able to raise, either by debt or further equity, sufficient funds
to enable completion of planned expansion, investment and/or
development projects.
Content risk
The Company may be affected by the regulatory and legal
environment relating to the content control and access.
Regulation both current and future could cause additional
expense and have a material impact on the Company’s business,
the extent of which cannot be predicted. Certain jurisdictions may
attempt to make the Company responsible for the content which
it facilitates or may be held responsible for content.
Intellectual property
Monitoring and defending the Company’s intellectual rights
can entail substantial costs with no certainty of outcome.
The Company relies on its rights in intellectual property and
other rights such as confidentiality, and there is a risk of their
infringement, which may have a material adverse effect on
the Company’s business, operation and/or financial condition.
The Company’s ability to ensure adequate protection for its
intellectual property rights may be limited and it is possible that
the Company’s competitors may independently develop similar
technology, which could encroach upon the Company’s operations.
The Company may also become subject to claims from third
parties for infringement of their intellectual property rights.
Such claims (meritorious or otherwise) may be costly and time
consuming, and if any action against the Company is successful
it may result in the Company being required to cease certain
activities, alter its technology, or enter into royalty or licensing
agreements, which may or may not be available on terms
acceptable to the Company.
Market risk
The ability of the Group (and the companies it invests in) to
continue to secure sufficient and profitable sales contracts to
support its operations is a key business risk.
Key personnel
The ability of the Group to attract and retain key personnel.
Treasury Policy
The Group finances its operations through equity and holds its
cash as a liquid resource to fund the obligations of the Group. The
Board approves decisions regarding the management of these
assets. Refer to Note 30 for further information.
Securities Trading
The Board has adopted a Share Dealing Code that applies to
Directors, senior management and any employee or consultant
who is in possession of inside information. All such persons are
prohibited from trading in the Company’s securities if they are
in possession of inside information. Subject to this condition and
trading prohibitions applying to certain other periods, trading
can occur provided the relevant individual has received the
appropriate prescribed clearance.
Relations with Shareholders
The Board is committed to providing effective communication
with the shareholders of the Company. Significant developments
are disseminated through stock exchange announcements and
regular updates of the Company website. The Board views the
AGM as a forum for communication between the Company and its
shareholders and encourages their participation in its agenda.
12
Minds + Machines Group LimitedAnnual Report 2017 independent auditor’s report
to the members of Minds + Machines Group Limited
Opinion
We have audited the financial statements of Minds + Machines Group Limited (the ‘parent company’) and its subsidiaries (the ‘group’) for
the year ended 31 December 2017 which comprise the Group and Company Statements of Comprehensive Income, Group and Company
Statements of Financial Position, Group and Company Cash Flow Statements, the Group and Company Statements of Changes in Equity
and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has
been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs).
In our opinion, the financial statements:
• give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2017 and of the group’s and
the parent company’s profit for the year then ended; and
• have been properly prepared in accordance with IFRSs.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements
in the UK, including the FRC’s Ethical Standard as applied to SME listed entities and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Use of the audit report
This report is made solely to the company’s members, as a body, in accordance with our engagement letter dated 2 February 2018. Our
audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an
auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other
than the company and the company’s members as a body for our audit work, for this report, or for the opinions we have formed.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
•
•
the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about
the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve
months from the date when the financial statements are authorised for issue.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified,
including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts
of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Revenue recognition
Key audit matter:
The group’s accounting policy in respect of revenue recognition is set out in note 1(j) ‘Revenue Recognition’ on page 30.
There is a risk of fraud in revenue recognition due to the potential to inappropriately shift the timing and basis of revenue recognition as
well as the potential to record fictitious revenues or fail to record actual revenues. For the group, we consider this significant risk to arise
as follows:
• Domain registry service revenue should be recognised evenly over the relevant registration period. There is a risk that revenue
relating to future periods is not appropriately deferred.
13
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE independent auditor’s report
to the members of Minds + Machines Group Limited
continued
• The group enters into complex partnering arrangements that include provisions for revenue sharing between the partners. There is a
risk that revenue might not be appropriately recognised in accordance with the contractual terms of these partnering arrangements.
• The group records revenue immediately for the initial premium arising on the sale of certain domain names, while recurring fees are
recognised over the period covered by the fee. There is a risk that inappropriate allocation of fees between the initial premium and
recurring leading to inappropriate revenue recognition.
Our response:
Our audit procedures included, but were not limited to:
• On a sample basis, testing domain registry service revenue recognised in the period and revenue deferred at the year-end by reference
to the period covered by the service;
• Assessing the basis of accounting for revenue sharing under those partnering arrangements concluded in prior years, including
enquiring as to whether changes to those arrangements had been agreed; and
• For significant new partnering arrangements, assessing the adopted accounting for revenue sharing by reference to the terms of those
arrangements.
Our findings:
Our audit procedures did not identify any evidence of misstatement to revenue recognised during the period.
Valuation of intangible assets
Key audit matter:
The group’s accounting policies in respect of intangible assets are set out in note 1(h) ‘Goodwill’ on page 26, note 1(m) ‘Intangible assets’ and note
1(n) ‘De-recognition of intangible assets’ on page 27 and note 1(p) Impairment of fixtures & equipment and intangible assets excluding goodwill’
both on page 32.
Non-current intangible assets include capitalised fees paid to the Internet Corporation for Assigned Names and Numbers (ICANN) for applications
for top-level domain assets (gTLDs) and amounts paid at auction to acquire rights over gTLDs. Following the renegotiation of the Dot London
partnering arrangements in 2016, an additional intangible asset has been recorded relating to the capitalisation of the consideration payable on
renegotiation.
The Directors are required to perform an impairment review in respect of intangible assets on an annual basis. In performing their review, the
Directors are required to assess the fair value of the intangible assets, being the higher of their market value and their value in use, by reference to a
“Cash Generating Unit” (CGU). In the absence of a readily available indicator of market value, the Directors have based their impairment review on
an estimation of value in use which is based on projected future cash flows.
There is a risk that intangible assets are impaired below their carrying value in the financial statements. Commentary on the judgements and
estimates in respect of the group’s impairment review over intangible assets is set out in note 2 on page 36.
Key assumptions in the group’s impairment review include revenue growth and the discount rate used to calculate the present value of projected
future cash flows.
In addition to these assumptions, a key judgement made by the Directors is the determination of CGUs, being the smallest identifiable group of
assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The group has determined
that it is appropriate to aggregate gTLDs within CGUs.
Our response:
We reviewed management’s impairment review, considering and challenging the key judgement and assumptions identified above. Our
audit procedures included, but were not limited to:
•
review and challenge of management’s basis for aggregating intangible assets into CGUs;
• considering the appropriateness of the assumptions used in the impairment reviews; and
• performing sensitivity analysis to assess the impact of reasonable variations in both discount rates and revenue growth rates.
14
Minds + Machines Group LimitedAnnual Report 2017
Our findings:
Management’s grouping of gTLDs into CGUs is considered to be appropriate based on the information and explanations provided by
management and the audit work completed.
We found that the underlying assumptions that management has used in the impairment review are reasonable in the circumstances.
Based on our audit procedures, we did not identify any evidence of the need for impairment of intangible assets.
Our application of materiality
We apply the concept of materiality in planning and performing our audit, in evaluating the effect of identified misstatements on the
financial statements, and in forming our audit opinion. The level of materiality we set is based on our assessment of the magnitude of
misstatements that, individually or in aggregate, could reasonably be expected to have influence on the economic decisions of the users of
the financial statements.
We established materiality based on the group’s and company’s total asset value; this is appropriate as the group and company hold
significant gTLDs and have not yet fully developed revenue streams for all gTLDs. We determined materiality for the consolidated and
company financial statements as a whole to be $1.0m, representing 1.3% of the group’s and company’s total assets.
Performance materiality is set to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements in the financial statements exceeds materiality for the financial statements as a whole. Performance materiality of $0.8m
was applied in the audit, which is approximately 75% of overall group and company materiality.
We agreed with the Audit Committee that we would report to that committee all identified corrected and uncorrected audit differences
in excess of $0.03m (representing 3% of financial statement materiality) together with differences below that threshold that, in our view,
warranted reporting on qualitative grounds.
Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken
based on a percentage of total performance materiality. The performance materiality set for each component is based on the relative
scale and risk of the component to the group as a whole and our assessment of the risk of misstatement at component level. In the current
period, the range of performance materiality allocated to components was $0.1m to $0.8m.
An overview of the scope of our audit
Our audit involved obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material misstatement, whether caused by fraud or error. The risks of material
misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are discussed under “Key audit
matters” within this report.
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report,
other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to
determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If,
based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to
report that fact.
We have nothing to report in this regard.
15
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE independent auditor’s report
to the members of Minds + Machines Group Limited
continued
Responsibilities of Directors
As explained more fully in the directors’ responsibilities statement set out on page 10 the directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website
at www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Mazars LLP
Chartered Accountants
Tower Bridge House
St Katharine’s Way
London
E1W 1DD
3 May 2018
16
Minds + Machines Group LimitedAnnual Report 2017 group statement of comprehensive income
for the year ended 31 December 2017
Continuing Operations
Revenue
Less: Partner payments
Revenue less partner payments
Cost of sales
Gross Profit
Gross Profit Margin %
Profit on gTLD auctions
Loss on withdrawal of gTLD applications
Operating expenses - ongoing
Operating expenses - forfeited
Restructuring costs - operating
Restructuring costs - contracts
Operating earnings / (loss) before interest, taxation,
depreciation and amortisation (Operating EBITDA)
Strategic review costs
Foreign exchange (loss) / gain
Profit / (loss) on disposal of fixed assets
Share based payments
Share of results of joint ventures
Earning / (Loss) before interest, taxation, depreciation, and amortisation (EBITDA)
Depreciation and amortisation charge
Finance revenue
Loss on disposal of joint ventures
Profit / (Loss) before taxation
Income tax
Profit / (Loss) from the year from continuing operations
Loss from discontinued operations
Profit / (loss) for the year
Year Ended
31 Dec 2017
$ 000’s
Year Ended
31 Dec 2016
$ 000’s
Notes
4
5
24
24
10
10
6
7
8
29
23
11
19/20
14
15
9
14,315
(2,364)
11,951
(3,440)
8,511
71%
2,108
-
(5,285)
-
-
-
5,334
(301)
(45)
4
(1,002)
9
3,999
(187)
21
-
15,001
(1,520)
13,481
(2,541)
10,940
81%
-
(148)
(6,536)
(646)
(1,166)
(3,748)
(1,304)
-
251
(19)
(745)
(25)
(1,842)
(285)
39
(276)
3,833
(2,364)
(19)
3,814
-
3,814
195
(2,169)
(2,332)
(4,501)
17
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
group statement of comprehensive income
for the year ended 31 December 2017
continued
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Currency translation differences
Other comprehensive income for the year net of taxation
Total comprehensive income for the year
Retained profit / (loss) for the year attributable to:
Equity holders of the parent
Non-controlling interests
Total comprehensive income for the year attributable to:
Equity holders of the parent
Non-controlling interests
Earnings / (loss) earnings per share (cents)
From continuing operations
Basic
Diluted
From discontinued operations
Basic
Diluted
The notes set out on pages 26 to 63 form an integral part of these financial statements.
Year Ended
31 Dec 2017
$ 000’s
Year Ended
31 Dec 2016
$ 000’s
Notes
455
455
4,269
3,859
(45)
3,814
4,314
(45)
4,269
0.55
0.52
N/A
N/A
(648)
(648)
(5,149)
(4,508)
7
(4,501)
(5,169)
20
(5,149)
(0.29)
(0.29)
(0.31)
(0.31)
17
17
17
17
18
Minds + Machines Group LimitedAnnual Report 2017
company statement of comprehensive income
for the year ended 31 December 2017
Continuing Operations
Revenue
Less: Partner payments
Revenue less partner payments
Cost of sales
Gross Profit
Gross Profit Margin %
Profit on gTLD auctions
Loss on withdrawal of gTLD applications
Operating expenses - ongoing
Restructuring costs - operating
Operating earnings before interest, taxation, depreciation and amortisation
(Operating EBITDA)
Strategic review costs
Foreign exchange gain
Impairment of investment in subsidiaries
Share based payments
Earrnings / (loss) before interest, taxation, depreciation and amortisation (EBITDA)
Depreciation and amortisation charge
Finance revenue
Loss on disposal of joint ventures
Profit / (Loss) before taxation
Income tax
Profit / (loss) for the year
Other comprehensive income
Total comprehensive income for the year
All operations are considered to be continuing.
