Member Info for Silverblade

Hucks - I think our exposure to London is now minimal following the deal we struck to pay off our contracted revenue tail end of 2019. How we ever signed up to such an onerous commercial deal with no break clauses in the event that revenue would fall so far short beggars belief. What do registry service providers get paid per domain - not a lot. Must rank as one of the worst domain deals ever. You would think our IIs would be aware of this - Turcan and Elliott are on the board and would need to have agreed the settlement. SJL would also have been aware of this - If I can find this out in a couple of hours it’s hardly top secret. As for our credibility - as it stands we have none imo. The business is at rock bottom - and the new team have a major job to lay out a path which starts to offer shareholders some hope for the future - it’s not beyond salvage but jeez the magnitude of issues here really are unforgivable. SB

And if you think our management has seen significant change over the last few years, the role of honor at DLDL puts us to shame. It is astonishing the number of directors who have been appointed and resigned over such a short duration – company directors, tech advisers, chief executives, commercial, marketing, finance. During 2018/19 there were 14 directors in and out the business. But fair play – what a great deal they struck with mmx back in 2012 and a nice little earner all at our expense. London has 50,000 current DUM’s – year one price is about £20 - plus some higher renewals and premium sales - but still shows the gap between sales revenue and contractual income from mmx.

So where does that leave london – well our seven-year contract (with an optional three year renewal…) with DLDL expires in August 2021. It appears we have no ownership rights to the string so I imagine we might just let this one go……! The gravy train for DLDL will continue until then – and then hit the buffers without mmx to deliver its historic contractual registry income.

We continue to have revenue share and partner deals with county, review, law, bayern, nrw, boston and miami from what I can gather – accounting for the current $2m pa partner payments. Hopefully – these are also time limited and we can exit onerous deals which do not work for mmx.

Incredible how such incompetence could occur. SB

For some reason I was always under the impression we owned 50% of dot london – probably back to a line from Fred K on our portfolio valuation. Given the compete fiasco associated with that domain, and the significant cost to the business, I decided to get to the bottom of this mess to see what happens next. Hold on your sanity all – this tale beggars’ belief.

Dot London Domains Limited (DLDL) was incorporated in March 2012 and is a wholly owned subsidiary of London and Partners, the mayor of London’s promotional vehicle. DLDL was the sole applicant for the london string and was awarded the contract to run london in March 2013. Prior to that, in 2012, DLDL appointed Top Level Domain Holdings – TLDH (now mmx) as its partner to provide registry services. TLDH’s appointment was made following a competitive process and was for an initial seven year period from london’s launch in summer 2014 – TH was at the time mmx’s London based marketing consultant and likely involved in negotiations.

The next bits sore. Note turnover is 100% revenue from the appointed registry services provider – good old mmx. In its first year of trading from April 2014 to 31 March 2015, DLDL sold 60,000 DUM’s and generated £3.2m in turnover and PBT of £1.4m. Year to 31 March 2016, turnover was down to £1.7m, negligible PBT but a £450k dividend was paid to its parent with 64,000 DUM’s. Year to March 2017 turnover hit £3.9m, PBT of £1.9m, a £1m dividend – and interestingly reference to a contract amendment fee which offset a decrease in domain sales revenue. Year to March 2018 turnover hit £4.8m, PBT of £2.2m, a £1.8m dividend – and yes you’ve guessed it – despite a further decrease in turnover from domain sales the higher partner contractual income hit the jackpot. Year to 31 March 2019, total turnover maintained at £4.9m despite a 35% drop in sales after receipt of even higher contractual income, PBT of £2m and a £950k dividend. For the last few years operating costs – basically director salaries as the registry services provider does all the work – have been £2m pa. The years to March 2020 and March 2021 will likely be the same. So london has been pretty much bringing in similar revenue to the ICM portfolio for the last couple of years ($6.7m london v c.$7m ICM) with good profits and dividends.