The notes set out on pages 26 to 63 form an integral part of these financial statements.
Year Ended
31 Dec 2017
$ 000’s
Year Ended
31 Dec 2016
$ 000’s
Notes
4
5
24
24
6
8
21
19
14
23
15
11,689
(1,154)
10,535
(2,382)
8,153
77%
2,108
-
(4,603)
-
5,658
(258)
223
-
(1,000)
4,623
(17)
21
-
4,627
-
4,627
-
4,627
12,417
(1,049)
11,368
(1,446)
9,922
87%
-
(148)
(8,098)
(80)
1,596
-
317
(6,859)
(794)
(5,740)
(73)
39
(276)
(6,050)
-
(6,050)
-
(6,050)
19
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
group statement of financial position
as at 31 December 2017
ASSETS
Non-current assets
Goodwill
Intangible assets
Fixtures & equipment
Investments
Interest in joint ventures
Other long-term assets
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Trade and other payables
Total current liabilities
NET ASSETS
EQUITY
Share capital
Share premium
Foreign exchange reserve
Retained earnings
Non-controlling interests
TOTAL EQUITY
Notes
31 Dec 2017
$ 000’s
31 Dec 2016
$ 000’s
18
19
20
22
23
24
26
25
2,828
46,182
80
500
428
2,957
52,975
9,419
15,868
25,287
2,828
45,603
89
-
385
3,327
52,232
7,953
15,275
23,228
78,262
75,460
27
(12,708)
(12,708)
(14,984)
(14,984)
65,554
60,476
28
28
-
60,060
1,197
4,367
65,624
(70)
65,554
-
60,060
742
4
60,806
(330)
60,476
The notes set out on pages 26 to 63 form an integral part of these financial statements.
These financial statements were approved by the Board of Directors on 3 May 2018 and signed on its behalf by:
Toby Hall
Chief Executive Officer
Michael Salazar
Chief Operating Officer/Chief Financial Officer
20
Minds + Machines Group LimitedAnnual Report 2017
company statement of financial position
as at 31 December 2017
ASSETS
Non-current assets
Intangible assets
Investment in subsidiaries
Investments
Interest in joint ventures
Other-long term assets
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Trade and other payables
Total current liabilities
NET ASSETS
EQUITY
Share capital
Share premium
Retained earnings
TOTAL EQUITY
Notes
31 Dec 2017
$ 000’s
31 Dec 2016
$ 000’s
19
21
22
23
24
26
25
39,424
39,503
500
520
2,957
82,904
13,551
12,454
26,005
39,389
39,384
-
486
3,327
82,586
8,519
10,544
19,063
108,909
101,649
27
(15,549)
(15,549)
(13,880)
(13,880)
93,360
87,769
28
-
60,060
33,300
93,360
-
60,060
27,709
87,769
The notes set out on pages 26 to 63 form an integral part of these financial statements.
These financial statements were approved by the Board of Directors on 3 May 2018 and signed on its behalf by:
Toby Hall
Chief Executive Officer
Michael Salazar
Chief Operating Officer/Chief Financial Officer
21
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
group cash flow statement
for the year ended 31 December 2017
Cash flows from operations
Operating EBITDA
Adjustments for:
Loss from discontinued operations
Restructuring costs - contracts
Strategic review costs
Increase in trade and other receivables
Increase / (decrease) in trade and other payables
Withdrawals of gTLDs
Foreign exchange loss
Net cash flow from operating activities
Cash flows from investing activities
Interest received
Amounts transferred from restricted cash
Payments towards restructuring of contracts
Payments to acquire intangible assets
Payments to acquire fixtures & equipment
Receipts from the disposal of tangible assets
Increase in investment in a subsidiary
Payments to acquire investments
Net cash flow from investing activities
Cash flows from financing activities
Issue of ordinary shares
Share issue costs
Purchase of own shares
Repurchase of vested equity instruments
Net cash flow from financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Exchange loss on cash and cash equivalents
Cash and cash equivalents at end of period
The notes set out on pages 26 to 63 form an integral part of these financial statements
22
Year Ended
31 Dec 2017
$ 000’s
Year Ended
31 Dec 2016
$ 000’s
Notes
5,334
(1,304)
8
14
27
19
20
21
22
28
28
28
-
-
(301)
(1,096)
430
240
21
4,628
21
-
(3,105)
(235)
(31)
4
(155)
(500)
(1,312)
3,748
-
(1,926)
(350)
148
367
(629)
39
(64)
(2,035)
(1,761)
(28)
90
-
-
(4,002)
(3,759)
-
-
-
(33)
(33)
6,811
(300)
(20,267)
(1,219)
(14,976)
593
(19,364)
15,275
34,651
-
(12)
25
15,868
15,275
Minds + Machines Group LimitedAnnual Report 2017
company cash flow statement
for the year ended 31 December 2017
Cash flows from operations
Operating EBITDA
Adjustments for:
Strategic review costs
Increase in trade and other receivables
Decrease in trade and other payables
Foreign exchange loss
Net cash flow from operating activities
Interest received
Payments to acquire intangible assets
Increase in investment in a subsidiary
Payments to acquire investments
Net cash flow from investing activities
Cash flows from financing activities
Issue of ordinary shares
Share issue costs
Purchase of own shares
Net cash flow from financing activities
Year Ended
31 Dec 2017
$ 000’s
Year Ended
31 Dec 2016
$ 000’s
Notes
5,658
1,596
8
14
19
21
22
28
28
28
(258)
(4,663)
1,675
184
2,596
21
(52)
(155)
(500)
(686)
-
-
-
-
-
(4,495)
10,026
362
7,489
39
-
(7,218)
-
(7,179)
6,811
(300)
(20,267)
(13,756)
Net increase / (decrease) in cash and cash equivalents
1,910
(13,446)
Cash and cash equivalents at beginning of period
Exchange (loss) / gain on cash and cash equivalents
Cash and cash equivalents at end of period
10,544
23,990
-
-
25
12,454
10,544
The notes set out on pages 26 to 63 form an integral part of these financial statements
23
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
group statement of changes in equity
for the year ended 31 December 2017
At 1 January 2016
Loss for the year
Currency translation differences
Total comprehensive income
Additions to share premium
Cost of share issue
Acquisition of own shares
Credit to equity for equity-settled
share based payments
Share based payments
(repurchase of vested equity instruments)
Adjustment arising from change
in Non-Controlling Interest
As at 31 December 2016
Profit for the year
Currency translation differences
Total comprehensive income / (loss)
Credit to equity for equity-settled
share based payments
Share based payments
(repurchase of vested equity instruments)
Adjustment arising from change in
Non-Controlling Interest
As at 31 December 2017
Share
Capital
$ 000’s
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Share
premium
reserve
$ 000’s
73,816
-
-
-
6,811
(300)
(20,267)
-
-
-
Foreign
currency
reserve
$ 000’s
1,403
-
(661)
(661)
Retained
earnings
$ 000’s
4,987
(4,508)
-
Total
$ 000’s
80,206
(4,508)
(661)
(4,508)
(5,169)
-
-
-
-
-
-
-
-
-
6,811
(300)
(20,267)
-
4
3,859
-
3,859
3,859
455
4,314
997
997
(33)
(33)
60,060
742
-
-
-
-
-
-
-
455
455
-
-
-
Non-
controlling
interest
$ 000’s
Total
equity
$ 000’s
(332)
79,874
7
13
20
-
-
-
(4,501)
(648)
(5,149)
6,811
(300)
(20,267)
(45)
-
(45)
-
-
3,814
455
4,269
997
(33)
653
653
(2)
651
(1,128)
(1,128)
-
(1,128)
-
(16)
(16)
60,806
(330)
60,476
(460)
(460)
305
(155)
60,060
1,197
4,367
65,624
(70)
65,554
•
•
•
•
Share premium – This reserve includes any premiums received on issue of share capital. Any transaction costs associated with the issue
of shares are deducted from share premium
Foreign currency reserve – This reserve represents gains and losses arising on the translation of foreign operations into the Group’s
presentational currency.
Retained earnings – This reserve represents the cumulative profits and losses of the Group.
Non-controlling interests reserve – This reserve represents the share of the interest held by the non-controlling shareholders of the
subsidiary undertakings.
The notes set out on pages 26 to 63 form an integral part of these financial statements.
24
Minds + Machines Group LimitedAnnual Report 2017
company statement of changes in equity
for the year ended 31 December 2017
At 1 January 2016
Loss for the year
Total comprehensive income
Additions to share capital / premium
Cost of share issue
Acquisition of own shares
Credit to equity for equity-settled share based payments
Share based payments (repurchase of vested equity instruments)
As at 31 December 2016
Profit for the year
Total comprehensive income
Credit to equity for equity-settled share based payments
As at 31 December 2017
Share
capital
$ 000’s
-
-
-
-
-
-
-
-
-
-
-
-
-
Share
premium
reserve
$ 000’s
73,816
-
-
6,811
(300)
(20,267)
Retained
earnings
$ 000’s
Total
$ 000’s
34,234
108,050
(6,050)
(6,050)
(6,050)
(6,050)
-
-
-
6,811
(300)
(20,267)
653
(1,128)
87,769
-
-
653
(1,128)
60,060
27,709
-
-
-
4,627
4,627
4,627
4,627
964
964
60,060
33,300
93,360
• Share premium – This reserve includes any premiums received on issue of share capital. Any transaction costs associated with the issue
of shares are deducted from share premium
Retained earnings – This reserve represents the cumulative profits and losses of the Company.
•
The notes set out on pages 26 to 63 form an integral part of these financial statements.
25
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
1 Summary of Significant Accounting Policies
(a) General information
Minds + Machines Group Limited is a company registered in the British Virgin Islands under the BVI Business Companies Act 2004
with registered number 1412814. The Company’s ordinary shares are traded on the AIM market operated by the London Stock
Exchange. The nature of the Group’s operations and its principal activities are set out in note 3 and in the Strategic Report on pages 6
to 8.
These financial statements are presented in US Dollars and rounded to the nearest thousand.
Foreign operations are included in accordance with the policies set out in note 1(l).
(b) Statement of compliance with IFRS
The Group’s and Company’s financial statements have been prepared in accordance with International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board (IASB).
Adoption of new and revised standards
The Group’s and Company’s financial statements have been prepared on the basis of accounting policies consistent with those applied
in the financial statements for the year ended 31 December 2016 except for for the implementation of a number of minor adjustments
issued which applied for the first time in 2017. These new pronouncements do not have a significant impact on the accounting policies,
methods of computation or presentation applied by the Group and Company and therefore prior-year financial statements have not
been restated for these pronouncements.
Future changes in accounting policies
At the date of authorization of these financial statements, the following Standards and Interpretations which have not been applied in
these financial statements were in issue but not yet effective:
Mandatory for 2018
IFRS 15
IFRS 9
IFRS 15 Revenue from Contracts with Customers. The core principle of IFRS 15 is that an entity recognizes revenue
to depict the transfer to promised goods or services when control of the goods or services passes to customers.
The amount of revenue recognized should reflect the consideration to which the entity expects to be entitled in
exchange for those goods or services. A modified transitional approach is permitted under which a transitional
adjustment is recognized in retained earnings at the date of implementation of the standard without adjustment of
comparatives. The new standard will only be applied to contracts that are not completed at that date.
IFRS 9 Financial Instruments. This standard includes a single approach for the classification of financial assets,
based on cash flow characteristics and the entity’s business model, which requires expected losses to be
recognized when financial instruments are first recognized. The standard amends the rules on hedge accounting to
align the accounting treatment with the risk management practices of an entity.
26
notes to financial statementsfor the year ended 31 December 2017Minds + Machines Group LimitedAnnual Report 2017 Mandatory for 2019
IFRS 16
IFRS 16 Leases. Under the new standard, a lessee is in essence required to:
a) Recognize all lease assets and liabilities (including those currently classed as operating leases) on the balance
sheet, initially measured at the present value of unavoidable lease payments;
b) Recognize amortization of lease assets and interest on lease liabilities in the income statement over the lease
c)
term; and
Separate the total amount of cash paid into a principal portion (presented within financial activities) and
interest (which companies can choose to present within operating or financing activities consistent with
presentation of any other interest paid) in the cash flow statement.
The directors have conducted a review of the impact of IFRS 15 on the Group’s core registry and RSP business, and on the basis of this
review do not expect the adoption of this standard to have a material impact on the financial statements.
The directors do not expect that the adoption of IFRS 9 to have a material impact on the financial statements of the Group in future
periods.
IFRS 16 will impact on the recognition of those leases that are either currently classified as operating leases or other long term leases.
Information on the undiscounted amount of the Group’s operating lease commitments under IAS 17, the current lease standard,
is disclosed in note 31. Under IFRS 16, the present value of these commitments would be shown as a liability on the balance sheet
together with an asset representing the right of use. Beyond the information above, it is not practicable to provide a reasonable
estimate of the effect of this standard until a detailed review has been completed.
(c) Basis of accounting
The consolidated financial statements have been prepared on the historical cost basis, except for available for sale financial assets
which are measured at fair value.
(d) Basis of consolidation
The consolidated financial information incorporates the results of the Company and entities controlled by the Company (its
subsidiaries) (the “Group”) made up to 31 December each year. Control is achieved when the Company:
• has the power over the investee;
• is exposed or has rights, to variable return from its involvement with the investee; and
• has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or
more of the three elements of control listed above.
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company losses
control of the subsidiary. Specifically, the results of subsidiaries acquired or disposed of during the year are included in the consolidated
income statement from the date the Company gains control until the date when the Company ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the
non-controlling interests. Total comprehensive income of the subsidiaries is attributed to the owners of the Company and to the
non-controlling interests even if this results in the non-controlling interests having a deficit balance.
27
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with
the Group’s accounting policies.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between the members of the
Group are eliminated on consolidation.
Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein. Those interests of non-controlling
shareholders that are present ownership interests entitling their holders to a proportionate share of net assets upon liquidation may
initially be measured at fair value or at the non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable
net assets. The choice of measurement is made on an acquisition-by-acquisition basis. Other non-controlling interests are initially
measured at fair value. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at
initial recognition plus the non-controlling interests’ share of subsequent changes in equity. Total comprehensive income is attributed
to non-controlling interests even if this results in the non-controlling interests having a deficit balance.
Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The
carrying amount of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative
interests in the subsidiaries. Any difference between the amounts by which the non-controlling interests are adjusted and the fair
value of the consideration paid or received is recognized directly in equity and attributable to the owners of the Company.
When the Group loses control of a subsidiary, the gain or loss on disposal recognized in profit or loss is calculated as the difference
between the aggregate of the fair value of the consideration received and the fair value of any retained interest and the previous
carrying amount of the assets (including goodwill), less liabilities of the subsidiary and any non-controlling interests. All amounts
previously recognized in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly
disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of
equity as specified / permitted by applicable IFRS). The fair value of any investment retained in the former subsidiary at the date
when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments:
Recognition and Measurement or, when applicable, the costs on initial recognition of an investment in an associate or jointly
controlled entity.
When a separate identifiable segment meets the definition of Discontinued Operations (i.e. when agreement has either been reached
to sell a component of the Group’s business or the sale has taken place in the reporting period), results of that segment are accounted
for, in line with those applicable accounting standards, as discontinued operations on the Group Statement of Total Comprehensive
Income. Prior period results are also disclosed on a like for like basis. Any assets in still held by the Group at the end of the reporting
period are in respect of these discontinued operations are classified as held for sale in the Group Statement of Financial Position.
(e) Going concern
The directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern
basis of accounting in preparing the financial statements. Further detail is contained in the Strategic Report on page 6 to 9.
(f) Business combinations
Acquisition of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a business
combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of assets transferred by the
Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interest issued by the Group in exchange
for control of the acquire. Acquisition-related costs are recognized in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value at the acquisition
date, except that:
• deferred tax assets of liabilities and assets or liabilities related to employee benefits arrangement are recognized and measured in
accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively; and
• assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations are measured in accordance with that Standard.
28
Minds + Machines Group LimitedAnnual Report 2017notes to financial statementsfor the year ended 31 December 2017 Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the
acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date
amounts of the identifiable assets acquired and liabilities assumed.
(g) Joint ventures
A joint venture is an entity where the Group has joint control and has rights to the net assets of the arrangement. The Group has
interests in joint ventures, which are jointly controlled entities, whereby the ventures have a contractual arrangement that establishes
joint control over the economic activities of the entity. The contractual agreement requires unanimous agreement for financial and
operating decisions among ventures.
The Group’s interests in jointly controlled entities are accounted for by using the equity method. Under the equity method, the
investment in the joint ventures is carried in the statement of financial position at cost plus post acquisition changes in the Group’s
share of net assets of the joint venture. The income statement reflects the share of the results of operations of the joint venture.
The financial statements of the joint venture are prepared for the same reporting period as the Group. Adjustments are made where
necessary to bring the accounting policies in line with those of the Group.
Losses on transactions are recognized immediately if the loss provides evidence of a reduction in the net realizable value of current
assets or an impairment loss. The joint venture is accounted for using the equity method until the date on which the Group ceases to
have joint control over the joint venture.
Upon loss of joint control, the Group measures and recognizes its remaining investment at its fair value. Any difference between the
carrying amount of the former jointly controlled entity upon loss of joint control and the fair value of the remaining investment and
proceeds on disposal are recognized in profit or loss. When the remaining investment constitutes significant influence, it is accounted
for as investment in an associate.
(h) Goodwill
Goodwill is initially recognized and measured as set out above.
Goodwill is not amortized but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is
allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating
units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that
the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the
impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to other assets of the
unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognized for goodwill is not reversed
in a subsequent period.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
(i) Leases (the group as a lessee)
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to
the lessee. All other leases are classified as operating leases.
Assets held under finance leases are recognized as assets of the group at their fair value or, if lower, at the present value of the
minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the
balance sheet as a finance lease obligation.
29
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of
interest on the remaining balance of the liability. Finance expenses are recognized immediately in profit or loss.
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease except
where another more systematic basis is more representative of the time pattern in which economic benefits from the lease assets are
consumed. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The
aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis over the lease term, except where
another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.
(j) Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services
provided in the normal course of business, net of discounts, VAT and other sales-related taxes. Revenue is reduced for estimated
customer rebates and other similar allowances.
Revenue is recognized to the extent of the company’s and group’s ability to collect on future receivables.
Registry revenue
Registry revenue primarily arise from fixed fees charged to registrars for the initial registration or renewal of domain names.
Where the fee from the initial registration matches the fee from the renewal, the fee from both the initial registration and renewal is
recognized on a straight line basis over the registration term.
Where the fee from the initial registration is higher than the renewal fee (arising mainly from ‘premium name’), the ‘premium’ (the
difference between the first year fee and ongoing renewal fee) is recognized as revenue immediately with the balance recognized on a
straight line basis over the registration period. The renewal fee carries on to be recognized on a straight line basis as well.
Fees from renewals are deferred until the new incremental period commences.
Rendering of services (Registry service provider (“RSP”) revenue and consultancy services)
Revenue is generated by providing RSP and consultancy services over a period of time. Fees for these services are deferred and / or
accrued and recognized as performance occurs, typically on a straight-line basis over that period.
(k) Partner payments
Partner payments represents the expense relating to certain TLDs where royalty and similar payments are required to be made.
Such payments are based on the Group’s and Company’s billing and are deferred in line with accounting revenue.
30
Minds + Machines Group LimitedAnnual Report 2017notes to financial statementsfor the year ended 31 December 2017 (l) Foreign currencies
Functional and presentation currency
The individual financial statements of each Group company are presented in the currency of the primary economic environment in
which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position
of each Group company are expressed in US Dollars, which is the presentation currency for the consolidated financial statements. The
Company’s functional currency is US Dollars.
Transactions and balances
In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional currency
(foreign currencies) are recognized at the rates of exchange prevailing on the dates of transactions. At each balance sheet date,
monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rate prevailing at that date. Non-
monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when
the fair value was determined. Non-monetary items that are measured at historical cost in foreign currencies are not retranslated.
Exchange differences are recognised in profit and loss in the period in which they arise.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are
translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange
rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of the
transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity
(attributed to non-controlling interests as appropriate).
On the disposal of a foreign operation (i.e. a disposal of the Group’s entire interest in a foreign operation, or a disposal involving
loss of control over a subsidiary that includes a foreign operation, loss of joint control over a jointly controlled entity that includes a
foreign operation, or loss of significant influence over an associate that includes a foreign operation), all of the accumulated exchange
differences in respect of that operation attributable to the Group are reclassified to profit or loss.
In addition, in relation to a partial disposal of a subsidiary that includes a foreign operation that does not result in the Group losing
control over the subsidiary, the proportionate share of accumulated exchange differences are re-attributed to non-controlling
interests and are not recognized in profit or loss. For all other partial disposals (i.e. partial disposals of associates or joint arrangements
that do not result in the Group losing significant influence or joint control), the proportionate share of the accumulated exchange
differences is reclassified to profit or loss.
(m) Intangible assets
Intangible assets acquired separately
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and
accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated
useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being
accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less
accumulated impairment loss.
Internally generated intangible assets–research and development expenditure
Expenditure on research activities is recognized as an expense in the period in which it is incurred.
An internally generated intangible asset arising from the development (or from the development phase) of an internal project is
recognized if, and only if all of the following conditions have been demonstrated:
• the technical feasibility of completing the intangible asset so that it will be available for use or sale;
• the intention to complete the intangible asset and use or sell it;
• the ability to use or sell the intangible asset;
• how the intangible asset will generate probable future economic benefits;
• the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible
asset; and
• the ability to measure reliably the expenditure attributable to the intangible asset during its development.
31
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE The amount initially recognized for internally generated intangible assets is the sum of the expenditure incurred from the date when
the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible asset can be recognized,
development expenditure is recognized in profit or loss in the period in which it is incurred.
Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortization and
accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
Useful live and amortisation
Amortization is recognized so as to write off the cost of assets less their residual values over their useful lives, using the straight-line
method, on the following basis.
• Generic Top Level Domains – indefinite life (not amortized)
• Contractual based intangible assets – indefinite life (not amortized)
• Software and development costs – over 3 or over its useful life (as below)
Software and development costs are amortized over their useful economic life. The amortization period and the amortization method
for an intangible asset with a finite useful life are reviewed when circumstances indicate a change to its useful life. Changes in the
expected useful life are accounted for by charging the amortization period and treated as a change in accounting estimate.
(n) De-recognition of intangible assets
An intangible asset is de-recognized on disposal, or when no future economic benefits are expected from use or disposal. Gains and
losses arising from de-recognition of an intangible asset, measured as the difference between the net disposal proceeds and the
carrying amount of the asset, are recognized in profit or loss when the asset is de-recognized.
(o) Fixtures & equipment
Fixtures & equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is
recognized so as to write off the cost or valuation of assets less their residual values over their useful lives, using the straight line
method, on the following basis.
• Fixtures & equipment – over 3 to 7 years
(p) Impairment of fixtures & equipment and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether
there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of
the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that
are independent from other assets, the group estimates the recoverable amount of the cash-generating unit to which the asset
belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-
generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent
allocation basis can be identified.
Recoverable amount is the higher of fair value less cost to sell and value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of
money and the risks specific to the asset for which estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less that its carrying amount, the carrying amount of
the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the
revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal
of an impairment loss is being recognized immediately in profit or loss.