I think it’s safe to assume that the $13m+ provisions (including an $11m marketing spend commitment from mmx as part of the deal which was renegotiated to pay 50% of this amount direct to DLDL) made by mmx over the last three years have found their way into DLDL – pretty much underwriting the poor london sales performance and £4m+ of which has been paid out as dividends to the Mayor of London’s office whilst bleeding us dry.

Part 2 to follow....

Cheers Hucks - same to you for 2021. It will be interesting to see if we see any improvement in share price in the run up to the trading update - in ‘normal’ circumstances we would see a bit of speculation in this regard. This time last year we were told a dividend was about to be introduced and we started moving back to an almost acceptable share price. I wonder what treats are in store for us this year following the trinity of covid, miss counting and warranties last year! SB

As we wait on a trading update toward the end of the month here is a quick snapshot on 2020 sales/renewals. We started 2020 with 2.4m DUMs – 2.1m of which were vip and work. Ended 2020 with 2.2m – 1.7m of which were vip and work. The big overall drop is in .vip – not unsurprising – with 400K less registrations than at start of year – with another decent slice of delete’s coming up. Work is slightly up on year overall. What is much better is the activity below these two – with casa up 27K, fit 49K, yoga 7K, law 4.5k, luxe 2k, miami 3k, fashion 1.5k, Bayern and nrw are steady, with wedding down 6k. And these gains are all post renewals – which indicates high % renewals and decent sales. Hopefully this continues the trend to replace high volume, low margin registrations with reduced volume, higher margin registrations. Note this excludes the c.100K xxx DUMs’ – all other adult strings slightly down on year. As we have all observed – we need to increase our revenue per domain on the basis our total DUMs are going to shed numbers based on the direction of travel of our volume strings.
Key issues for me:
1. Trading update needs more than just a numbers review. The issues in Q4 are clearly impacting market perception - whether we believe an RNS on the warranties issue is required or otherwise it requires some form of response to shareholders – I cannot believe our II’s have not requested such.
2. The buyback ended on 31st December – I think we spent about £1.1m of the £2.3m allocation taking out 25m shares plus the 6m in treasury were cancelled. So what happens next…..?
3. Clarity on exactly who is in our senior management team – I for one am not clear on who is and is no longer in our team
4. Web site needs updated
5. 2021 and beyond – what’s the plan – and there’s a lot going on in a relatively small business.
6. Adultblock….any sign of life?
Maybe this year will be a bit better than last year, although that has a familiar ring to it! SB

I guess we don't need reminding of the last 12 months at mmx......we can have a look at the year end numbers soon enough....so for now I wish you and your families all the best of health for the year to come - and if you’ve got your health, a bit of wealth to go with it. HNY all. SB

1. London and Capital have now purchased in excess of 30m shares this year. Their recent purchasing should be seen as a sign of ongoing support - they have been a core investor for more than 10 years and I assume are close to Guy Elliott - exec chairman, who holds 20m+ shares.

2. Despite the Chinese debt write downs - the company has continued to pursue receivables, noting in its 2019 accounts that $0.6m in cash related to contracts entered into in 2017 associated with the bad debt had been collected. There is also reference to receiving "collateral in the form of equity in two privately held businesses" - although further write offs of that debt to a total of $3.0m of China bad debt were incurred. This clearly does not establish whether the ICM warranties were issued in good faith or not - but shows attempts are being made to recover outstanding debts and that the IFRS9 accounting treatment requirement would have been a driver in the Sept 2018 write downs - recognising the sensitivity on whether such an adjustment should have been made clear at the time of the full year results issued in April 2019 as opposed to the interim accounts in Sept 2018. SB

Part of the issue is what exactly had been sent to mmx from SJLs legal team. It’s more likely to be a notice of intent to take things further rather than any material substance at this stage - possibly one last chance to sit down and review each parties position - and without any details it appears not necessary to notify shareholders of the receipt of a letter. If it was material - our II’s would require full disclosure on the potential impact to the business as noted in the communication from Belvedere. SB