32
Minds + Machines Group LimitedAnnual Report 2017notes to financial statementsfor the year ended 31 December 2017 (q) Finance costs/revenue
Interest expenses are recognized using the effective interest method.
Finance revenue is recognized using the effective interest method.
(r) Financial instruments
Financial assets and financial liabilities are recognized in the Group’s balance sheet when the Group becomes party to the contractual
provision of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the
acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through
profit or loss) are added to or deducted from the fair value of the financial assets or liabilities, as appropriate, on initial recognition.
Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit of loss are
recognized immediately in profit or loss.
Financial assets
All financial assets are recognized and derecognized on a trade date where the purchase or sale of a financial asset is under a contract
whose terms require delivery of the financial assets within the timeframe established by the market concerned, and are initially
measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which
are initially measured at fair value.
Financial assets are classified into the following specified categories: ‘available for sale’ financial assets and ‘loans and receivables’. The
classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.
Effective interest method
The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income over
the relevant period. The effective interest rate is the rate that exactly discounts estimates future cash receipts (including all fees and
points paid or received that form an integral part of the effective interest rate, transaction costs and other premium or discounts) through
the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Income is recognized on an effective interest basis for debt instrument.
Loans and other receivables
Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are
classified as ‘loans and receivables’. Loans and receivables are measured at amortized cost using the effective interest method, less
Impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when recognition
of interest would not be material.
Loans and receivables include cash and cash equivalents. Cash and short-term deposits in the balance sheet comprise cash at bank and
in hand and short-term deposits with an original maturity of three months or less. For the purposes of the Cash Flow Statement, cash
and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.
Available for sale financial assets
Available for sale financial assets (“AFS”) are non-derivatives that are either designated as AFS or are not classified as loans and
receivables, held to maturity investments or financial assets at fair value through profit or loss.
Listed shares held by the Group that are traded in an active market are classified as being AFS and are stated at fair value. Gains
and losses arising from changes in fair value are recognized in other comprehensive income and accumulated in the investments
revaluation reserve. Dividends or AFS equity investments are recognized in profit or loss when the Group’s right to receive the
dividends is established.
Impairment of financial asset
Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is
objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated
33
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE future cash flows of the investment have been affected.
For all other financial assets objective evidence of impairment could include:
• significant financial difficulty of the issuer or counterparty; or
• default of delinquency in interest or principal payments; or
• it becoming probable that the borrower will enter bankrupt or financial re-organization.
For Financial assets carried at amortized cost, the amount of the impairment is the difference between the asset’s carrying amount
and the present value of estimated future cash flows, discounted at the financial asset’s original effective rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade
receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered
uncollectible, it is written off against the allowance account. Changes in the carrying amount of the allowance account are recognized
in profit and loss.
With the exception of available for sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases
and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized
impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment
is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.
De-recognition of financial assets
The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers
the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers
nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognizes
its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all
the risks and rewards of ownership of a transferred financial asset, the Group continues to recognize the financial asset and also
recognizes a collateralized borrowing for the proceeds received.
On de-recognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the
consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and
accumulated in equity is recognized in profit or loss.
Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the
contractual arrangement.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
Equity instruments issued by the Group are recognized at the proceeds received net of direct issue costs.
Financial liabilities
Financial liabilities are classified as trade and other payables.
Trade and other payables
Trade and other payables, including borrowings, are initially measured at fair value, net of transaction costs.
Trade and other payables are subsequently measured at amortized costs using the effective interest method, with interest expense
recognized on a effective yield basis.
The effective interest method is a method of calculating the amortized costs of a financial liability and of allocating interest expense
over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the
expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
34
Minds + Machines Group LimitedAnnual Report 2017notes to financial statementsfor the year ended 31 December 2017 De-recognition of financial liabilities
The Group de-recognizes financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.
(s) Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income
statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items
that are never taxable or deductible. The Group’s liability for the current year is calculated using jurisdictional tax rates that have been
enacted or substantively enacted by the balance sheet date.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases used in the tax computations, and is accounted for using the balance sheet liability
method. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to
the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realized.
Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in
which case it is also dealt with in equity.
Current and deferred tax for the year
Current and deferred tax are recognized in profit of loss, except when they relate to items that are recognized in other comprehensive
income or directly in equity, in which case, the current and deferred tax are also recognized on other comprehensive income or directly
inequity respectively.
(t) Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an
outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount
of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet
date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimates
to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is
material).
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a
receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable
can be measured reliably.
(u) Share-based payment transactions
Equity-settled share-based payments to employees are measured at the fair value of the equity instrument at the grant date. The fair
value excludes the effect of non market-based vesting conditions. The fair value is determined by using the Black-Scholes model. Details
regarding the determination of the fair value of equity-settled share-based transactions are set out in Note 29.
The fair value determined at the grant date of the equity-settled shared-based payments is expensed on a straight-line basis over the
vesting period, based on the Group’s estimate of the equity instruments that will eventually vest. At each balance sheet date, the Group
revises its estimate of the number of equity instruments expected to vest as a result of the effect of non market-based vesting conditions.
The impact or the revision of the original estimates, if any, is recognized in profit or loss such that the cumulative expense reflects the
revised estimate, with a corresponding adjustment to equity reserves.
The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share
(see Note 17)
35
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
(v) Investment in subsidiary undertakings
In the parent company financial statements, fixed asset investment in subsidiaries and joint ventures are shown at cost less provision
for impairment.
2 Significant accounting judgements, estimates and assumptions
The preparation of the Group’s consolidated financial statements requires management to make judgements, estimates and
assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures.
Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying
amount of assets or liabilities affected in future periods.
Other disclosures relating to the Group’s exposure to risks and uncertainties includes:
• Financial instruments risk management and policies Note 30
Note 30
• Sensitivity analysis
Judgements
In the process of applying the Group’s accounting policies, management has made the following judgements, which have the most
significant effect on the amounts recognised in the consolidated financial statements:
Intangible Assets
Within intangible assets are assets classified as gTLD assets. Under the requirements of IAS 38 Intangible Assets and the Group’s
assessment thereof, the Group has determined that gTLD assets have an indefinite life as the Group has an automatic right to renew
the asset every ten years.
Determining whether intangible assets are impaired requires an estimation of the value in use of the cash-generating units to those
assets have been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from
the cash-generating unit and a suitable discount rate in order to calculate present value.
The most significant judgement involved in the impairment review of intangible assets is the determination of cash-generating units,
and this judgement has a significant impact on the outcome of the impairment review. The directors have grouped gTLDs with similar
characteristics to form a single cash-generating unit. The cash generating units have been identified in note 19.
Goodwill and intangible assets have not been impaired in the current year. Details of goodwill and intangible assets are set out in note
18 and 19 respectively.
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities in future financial years, are described
below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were
prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or
circumstances arising that are beyond the control of the Group. Such changes are reflected in the assumptions when they occur.
Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher
of its fair value less costs of disposal and its value in use. In the absence of available data from similar transactions, the recoverable
amount has been assessed by reference to value in use. The value in use calculation is based on a discounted cash flow (“DCF”) model.
The cash flows are derived from the budget for the three years. The recoverable amount is sensitive to the discount rate used for the
DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. These estimates are
most relevant to goodwill and other intangibles with indefinite useful lives recognised by the Group. The key assumptions used to
determine the recoverable amount for the different CGUs, including a sensitivity analysis, are disclosed and further explained in Note
18 and Note 19.
36
Minds + Machines Group LimitedAnnual Report 2017notes to financial statementsfor the year ended 31 December 2017
Taxes
Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against
which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that
can be recognised, based upon the likely timing and the level of future taxable profits, together with future tax planning strategies.
The Group has $29.8m (2016: $28.9m) of tax losses carried forward. These losses relate to subsidiaries that have a history of losses,
do not expire, and may not be used to offset taxable income elsewhere in the Group. There is uncertainty over the utilization of these
tax losses in future periods and on that basis, the Group has determined that it cannot recognise deferred tax assets on the tax losses
carried forward. If the Group was able to recognise all unrecognised deferred tax assets, profit and equity would have increased by
$5,472k. Further details on taxes are disclosed in Note 15.
Fair value measurement of financial instruments
When the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot be measured
based on quoted prices in active markets, their fair value is measured using valuation techniques including the DCF model. The inputs
to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required
in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in
assumptions relating to these factors could affect the reported fair value of financial instruments. See Note 30 for further disclosures.
3 Operating segments – Group
Information reported to the Group’s management and internal reporting structure (including the Group’s Chief Executive Officer) for
the purpose of resources allocation and assessment of segment performance is focused on the category for each type of activity. The
principal categories (and the Group’s segments under IFRS 8) are:
• Registry ownership (‘Registry’) – applicant of top level domain name from ICANN and wholesaler of domain names of those top
level domain names
• Registry service provider (‘RSP’) and consulting services – back end service provider for a registry
Registry
$ 000’s
13,144
13,144
RSP
$ 000’s
1,102
1,102
Other
$ 000’s
Total
$ 000’s
69
69
14,315
14,315
5,916
(315)
(267)
5,334
Segment revenues and results
2017
Revenue
External sales
Total Revenue
Operating EBITDA
Strategic Review Costs
Foreign exchange loss
Profit on disposal of tangible assets
Share based payment expense
Share of profit of joint venture
EBITDA
Amortisation and depreciation
Finance revenue
Profit before tax
Income tax
Profit after tax
* Included within Operating EBITDA is profit on gTLD auctions of $2,108k allocated to the Registry segment.
Inter-segment sales are charged at prevailing market prices.
(301)
(46)
4
(1,002)
9
3,998
(187)
21
3,832
(19)
3,813
37
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
2016
Revenue
External sales
Total Revenue
Operating EBITDA
Foreign exchange gain
Loss on disposal of tangible assets
Share based payment expense
Share of loss of joint venture
EBITDA
Amortisation and depreciation
Finance revenue
Loss on disposal of joint venture
Loss before tax
Income tax
Loss after tax
Registry
$ 000’s
13,573
13,573
RSP
$ 000’s
1,304
1,304
Other
$ 000’s
Total
$ 000’s
124
124
15,001
15,001
3,433
(4,419)
(318)
(1,304)
251
(19)
(745)
(25)
(1,842)
(285)
39
(276)
(2,364)
195
(2,169)
* Included within Operating EBITDA is loss on withdrawal of gTLD applications $148k allocated to Registry segment.
Inter-segment sales are charged at prevailing market prices.
Other segment information
Registry
RSP
Other
Total
Segment assets
Depreciation and amortization
2017
$ 000’s
59,674
17,913
1,564
79,151
2016
$ 000’s
66,143
5,736
3,581
75,460
2017
$ 000’s
75
83
29
187
2016
$ 000’s
278
4
3
285
For the purpose of monitoring segment performance and allocating resources between segments, the Group’s Chief Executive Officer
monitors the tangible, intangible and financial assets attributable to each segment. All assets are allocated to reportable segments
with the exception of interest in joint ventures. Goodwill has been allocated to reportable segments as described in note 18.
38
Minds + Machines Group LimitedAnnual Report 2017notes to financial statementsfor the year ended 31 December 2017
Geographical information
The Group’s information about its segments by geographic location is detailed below.
British Virgin Islands
Ireland
United Kingdom
Germany
Hungary
USA
China
Total
Revenue from external customers
Non-current assets
Additions to Non-current assets
2017
$ 000’s
11,685
-
1,054
1,082
-
494
-
2016
$ 000’s
12,268
13
1,047
1,035
-
638
-
14,315
15,001
2017
$ 000’s
46,138
2016
$ 000’s
43,103
125
49
4,206
459
198
1,844
5
52,975
3,817
452
174
4,637
-
52,232
2017
$’000’s
553
116
-
5
-
88
4
766
2016
$’000’s
3
35
3,815
165
-
1,561
-
5,579
Included in revenues arising from the Registry segment are revenues of $4,001k (2016: $1,963k), which arose from sales to the
Group’s largest customer.
Revenue for the Company is all derived from the Registry segment.
4 Partner payments
Partner payments
2017
$ 000’s
2,364
Group
2016
$ 000’s
1,520
2017
$ 000’s
1,154
Company
2016
$ 000’s
1,049
Partner payments represents the expense relating to certain TLDs where royalty and similar payments are required to be made. Such
payments are based on the Group’s and Company’s billing and are deferred in line with accounting revenue.
The restructuring of contracts (see note 7) resulted in a restructured partner payment in 2016 only with normal partner payments
resuming in 2017 as per the revised agreement. This resulted in an increase in partner payment expenses in the current year.
5 Cost of sales
Third Party Fees
ICANN Fees
Marketing
Other
Total
2017
$ 000’s
571
949
1,495
425
3,440
Group
2016
$ 000’s
918
882
-
741
2,541
2017
$ 000’s
368
775
1,109
130
2,382
Company
2016
$ 000’s
190
642
-
614
1,446
In 2016 marketing expenses of $661k were spent across the entire portfolio and were accounted for operating expenses. In 2017,
marketing expenses were earmarked to specific TLDs and were therefore classified as cost of sales. The net increase in marketing was
$834k. Cost of sales excluding marketing expenses decreased from 2016 by just under $600k.
39
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
6 Restructuring costs – operating
Executive severance pay-outs
Employee severance pay-outs
Relocation costs
Migration costs
Total
7 Restructuring costs – contracts
Restructuring contracts
2017
$ 000’s
-
-
-
-
-
2017
$ 000’s
-
Group
2016
$ 000’s
522
247
118
279
2017
$ 000’s
Company
2016
$ 000’s
-
-
-
-
-
-
-
80
1,166
-
80
Group
2016
$ 000’s
3,748
2017
$ 000’s
-
Company
2016
$ 000’s
-
Restructuring costs – contracts, relates to costs incurred to re-negotiate certain contracts.
8 Strategic review costs
In the year the Group conducted a strategic review (refer to the Executive Summary for further details). Costs of $301k (2016: nil) for
the Group of which $258k (2016: nil) was paid directly by the Parent Company.
9 Discontinued operations
In 2016, the group entered into a sale agreement to dispose of the registrar customer list effectively closing down the registrar
business. The disposal was affected to pursue the group’s strategy of being a pure play registry. The disposal was completed in 2016.
Revenue
Expenses
Gross loss
Amortization
Loss before tax from discontinued operations
Income tax
Loss after tax from discontinued operations
2017
$ 000’s
-
-
-
-
-
-
-
Group
2016
$ 000’s
-
(1,312)
(1,312)
(1,020)
(2,332)
-
(2,332)
Discontinued operations contributed to a cash outflow of nil in 2017 (2016: $1,312k) to the group’s net operating cash flows.
10 Operating expenses – ongoing / forfeited
In 2016, operating expenses were separated into “ongoing” and “forfeited”. Ongoing operating expenses represented expenses that
the restructured Group and Company would have incurred for that current year.
Forfeited expenses represented expenses that the Group and Company would not have incurred under a restructured business. The
Group incurred no forfeited expenses in 2017.
40
Minds + Machines Group LimitedAnnual Report 2017notes to financial statementsfor the year ended 31 December 2017
11 EBITDA
EBITDA is arrived at after charging:
Auditors’ remuneration – current year auditors
- Audit of these financial statements
- Audit of the financial statements of subsidiaries
- Tax compliance
- Other services
Directors’ emoluments – fees and salaries (note 13)
Operating lease rentals
Foreign exchange loss
12 Employee information (excluding directors)
Staff costs comprise:
Wages and salaries
Share based payment expense / (credit)
Total
Monthly average number of employees:
Administration
Finance
Sales & Marketing
Engineering
Total average
13 Directors’ emoluments
Directors emoluments
Share based payment expense (Note 29)
Total
2017
$ 000’s
63
15
19
2
862
351
(46)
2017
$ 000’s
1,763
18
1,781
9
5
8
-
22
2017
$ 000’s
862
874
1,736
Group
2016
$ 000’s
68
35
11
20
1,610
237
(251)
Group
2016
$ 000’s
3,670
(71)
3,599
Group
12
6
7
6
31
Group
2016
$ 000’s
1,610
528
2,138
2017
$ 000’s
63
-
-
-
508
-
(218)
Company
2016
$ 000’s
68
-
-
-
438
-
(317)
2017
$ 000’s
Company
2016
$ 000’s
-
-
-
-
-
-
-
-
2017
$ 000’s
513
874
1,387
-
-
-
Company
-
-
-
-
-
Company
2016
$ 000’s
482
528
1,010
41
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
2017
Executive Directors
Toby Hall
Michael Salazar
Non-Executive Directors
Guy Elliott
Henry Turcan
Total
2016
Executive Directors
Toby Hall (#)
Michael Salazar
Antony Van Couvering (#)
Caspar Veltheim (#)
Non-Executive Directors
Guy Elliott
Henry Turcan (#)
David Weill (#)
Keith Teare (#)
Elliot Noss (#)
Total
Group
Total
$ 000’s
355
349
100
58
862
Group
Total
$ 000’s
299
530
Salaries & Fees
$ 000’s
Redundancy
$‘000
Bonus
$ 000’s
Benefits in kind
$ 000’s
Directors
emoluments
$ 000’s
Share Option
Pay-out
$‘000
300
300
100
58
758
-
-
-
-
-
50
25
-
-
75
5
24
-
-
29
355
349
100
58
862
-
-
-
-
-
Salaries & Fees
$ 000’s
Redundancy
$‘000
Bonus
$ 000’s
Benefits in kind
$ 000’s
Directors
emoluments
$ 000’s
Share Option
Pay-out
$‘000
199
326
137
14
100
53
10
10
10
859
-
-
522
-
-
-
-
-
-
100
100
-
-
-
-
-
-
-
-
29
-
-
-
-
-
-
-
299
455
659
14
100
53
10
10
10
-
75
556
1,215
-
-
-
-
56
-
14
100
53
10
66
10
522
200
29
1,610
687
2,297
(#): These Directors were not employed for the full 2016 financial period.
42
Minds + Machines Group LimitedAnnual Report 2017notes to financial statementsfor the year ended 31 December 2017
2017
Executive Directors
Toby Hall
Michael Salazar
Non-Executive Directors
Guy Elliott
Henry Turcan
Total
2016
Executive Directors
Toby Hall (#)
Michael Salazar
Caspar Veltheim (#)
Antony Van Couvering (#)
Non-Executive Directors
Guy Elliott
Henry Turcan (#)
David Weill (#)
Keith Teare (#)
Elliot Noss (#)
Total
Salaries & Fees
$ 000’s
Redundancy
$‘000
Bonus
$ 000’s
Benefits in kind
$ 000’s
Directors
emoluments
$ 000’s
Share Option
Pay-out
$‘000
Company
Total
$ 000’s
300
-
100
58
458
-
-
-
-
-
50
-
-
-
50
5
-
-
-
5
355
-
100
58
513
-
-
-
-
-
355
-
100
58
513
Salaries & Fees
$ 000’s
Redundancy
$‘000
Bonus
$ 000’s
Benefits in kind
$ 000’s
Directors
emoluments
$ 000’s
Share Option
Pay-out
$‘000
Company
Total
$ 000’s
199
-
-
-
100
53
10
10
10
382
-
-
-
-
-
-
-
-
-
100
-
-
-
-
-
-
-
-
100
-
-
-
-
-
-
-
-
-
-
299
-
-
-
100
53
10
10
10
482
-
-
-
-
-
-
-
56
-
56
299
-
-
-
100
53
10
66
10
538
(#): These Directors were not employed for the full 2016 financial period.
No pension benefits are provided for any Director.
Details of Directors’ share options exercised have been disclosed in note 29 to the accounts.
43
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
14 Finance revenue
Bank interest
Other interest received
Total
2017
$ 000’s
21
-
21
Group
2016
$ 000’s
35
4
39
2017
$ 000’s
21
-
21
Company
2016
$ 000’s
35
4
39
Finance revenues relate to assets classified as cash and cash equivalents adnd loans and receivables.
15 Income tax expense – Group
The charge for the current year can be reconciled to the loss per the Group statement of comprehensive income as follows:
Current tax charge / (credit)
Deferred tax
Profit / (loss) before tax on continuing operations
Tax at the BVI tax rate of 0%
Research and development tax credit
Income tax
2017
$ 000’s
19
-
19
2017
$ 000’s
3,833
-
-
19
19
2016
$ 000’s
(195)
-
(195)
2016
$ 000’s
(2,364)
-
(212)
17
(195)
Company
The charge for the current year can be reconciled to the loss per the Company statement of comprehensive income as follows:
Current tax
Deferred tax
Profit / (loss) before tax on continuing operations
Tax at the BVI tax rate of 0%
2017
$ 000’s
2016
$ 000’s
-
-
-
2017
$ 000’s
4,623
-
-
-
-
-
2016
$ 000’s
(6,050)
-
-
The British Virgin Islands under the IBC (international business company) imposes no corporate taxes or capital gains. However, the
Company may be liable for taxes in the jurisdictions where it is operating.
No deferred tax asset has been recognized because there is insufficient evidence of the timing of suitable future profits against which
they can be recovered. Tax losses carried forward, which may be utilized indefinitely against future taxable profits amount to $12.4m
(2016: $11.7m) in the USA, $1.6m (2016: $2m) in Germany, $5.8m (2016: $5.5m) in Ireland, $9.8m (2016: $9.7m) in the United
Kingdom, $97k (2016: $70k) in Hungary and $50k (2016: $3k) in China.
44
Minds + Machines Group LimitedAnnual Report 2017notes to financial statementsfor the year ended 31 December 2017
16 Dividends
No dividends were paid or proposed by the Directors (2016: $Nil).
17 Earnings per share
The calculation of earnings per share is based on the profit / (loss) after taxation divided by the weighted average number of shares in
issue during the period.
Profit / (Loss) for the purpose of the basic and diluted earnings per share
Profit / (Loss) from continuing operations - excluding non-controlling interests
Profit / (Loss) from discontinued operations
Total profit / (loss) for the year
Number of shares
Weighted average number of ordinary shares used in calculating basic loss per share
Effect of dilutive potential ordinary shares – share options and warrants
Weighted average number of ordinary shares for the purpose of diluted earnings per share
Profit / (Loss) per share from continuing operations
Basic
Diluted
Profit / (Loss) per share from discontinued operations
Basic
Diluted
2017
$ 000’s
3,814
-
3,814
2017
million
699.86
32.43
732.29
2017
cent
0.55
0.52
2017
cent
N/A
N/A
All potential shares were anti-dilutive for 2016 continuing and discontinued operations due to the loss reported.
18 Goodwill
Cost
31 December 2016 and 31 December 2017
2016
$ 000’s
(2,169)
(2,332)
(4,501)
2016
million
743.00
-
743.00
2016
cent
(0.29)
(0.29)
2016
cent
(0.31)
(0.31)
Group
$ 000’s
2,828
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units that are expected to benefit from
that business combination. Goodwill has been allocated to the ‘Registry’ segment (a single ‘CGU’).
Impairment review
The Group tests goodwill annually for impairment, or more frequently if there are indicators that goodwill might be impaired.
At 31 December 2017, the Directors have carried out an impairment review and have concluded that no impairment is required.
The recoverable amount of the CGU is determined from value in use calculations. The key assumptions for the value in use
calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs. Management
estimate discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to
the CGU.
45
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next three
years and extrapolates cash flows into perpetuity based on an estimated growth rate of 10% for seven years thereafter and 4% (2016:
5%) into perpetuity. The growth rate is appropriate to the new gTLD market that the Group operates in. The rate used to discount the
forecast cash flows is 11.5% (2016: 10%).