Following a recent email to the company I received a response from Belvedere. I have copied part of the response which addresses the current issue as I do not believe there is any sensitive information contained therein and that Belvedere would not have any objections to the sharing of the content;

“ The Company issues its information in accordance with its regulatory obligations via RNS and will continue to do so in the future. The Company is comfortable with its current disclosures and information supplied to the market in line with its regulatory requirements.”
SB

Alleged fraud bakky - it’s a serious accusation being made - and the connotations for the company and former directors if proven are considerable. Which is why this should be dealt with out of public view - or at least attempted. The reality is the business will find it difficult to progress while this issue casts its shadow. SB

400k shares taken out by the buyback. Almost 9m traded today - that’s a reasonable amount of shares over the last few trading sessions (20m+ I think) changing hands at 5/5.1p. Someone must be buying - the buyback appears to be not the only price support for now. SB

SJL - MS's actions' speak louder than words. Goes back to to my point about 'acute incompetence' - which i think all here would accept as the baseline. Whether its fraud is the point of the debate. vip creative accounting aside; the largest screw up that year was the emerging london fiasco - with both an asset impairment and onerous contract provision. There is reference to restructuring which would imply the company increased its contractual 2017 marketing spend from 12 months (Jan 2017 - Dec 2017) to 17 months (Jan 2017 - May 2018) at which point the company would reflect on whether the increased marketing had made any difference to sales - it didn't - and shortly after it decided to impair the asset in late June 2018 in accordance with new financial standards in its interim (unaudited) accounts. Plausible? SB

SJL - thanks for your comments and thoughts – i appreciate you taking the time to review and provide a response. You are obviously closer to this than anyone here in understanding the sale details and as such are better informed than those of us that have to rely on public record to try and understand what has occurred and how serious the damage could be.

I appreciate there are a number of examples of dodgy accounting – I just picked what appeared one of the larger and for which I assume a warranty was provided for. I also get your point about post balance sheet events – but I think the issue here relates to the legal requirements of IFRS 9 which stipulates a financial asset must be impaired (l assume that asset was the cash owed by the vip third party) if there is an expectation there will be a payment default – and my point was that anticipation of a payment default may have occurred in mid Sept 2018 – 12 months after the original deal – hence the provision.

As SS (BB!) is doing – I have written to the company asking they open up lines of communication with you to discuss matters – I don’t know if this will be of any use given the previous opportunity to enter into dialogue with you was declined but I can only try. Court proceedings should only occur after the parties try and reach an agreement/settlement/understanding - and that clearly has not occurred yet. That is the least the company could do to avoid further distress to current shareholders. SB

3. Where does that leave us? I 100% condemn the behavior of TH and MS – MS in particular – their approach to pre-booking revenue based on ‘deals’ with post deal payment terms rather that straight sales is simply not good business practice – but on the face of it there is no illegality. The risks to the business are clear - when the third party fails to honor its agreed payments it is mmx which gets hung our to dry – and it appears we are serial offenders. However - unless there is explicit evidence that the company deliberately issued warranties, which were falsified in order to conclude a deal(s), then fraud will be hard to prove. If such evidence exists – shame on those who were party to such behaviour.

To have allowed a situation where SJL is about to submit communication on possible legal action without engaging with him appears folly. That said – clearly the company cannot admit any wrongdoing should that have transpired - at best that would cause acute discomfort for its shareholders – at worst it may lead to II’s selling up due to fund mandates – and that’s going to be grim.