The Group has carried out sensitivity analysis on the growth rate and discount rate. A 2% change in either rate would not give any
indication of material impairment.
generic
Top Level
Domains
$ 000’s
Software &
development
costs
$ 000’s
Contract
based
intangible assets
$ 000’s
Other
$ 000’s
Total
$ 000’s
40,078
1,500
(17)
41,561
-
68
41,629
-
-
-
-
-
-
-
2,070
261
(34)
2,297
235
138
2,670
(857)
(1,171)
(42)
(2,070)
(140)
(113)
(2,323)
-
3,815
-
3,815
-
391
4,206
-
-
-
-
-
-
-
171
-
(1)
42,319
5,576
(52)
170
47,843
-
-
235
597
170
48,675
(171)
-
1
(170)
-
-
(1,028)
(1,171)
(41)
(2,240)
(140)
(113)
(170)
(2,493)
41,629
41,561
347
227
4,206
3,815
-
-
46,182
45,603
19 Intangible assets
Group
Cost
At 1 January 2016
Additions
Exchange differences
At 31 December 2016
Additions
Exchange differences
At 31 December 2017
Accumulated Amortization
At 1 January 2016
Charge for the year
Exchange differences
At 31 December 2016
Charge for the year
Exchange differences
At 31 December 2017
Carrying amount
At 31 December 2017
At 31 December 2016
46
Minds + Machines Group LimitedAnnual Report 2017notes to financial statementsfor the year ended 31 December 2017
Company
Cost
At 1 January 2016
Additions
Transfers from other long term assets
At 31 December 2016
Additions
At 31 December 2017
Accumulated amortization
At 1 January 2016
Charge for the year
At 31 December 2016
Charge for the year
At 31 December 2017
Carrying amount
At 31 December 2017
At 31 December 2016
generic Top Level
Software &
Domains development costs
$ 000’s
$ 000’s
39,379
-
-
39,379
-
39,379
-
-
-
-
-
39,379
39,379
51
3
-
54
52
106
(28)
(16)
(44)
(17)
(61)
45
10
Other
$ 000’s
Total
$ 000’s
99
-
-
99
39,529
3
-
39,532
52
99
39,584
(42)
(57)
(99)
-
(99)
(70)
(73)
(143)
(17)
(160)
-
-
39,424
39,389
generic Top Level Domains
In 2012, the Group applied for new generic Top Level Domains to the Internet Corporation for Assigned Names and Numbers
(ICANN), see note 24 for further details. Successful applications are transferred from other long-term assets to Intangible assets. The
Group capitalises the full cost incurred to pursue the rights to operate generic Top Level Domains including amounts paid at auction to
gain this right where there is more than one applicant to ICANN for the same generic Top Level Domain.
This class of intangible assets is assessed to have an indefinite life as it is deemed that the application fee and amounts paid at auction
give the Group indefinite right to this generic Top Level Domain.
The Group tests intangible assets with an indefinite life (generic Top Level Domains) annually for impairment, or more frequently if
there are indicators that the asset might be impaired.
Impairment review of intangible assets
The Directors carried out an impairment review as at 31 December 2017 and have concluded that no impairment is required.
The recoverable amounts of each group of generic Top Level Domains (the grouping of generic Top Level Domains is based on its
characteristics), software, contract based intangible assets and other intangible assets are determined from value in use calculations.
The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to
the selling process and direct costs. Management estimate discount rates using pre-tax rates that reflect current market assessments
of the time value of money and the risk specific to the asset.
gTLD assets with indefinite lives are allocated to CGUs, which fall under the Registry operating segment. The carrying values of the
CGUs are $28,716k (2016:$28,692k) for consumer lifestyle, $365k (2016:$322k) for geographic gTLDs, $9,177k (2016:$9,177k)
for professional occupations and $3,371k (2016:$3,371k) for other generic names.
47
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
Contract based intangible assets are allocated to the Registry services provider segment. The contract has historically been in a loss
making position and while it made a profit in 2017 due to a revised minimum revenue guarantee for the year, the asset’s performance
will be continually reviewed to determine if any impairment will be required.
The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next three
years, and extrapolates cash flows into perpetuity based on an estimated growth rate of 10% for seven years thereafter and 4% (2016:
5%) into perpetuity. The rate used to discount the forecast cash flow is 11.5% (2016: 10%).
The Group has carried out sensitivity analysis on the growth rate and discount rate. A 2% change in either rates would not give any
indication of a material impairment for all classes of intangible assets.
20 Fixtures and equipment - Group
Fixtures & equipment
$ 000’s
Cost
At 1 January 2016
Additions
Disposal
Exchange differences
At 31 December 2016
Additions
Exchange differences
At 31 December 2017
Depreciation
At 1 January 2016
Depreciation charge for the period
Disposal
Exchange differences
At 31 December 2016
Depreciation charge for the period
Exchange differences
At 31 December 2017
Carrying amount
At 31 December 2017
At 31 December 2016
48
388
28
(99)
(7)
310
31
24
365
(199)
(64)
36
6
(221)
(47)
(17)
(285)
80
89
Minds + Machines Group LimitedAnnual Report 2017notes to financial statementsfor the year ended 31 December 2017
21 Investment in subsidiaries
Investments in subsidiary undertakings of the Company
Cost
At the beginning of the year
Movement in the year
Impairment charge
At 31 December
2017
$ 000’s
39,384
119
-
39,503
Company
2016
$ 000’s
4,189
42,054
(6,859)
39,384
The movement in the year includes $155k paid to acquire an additional 20% interst in Bayern Connect GmbH and Minds + Machines
GmbH (after this acquisition both subsidiaries are wholly owned) and a credit of $36k representing share based payment credit in
subsidiaries over the parent company’s equity.
The 2016 impairment relates to the impairment of the Company’s subsidiary, Minds and Machines Ltd (UK). The recoverable amount
of the subsidiary is calculated using a value in use method. The Company prepares cash flow forecasts derived from the most recent
financial budgets approved by management for the next eight years and extrapolates cash flows into perpetuity based on an estimated
growth rate of 5%. The rate used to discount the forecast cash flow is 10%.
Details of the Company’s subsidiaries are as follows:
Place of Incorporation
(or registration) and operation
Principal
activity
Proportion of
ownership
interest
(%)
Proportion of
voting power
(%)
Name
Minds + Machines US, Inc. (DE)
Minds + Machines LLC (1)
Minds + Machines LLC (FL) (1)
Bayern Connect GmbH
Minds and Machines GmbH
Minds + Machines Ltd (Ireland)
Minds and Machines Ltd (UK)
Minds + Machines Registrar Ltd (IE) (2)
US
US
US
Germany
Germany
Ireland
England & Wales
Ireland
Minds and Machines Registrar UK Ltd
England & Wales
Minds + Machines Hungary
Emerald Names Inc
Boston TLD Management LLC
Dot Law Inc
Beijing MMX Tech Co. Ltd
Hungary
US
US
US
China
Holding company
Registry
Registry
Registry
Registry
RSP
RSP
Dormant
Dormant
Registry
Registry
Registry
Registrar
Registry
100
100
100
100
100
100
100
100
100
100
100
99
90
100
100
100
100
100
100
100
100
100
100
100
100
99
90
100
(1) Minds + Machines LLC (CA), Minds + Machines LLC (FL) and Dot Law, Inc. are direct subsidiaries of Minds + Machines US, Inc (DE).
(2) Minds + Machines Registrar Limited (Ireland) is a direct subsidiary of Minds + Machines Ltd (Ireland).
49
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
22 Investments
Available-for-sale investments carried at fair value
Shares
Group and Company
2017
$ 000’s
2016
$ 000’s
500
-
The investment in ordinary shares issued are in Digital Town Inc. This represents an investment into an early stage company looking
to innovate local online search that have particular relevance to the Group’s gTLD portfolio, especially those with a geographic or
vertical focus.
Level one of the fair-value hierarchy, as defined by IFRS 13, has been used in the fair-value measurement of this investment.
23 Interest in joint ventures
During 2017, the group had a 50% interest in 2 joint ventures; Entertainment Names Inc and Dot Country LLC. These joint ventures
were formed to sell second-level domain names to registrars. In 2016 the Group disposed of its interest in Basketball Domains Limited
and Rugby Domains Limited.
Share of interest in assets / (liabilities)
Assets
- Non-current
- Current
Liabilities
- Current
Share of interest in net assets
- Revenue
- Cost of sales
- Expenses
Profit / (loss) after income tax
2017
$ 000’s
152
288
440
Group
2016
$ 000’s
379
421
800
(12)
(415)
428
385
24
(14)
(1)
9
16
(15)
(26)
(25)
There are no commitments arising in the joint ventures.
There are no contingent liabilities relating the Group’s interest in the joint ventures, and no contingent liabilities of the venture itself.
Each joint venture is individually immaterial.
The principal place of business for Entertainment Names Inc. is the British Virgin Islands. The principal place of business for Dot
Country LLC, is the Cayman Islands.
Company
Interests in joint ventures are accounted for at cost of $520k (2016: $486k) in the Company financial statements.
50
Minds + Machines Group LimitedAnnual Report 2017notes to financial statementsfor the year ended 31 December 2017
24 Other long-term assets
Restricted cash
Other long-term assets
Total
Group and Company
2017
$ 000’s
2,217
740
2,957
2016
$ 000’s
2,217
1,110
3,327
The Group capitalizes the costs incurred to pursue the rights to operate certain gTLD strings as these are deemed to provide probable
future economic benefit.
During the application process capitalized payments for gTLD applications are included in other long term assets as other long term
receivables. While there is no assurance that MMX will be awarded any gTLDs, long-term assets are receivables and payments will be
reclassified as intangible assets once the gTLD strings are available for their intended use, which is expected to occur following the
delegation of gTLD strings by ICANN. In general, MMX does not expect to withdraw any of its applications unless the application
has not passed the evaluation process and there is no further recourse or there is an agreement to sell or dispose of its interest in
certain applications.
During the 2012 financial period, the Group paid US$13.5 million in application fees to the Internet Corporation for assigned Names
and Numbers (ICANN) under ICANN’s New generic Top Level Domain (gTLD) Program and deposited US$3.6 million to fund the
letters of credit required by ICANN. Since then, to 2015, 41 applications were withdrawn either as a result of participation in auctions,
management decision, or transfer to a joint venture. As a result, application fees paid to ICANN as at 31 December 2015 amounted to
$1,295k and deposits to fund letters of credit decreased to $2,153k.
In 2016, one further application was withdrawn due to management decision. As a result, application fees paid to ICANN as at 31
December 2016 amounts to $1,110k and deposits to fund letters of credit increased to $2,217k due to the funding of Boston.
Deposits to fund letters of credit increased to $2,217k due to additional funding required for a TLD.
In 2016, of the application which was withdrawn, $37k of the application fee is recoverable. The amount not received from ICANN as
a result of such withdrawals are accounted for on the profit and loss account as Loss in withdrawal of gTLD applications and amounted
to $148k.
In 2017, two further applications were withdrawn as a result of participation in auctions. Private auction proceeds net of refunds from
ICANN amounted to $2,108k.
Application fees paid to ICANN as at 31 December 2017 amounts to $740k. Deposits to fund letters of credit remained at $2,217k, of
which $36k was released back to the Group after the year end.
Where MMX receives a partial cash refund for certain gTLD applications and/or to the extent the Group elects to sell or dispose of
its interest in certain gTLD applications throughout the process, it may incur gains or losses on amounts invested. In such cases the
application fee will be reclassified from a long-term asset. Refunds received will be properly recorded when received, gains on the sale
of the Group’s interest in gTLD applications will be recognized when realized, and losses will be recognized when deemed probable.
Other costs incurred by MMX as part of its gTLD initiative not directly attributable to the acquisition of gTLD operator rights are
expensed as incurred.
Restricted cash is interest bearing and is therefore stated at fair value. Other long-term receivables are stated at amortized cost.
51
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
25 Cash and cash equivalents
Restricted cash
Of the total Group’s cash balances of $15,868k (2016: $15,275k) and Company cash balance of $12,454k (2016: $10,544k),
$1million (2016: $1million) is restricted funds and held in escrow to satisfy certain vendor requirements, to be released back to the
Group and Company at the end of five years (FY 2021).
26 Trade and other receivables
Current trade and other receivables
Trade receivables
Other receivables
Prepayments
Accrued revenue
Balances due from subsidiaries
Due from joint ventures
Total
2017
$ 000’s
7,300
580
1,489
-
-
50
Group
2016
$ 000’s
3,992
1,969
1,943
-
-
49
2017
$ 000’s
7,759
396
1,145
11
4,190
50
9,419
7,953
13,551
Company
2016
$ 000’s
3,048
732
859
-
3,831
49
8,519
During the year the Group extended credit terms over its standard 30 day payment terms on the sale of certain domain name
inventory. Such extended terms were typically over high value “premium” names for a period of 12 months (and in some cases longer)
to known parties after careful assessment of the counter parties ability to meet such payment terms. The result of entering into such
deals has resulted in an increase in trade receivables.
The loans to subsidiaries are interest free and have no fixed repayment date. The loans have been classified to current receivables in
the current year as the directors assess these balances to be recoverable in 2018. The difference between the carrying value and the
fair value of the loan at the reporting date is deemed to be immaterial.
Group
Trade receivables disclosed above are classified as loans and receivables and are therefore measured at amortized cost.
Ageing of past due but not impaired receivables:
1 – 30 days
31 – 60 days
61 days and over
Total
2017
$ 000’s
422
41
878
1,341
Company
Trade receivables disclosed above are classified as loans and receivables and are therefore measured at amortized cost.
Ageing of past due but not impaired receivables:
1 – 30 days
31 – 60 days
61 days and over
Total
2017
$ 000’s
445
599
1,793
2,837
Included in the Company’s trade receivables are balances due from its subsidiary reseller of $1,911k (2016: $627k)
52
2016
$ 000’s
1,766
398
594
2,758
2016
$ 000’s
1,635
398
354
2,387
Minds + Machines Group LimitedAnnual Report 2017notes to financial statementsfor the year ended 31 December 2017
27 Trade and other payables
Trade payables
Other liabilities
Taxation liabilities
Accruals
Deferred revenue
Due to joint ventures
Due to subsidiaries
Total
2017
$ 000’s
339
2,959
217
2,617
6,472
104
-
Group
2016
$ 000’s
878
5,917
171
1,853
6,095
70
-
12,708
14,984
2017
$ 000’s
357
30
-
1,121
4,296
66
9,679
15,549
Company
2016
$ 000’s
181
228
-
1,085
3,523
65
8,798
13,880
Included within other liabilities are liabilities incurred as a result of the restructuring of a certain contract in 2016 (see note 7). In the
year, $3,105k of this liability was paid down and the balance still due at the year end is $2,955k (2016: $5,660k). After the year end, a
further $460k has been paid down.
Due to subsidiaries, in 2016 of $8,798k was due to the implementation of Group’s transfer pricing policy.
All trade and other payables are due within one year and approximate their fair value.
28 Share capital and premium
Called up, allotted, issued and fully paid ordinary shares of no par value
As at 1 January 2016
Shares repurchased
Share warrants exercised:
Number of shares
767,104,685
Price per share
(cents/pence)
(10,658,568)
11/7.7
Total
$ 000
73,816
(1,179)
24 May 2016 for cash on exercise of options
1,103,753
8.7/6
95
Shares repurchased:
3 October 2016 Tender Offer
Shares issued:
10 October 2016 Shares issued for cash
Cost of share issue
31 December 2016 and 31 December 2017
(100,000,000)
16.9/13
(19,088)
42,307,692
16.2/13
699,857,562
6,716
(300)
60,060
53
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
29 Share-based payments
Share-based payment expense
Equity settled share based payments
Expense as a result of modification of equity settled share based payments
Total
2017
$ 000’s
997
5
1,002
2016
$ 000’s
653
92
745
In the year, 8,000,000 options were issued to the Executive team and key employees. This resulted in an increased in the share based
payment expense (non-cash) in 2017. The valuation of the issued options is based on the Group’s method using the Black-Sholes
method as described below.
The Company has the following share option schemes in place:
• Directors and Employees Share Option Scheme – this scheme was previously open to all directors and employees of the scheme.
Current employees are now enrolled under a new ‘Restricted Share Option’ (RSU) scheme (see below) whilst this current scheme is
only open to Directors and certain senior executives.
• Restricted Share Option (‘RSU’) scheme – this scheme was in place for employees from 2014 to 2017.
Directors and Employees Share Option Scheme
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year (1)
Exercised during the year (2)
Expired during the year
Outstanding at the end of the year
Exercisable at the end of the year
2017
2016
Number of share
options
Weighted average
exercise price
(cents /pence)
Number of
share options
Weighted average
exercise price
(cents /pence)
29,812,500
8.3/6.1
55,207,318
8,000,000
3.2/2.3
15,000,000
(662,500)
9.3/6.9
(15,244,818)
-
-
N/A
N/A
(25,150,000)
-
37,150,000
5.5/4.1
29,812,500
12,483,333
12.2/9.1
9,575,000
9.8/8.0
Nil
8.5/6.9
8.7/7.0
N/A
8.3/6.1
11.7/8.6
1.
Included within the number of share options forfeited in the year are 662,500 (2016: 15,244,818) unexercised share options. In 2016,
included within the number of share options forfeited in the year are 8,500,000 (2015: Nil) share options issued to Directors that were
forfeited and settled in cash. This change was treated as a modification of a share based payment from equity settled to cash settled.
The amounts payable under this settlement amounted to $75k, which had already been recognized as an expense in the prior years and
therefore reduced from equity in the current year as a repurchase of equity instrument. No additional amounts were expensed.
2. No share options were exercised in the year. In 2016, included within the number of share options exercised during the year are
25,150,000 (2015: Nil) share options issued that were settled in cash. This change was treated as a modification of a share based payment
from equity settled to cash settled. The amount payable under this settlement amounted to $676k, of which $639k had already been
recognized as a share based payment expense in the prior years and therefore reduced from equity in the current year as a repurchase of
equity instrument. The balance of $37k was expensed.
The weighted average contractual life of outstanding options at the end of the year is 0.61 years (2016: 1.5 years). There were
8,000,000 options granted in 2017 (2016: 15,000,000). The aggregate of the estimated fair values of the options granted under this
scheme during 2017 is $793k (2016: $2,058k).
The general terms of the share options, under the company share options scheme, vest over 3 years (quarterly vesting, 1/12th of
options vest every quarter) and are exercisable over ten years from the date of grant if the employee remains within the company. The
exercise price is determined by the average share price over the 30 days preceding the date of the grant.
54
Minds + Machines Group LimitedAnnual Report 2017notes to financial statementsfor the year ended 31 December 2017
Directors and employee share option scheme – share options granted in the year:
Weighted average share price (cents/pence)
Weighted average exercise price (cents/pence)
Expected volatility
Expected life
Risk-free rate
Expected dividend yield
2017
13/9.6
3.2/2.3
42.46%
3 years
2%
Nil
2016
11.0/9.0
Nil
43.25%
3 years
2%
Nil
Expected volatility was determined by calculating the historic volatility of the Group’s share price over the previous year. Volatility
over earlier years is not representative as operations had not commenced and has therefore not been used to calculated volatility. The
expected life used in the model has been adjusted, based on management’s best estimate.
Restricted Share Option Scheme
Outstanding at the beginning of the period
Granted during the period
Forfeited during the period
Exercised during the period
Expired during the period
Outstanding at the end of the period
Exercisable at the end of the period
2017
Weighted average
exercise price Number of share
options
(cents /pence)
2016
Weighted average
exercise price
(cents /pence)
-
-
-
-
-
-
-
7,133,333
-
(2,737,496)
(3,595,836)
-
800,001
183,334
-
-
-
-
-
-
-
Number of share
options
800,001
-
(358,333)
(275,000)
-
166,668
166,668
* All share options exercised during 2016 under the Restricted Shared Option Scheme were settled in cash. This change was treated as a
modification of a share based payment from equity settled to cash settled. The amount payable under this settlement amounted to $38k, of
which $33k had already been recognized as a share based expense in prior years and therefore reduced from equity in the current year as a
repurchase of equity instrument. The balance of $4k was expensed.
The weighted average contractual life of outstanding options at the end of the year is nil years (2016: 0.64 years). There were no
options granted in 2017 (2016: nil).
The general terms of the share options, under the RSU scheme, vest over 3 years (quarterly vesting, 1/12th of options vest every
quarter) and are exercisable over three years from the date of grant if the employee remains within the company, at a nil exercise price.
Restricted Share Option Scheme – share options granted in the year:
No options under the restricted share option scheme were granted in 2017 (2016: nil).
The market price of the ordinary shares at 31 December 2017 was $0.11 / £0.08 (2016: $0.13 / £0.11) and the range during the year
was $0.11 / £0.08 to $0.18 / £ 0.14 (2016: $0.10 / £0.07 to $0.17 / £ 0.13).
55
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
Directors’ share options
Details of options for Directors’ who served during the year are as follows:
Michael Salazar (1)
Toby Hall (2)
Total
1 Jan 2017
Granted
Forfeited
Exercised
Expired
31 Dec 2017
7,500,000
3,000,000
7,500,000
3,000,000
15,000,000
6,000,000
-
-
-
-
-
-
-
-
-
10,500,000
10,500,000
21,000,000
These directors were not employed for the full 2017 financial period
*
(1) At the beginning of the year 7,500,000 options -Exercise price – Nil, exercisable on the publication of the 2018 financial statements.
During the year, a further grant of 3,000,000 options were awarded – Nil exercise price – exercisable on the publication of the 2019
financial statements.
(2) At the beginning of the year 7,500,000 options -Exercise price – Nil, exercisable on the publication of the 2018 financial statements.
During the year, a further grant of 3,000,000 options were awarded – Nil exercise price – exercisable on the publication of the 2019
financial statements.
There have been no variations to the terms and conditions or performance criteria for share options during the financial year.
Total warrants outstanding
As at 31 December 2017 the outstanding unexercised warrants in issue were:
Exercise Price
10p
13p
15p
Expiry Date
Number of warrants
06 May 2019
31 October 2019
18 March 2021
8,000,000
2,500,000
650,000
In 2017, a balance of 1,047,089 (2016:Nil) warrants expired, no warrants were exercised in 2017 (2016:1,103,753 at an exercise
price of 8.7cents/6pence).
As at the 31 December 2016 the outstanding unexercised warrants in issue were:
Exercise Price
10p
12p
15p
13p
Expiry Date
Number of warrants
06 May 2019
12 February 2017
18 March 2021
31 October 2019
8,000,000
1,047,089
650,000
2,500,000
56
Minds + Machines Group LimitedAnnual Report 2017notes to financial statementsfor the year ended 31 December 2017
30 Financial instruments
Capital risk management
The Group and Company manages its capital to ensure that entities in the Group will be able to continue as going concerns while
maximizing the return to stakeholders through the optimization of the debt and equity balance. The Group and Company’s overall
strategy remains unchanged from 2016.
The capital structure of the Group and Company consists of cash and cash equivalents and equity attributable to equity holders of the
parent, comprising of issued capital, reserves, and retained earnings.
The Group and Company is not subject to any externally imposed capital requirements.
The Group and Company’s strategy is to ensure availability of capital and match the profile of the Group and Company’s expenditures.
To date the Group has relied upon equity funding to finance operations. The Directors are confident that adequate cash resources
exist to finance operations to commercial exploitation, but controls over expenditure are carefully managed.
The Group and Company has a policy of not using derivative financial instruments for hedging purposes and therefore is exposed
to changes in market rates in respect of foreign exchange risk, However, it does review its currency exposures on an ad hoc basis.
Currency exposures relating to monetary assets held by foreign operations are included within the foreign exchange reserve in the
Group Balance Sheet.
Categories of financial instruments
Group
Financial Instruments
Cash and bank balances
Loans and receivables (including long term receivables)
Available for sale investments
Financial liabilities
Financial liabilities at amortised cost
Company
Financial Instruments
Cash and bank balances
Loans and receivables (including long term receivables)
Available for sale investments
Financial liabilities
Financial liabilities at amortised cost
There are no material differences between the book values of financial instruments and their market values.
2017
$ 000’s
15,868
10,767
500
2016
$ 000’s
15,275
8,178
-
3,330
6,792
2017
$ 000’s
12,454
15,303
500
2016
$ 000’s
10,544
9,828
-
10,069
9,205
57
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
Financial risk management objectives
The Group and Company’s Finance function provides services to the business, co-ordinates access to domestic and international
financial markets, monitors and manages financial risks related to the operations of the Group and Company through internal risk
reports, which analyses exposures by degree and magnitude of risks. These risks include market risk, credit risk, liquidity risk, and cash
flow interest rate risk.
It is, and has been throughout 2017 and 2016, the policy of both the Group and the Company that no trading derivatives are contracted.
The main risks arising from the Group and the Company’s financial instruments are foreign currency risk, credit risk, liquidity risk, interest
rate risk and capital risk. Management reviews and agrees policies for mitigating each of these risks, which are summarised below.
Market risk
The Group and Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and
interest rates. The risk is managed by the Group and Company by maintaining an appropriate mix of cash and cash equivalents in the
foreign currencies it operates in. The Group and Company’s management did not set up any financial instruments policy to manage its
exposure to interest rates and foreign currency risk.
Foreign currency risk
The Group and Company undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate
fluctuations arise. The Group and Company evaluates exchange rate fluctuations on a periodic basis to take advantage of favorable
rates when transferring funds between accounts denominated in different currencies.
The carrying amount of the Group and Company’s foreign currency denominated monetary assets and monetary liabilities at the
reporting date is as follows
2017
$ 000’s
2,956
23
351
3,330
2017
$ 000’s
-
8,309
1,760
10,069
Liabilities
2016
$ 000’s
5,682
1,065
45
6,792
Liabilities
2016
$ 000’s
2,068
5,524
1,613
9,205
2017
$ 000’s
1,836
23,306
1,993
27,135
2017
$ 000’s
2,908
25,346
3
28,257
Assets
2016
$ 000’s
3,708
18,047
1,698
23,453
Assets
2016
$ 000’s
3,696
14,780
1,896
20,372
Group
Sterling
USD
Euro
As at 31 December
Company
Sterling
USD
Euro
As at 31 December
58
Minds + Machines Group LimitedAnnual Report 2017notes to financial statementsfor the year ended 31 December 2017
Foreign currency sensitivity analysis
The following table details the Group and Company’s sensitivity to a 10% increase and decrease in the functional currency against the
relevant foreign currencies. 10% represents management’s assessment of the reasonably possible change in foreign exchange rates.
The sensitivity analysis includes only outstanding foreign currency denominated financial instruments and adjusts their translation
at the period end for a 10% change in foreign currency rates. The following table sets out the potential exposure, where a positive
number below indicates an increase in profit or loss and other equity where the US Dollar strengthens 10% against the relevant
currency. For a 10% weakening of the US Dollar against the relevant currency, there would be a comparable impact on the profit or
loss and other equity, and the balances below would be positive.
Group
Profit or loss (i)
Other equity (ii)
Company
Profit or loss (i)
Other equity
Pound Sterling impact
Euro impact
2017
$ 000’s
(479)
-
(479)
2016
$ 000’s
(1,129)
-
(1,129)
2017
$ 000’s
(234)
-
(234)
2016
$ 000’s
(174)
-
(174)
Pound Sterling impact
Euro impact
2017
$ 000’s
(291)
-
(291)
2016
$ 000’s
(576)
-
(576)
2017
$ 000’s
(176)
-
(176)
2016
$ 000’s
(351)
(351)
• The main attributable to the exposure outstanding on Pound Sterling and Euro is receivables and payables at the balance sheet date.
• There is no impact on other equity, as the Group does not hold derivative instruments designated as cash flow hedges and net
investments hedges.
In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk as the year-end exposure
does not reflect the exposure during the year. Whilst the group operates across Europe and North America, operations are managed
in US dollar and these financial statements are presented in US Dollars.
Interest rate risk
The Group and Company’s exposure to interest rate risk is limited to cash and cash equivalents held in interest-bearing accounts.
Interest rate sensitivity analysis
The impact of interest rate fluctuations is not material to the Group and Company accounts.
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group and
Company. The Group and the Company’s financial assets comprise of receivables, cash, and cash equivalents, and other long-term assets.
The credit risk on cash and cash equivalents is limited as the counterparties are banks with high credit-ratings as determined by
international credit-rating agencies.
The credit risk on other long-term assets is limited as the total amount represents two components: deposits for the right to secure
a revenue-generating asset and restricted cash. The deposits for the right to secure revenue-generating assets are maintained by a
government sponsored global organization that is contractually required to return a portion of these deposits if requested. Furthermore,
the agency, a not-for-profit organization, is well funded by its member organizations and is not a risk to cease operations. The restricted
cash is deposited with banks with a high-credit rating as determined by international credit-rating agencies.
59
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
The exposure of the Group and the Company to credit risk arises from default of its counterparty, with maximum exposure equal to
the carrying amount of receivables (excluding prepaid income), cash and cash equivalents, and other long term assets in the Group and
Company statements of financial position.
The Group and Company do not hold any collateral as security.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has established an appropriate liquidity
risk management framework for the management of the Group and Company’s short, medium, and long-term funding and liquidity
management requirements. The Group and Company manages liquidity risk by maintaining adequate reserves, banking facilities
and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of
financial assets and liabilities.
Cash forecasts are regularly produced to identify the liquidity requirement for the Group and Company. To date, the Group has relied
on the issuance of stock warrants and shares to finance its operations. The Group did not borrow in 2017 and 2016.
The Group’s and Company’s remaining contractual maturity for its non-derivate financial liabilities with agreed repayment periods are:
31 December 2017
Non-interest bearing:
Trade and other payables
31 December 2016
Non-interest bearing:
Trade and other payables
Weighted average
effective interest rate
Within 1 year
$ 000’s
802
802
Weighted average
effective interest rate
Within 1 year
$ 000’s
Group
1 – 5 years
$ 000’s
2,496
2,496
Group
1 – 5 years
$ 000’s
Within 1 year
$ 000’s
Company
1 – 5 years
$ 000’s
357
357
-
-
Within 1 year
$ 000’s
Company
1 – 5 years
$ 000’s
6,792
6,792
-
-
406
406
-
-
Other Group and Company’s non-derivative financial assets mature within one year.
The Group and Company had no derivative financial instruments as at 31 December 2017 and at 31 December 2016.
60
Minds + Machines Group LimitedAnnual Report 2017notes to financial statementsfor the year ended 31 December 2017
31 Commitments
The group as a lessee
Lease payments recognised under operating leases recognised as an expense in the year
2017
$ 000’s
351
2016
$ 000’s
237
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable
operating leases, which fall due as follows:
Within one year
In the second to fifth years inclusive
After five years
2017
$ 000’s
423
1,872
-
2,295
2016
$ 000’s
406
2,734
-
3,141
Operating lease payments represent amounts payable by the group for its office properties and outsourcing registry operations.
Leases in relation to office properties are negotiated for an average period of three years with fixed rentals with only one lease having
the option to extend for a further three years at a fixed rental. Leases in relation to outsourcing registry operations are negotiated for
a period of five years with fixed commitments.
As at 31 December 2017 and 31 December 2016, the Group has no capital commitments.
As at 31 December 2017 and 31 December 2016, the Company had no lease or capital commitments.
32 Related party transactions - Group
Balances and transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation
and are not disclosed in this note. Transactions between the Group and its associates are disclosed below. Transactions between the
Company and its subsidiaries and associates are disclosed below.
Joint ventures
During the year, the Group entered into transactions with its Joint Ventures that resulted in amounts owed to or due from the Joint
Ventures. The balances at the year-end were due to financial and equity requirements across the Joint Ventures. The balances have no
fixed repayment and no interest is received or charged on these balances.
Due to Entertainment Names Inc
Due to Dot Country LLC
2017
$ 000’s
45
(70)
2016
$ 000’s
44
(70)
61
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
Remuneration of Key Management Personnel
The remuneration of the Executive Directors, who are the key management personnel of the Group, is set out in note 13.
Related party transactions - Company
Transactions between the Company and its subsidiaries and associates are disclosed below.
Subsidiaries
During the year, the Company’s subsidiaries have provided certain services to the Company (RSP services) and recharged certain
costs to the Company. Details of these transactions are shown below
Recharged costs and services from
Minds and Machines LLC
Minds + Machines Limited (IE)
2017
$ 000’s
2,521
709
2016
$ 000’s
4,350
1,533
In addition, during the year, the Company has provided financing to its subsidiaries. The net balances due to the Company are detailed
below. The balances have no fixed repayment terms and no interest is charged on these balances.
Company
Minds and Machines LLC
Bayern Connect GmbH
Minds and Machines GmbH
Minds + Machines Limited (IE)
Minds + Machines Registrar Limited (IE)
Minds and Machines Limited (UK)
Minds and Machines Registrar UK Limited
Emerald Names, Inc
Minds + Machines (FL)
Minds + Machines, Inc.
Minds + Machines Hungary
Dot Law, Inc.
Boston TLD Management LLC
Beijing MMX Tech Co. Ltd
2017
$ 000’s
(2,751)
1,146
747
(1,760)
5
197
-
95
(400)
5
300
(2,247)
1,519
176
2016
$ 000’s
(4,907)
1,001
651
(1,613)
-
(2,068)
2
97
(211)
5
240
102
1,514
219
The Company also sold second level domain names to its subsidiaries and had trade receivable balances outstanding at the year end:
Company
Minds and Machines LLC
Dot Law Inc.
Second level sale of domains
Trade receivable outstanding
2017
$ 000’s
-
1,250
2016
$ 000’s
927
627
2017
$ 000’s
-
1,868
2016
$ 000’s
2,101
627
62
Minds + Machines Group LimitedAnnual Report 2017notes to financial statementsfor the year ended 31 December 2017
Joint ventures
During the year, the Company entered into transactions with its Joint Ventures that resulted in amounts owed to or due from the
Joint Ventures. The balances at the year-end were due to financial and equity requirements across the joint ventures. The balances
have no fixed repayment and no interest is received or charged on these balances.
Due from Entertainment Names Inc
Due to Dot Country LLC
2017
$ 000’s
49
(33)
2016
$ 000’s
49
(33)
Other
At the balance sheet date, an amount of $61k (2016: $61k) was due from Frederick Krueger (a former Director of the company) in
relation to shares previously issued.
Remuneration of Key Management Personnel
The remuneration of the Executive Directors, who are the key management personnel of the Group, is set out in note 13 and share
options issued set out in note 29.
33 Post Balance Sheet Events
The Group completed its Strategic Review leading to the proposed acquisition of ICM Registry. Refer to the Executive Summary for
further information.
63
FINANCIAL STATEMENTSSTRATEGIC REPORTGOVERNANCE
corporate information
Registered number
1412814 registered in
British Virgin Islands
Directors
Toby Hall
Chief Executive Officer
Michael Salazar
Chief Operating Officer and
Chief Finance Officer
Guy Elliott
Non Executive Chairman
Henry Turcan
Non Executive Director
Registered Office
Craigmuir Chambers
Road Town, Tortola
British Virgin Islands VG 1110
Website
www.mmx.co/about/overview
Auditor
Mazars LLP
Tower Bridge House
St. Katharine’s Way
London E1W 1DD
United Kingdom
Solicitors
Hill Dickinson LLP
The Broadgate Tower
20 Primrose Street
London EC2A 2EW
United Kingdom
Nominated Advisor and Broker
One Advisory
201 Temple Chambers
3-7 Temple Avenue
London EC4Y 0DT
United Kingdom
Registrars
Computershare Investor Services
(Channel Islands) Ltd
PO Box 83
Ordnance House, 31 Pier Road
St Helier JE4 8PW
Channel Islands
Principal Bankers
Silicon Valley Bank
15260 Ventura Blvd #1800
Sherman Oaks, CA 91403
United States of America
Bank of Ireland
40 Mespil Road
Dublin 4
Ireland
HSBC Bank plc
8 Canada Square
London
E14 5HQ
United Kingdom
Designed and produced by Mediasterling:
www.mediasterling.com
64
Minds + Machines Group LimitedAnnual Report 2017 Minds + Machines Group Limited
220 W Mercer St
Suite 250
Seattle, WA 98119
investors@mmx.co