In ending – irrespective of what has occurred in the past – what appears likely to happen will cause further damage and further erode any remaining confidence in the business. Over the last few years, we have allocated nearly 50m shares to 2 individuals who were clearly incapable of running the business. Year to date we have purchased a further 50m shares in the buyback programme – a collective value of more than £5m – even higher if the options were actually paid out. We have likely paid TH and MS a decent pay off – probably a year’s salary each – which in itself is hard to accept given what they have been up to and the impact on shareholders. Irrespective of fraud or not (and my views are clear on this) I cannot see why a gesture of goodwill to ICM shareholders would not go some way to starting the recovery of the business with its new team in place, accepting our past behaviour was simply not good enough and recognising our credibility in any future acquisitions/consolidation/takeover will be impacted by market perception on how we operate. SB

2. Timing – and this is important. Let’s assume the principal deal under question from a warranty perspective is the $3.4m vip premium sales announced on 12 Sept 2017, which followed .vip’s Aug 2017 approval to be effectively sold in China’s Beijing capital. Based on the likely structure of the deal, mmx booked the $3.4m advance sales as revenue in Sept 2017 and assumed it would be paid – and I am working on the assumption that the deal involved 12-month payment terms. Fast forward to 18 June 2018 – ICM deal completes following several months of negotiation, diligence etc – warranties are issued in good faith that the $3.4m remains outstanding but will be paid within its original 12-month window to square the 2017 accounts. Three months later – on 26 Sept 2018 (past my 12 month payment terms assumption from 12 Sept 2017) – and in accordance with the new January 2018 IFRS 9 (international accounting standard which requires companies to make provisions where the possibility exists long term payment terms are not honored) – the board of directors makes a provision of $2.1m against a US based partner – presumably based on the fact that full payment of the actual $3.4m was not received in accordance the previously agreed terms and conditions and IFRS 9 requires the company to make a provision. IF this is what occurred – and those are the facts (12 month payment terms aside) as I see them - I see no evidence of fraud – just a bad debt being recognized in accordance with new accounting standards. Clearly, I have not had sight of the warranty itself and if there is evidence to the contrary of my understanding then I stand to be corrected. SB

Have been reviewing the last 72 hours of posts. No matter whether we were former or current shareholders – we have been taken for ride by TH and MS – and GE does not come out of this unscathed either. It’s a bit difficult to be objective in the face of what is being openly discussed; and its harder to articulate the bigger picture on the companies BB.

However – FWIW – this is way I see it.

1. Fraud v Incompetence. The central issue of the issued warranties will come down to whether there was corporate fraud or acute incompetence. One will have a legal bearing and would lead to difficult times for all shareholders; one is embarrassing but recoverable. Proving the company fraudulently issued warranties in relation to income/sales imo will be very difficult; as SS has noted – there are third parties involved in the sales process whom may have a direct bearing on whether all income was received - or not as the case turned out to be (Let’s assume the vip deal in question was similar to the recent revenue issues i.e. income was counted as revenue from third parties before actual sales were made – a sort of pre-booking). It looks like third parties were vouching for this income in exchange for sales ‘deals’ – the trouble hit when the actual income was required to be produced in cash terms to satisfy the earlier reported income and the third party failed to make its payments – see point 2. SB

Don’t think your decision was a bad one bakky; and I know what you mean when you felt about throwing the whole towel in. Just at a time when we thought things could not get any worse this hits us. I am going to have a think about how I see this playing out and may post some thoughts over the next couple of days. SB

I’m still holding bakky - although I’m not feeling particularly good about next week’s likely announcement on legal proceedings being issued against the company. I thought about selling some but opted to hold. Missed today’s fun. Hope everyone is ok. SB

8m shares traded yesterday at one price. Is it just me that finds that bizarre? Buys and sells merged into one. One day after SJL announces potential litigation. More of the same today? Strange behaviour all round here imo. SB

The problem with this latest uncertainty is we are now focusing on what happened 30 months ago. I’m not attempting to downplay the issue – I would feel as wronged as SJL does if I had been in a similar situation and felt I had been lied to – its human nature to seek redress where the motivation and capital exists to do so. That said – how many times have we been led down the path in the last 4 years despite being told all was well.

I’m not 100% sure on how any litigation would work in practice – but it’s worth bearing in mind the following which may have a bearing on any ‘claim’.

The highest share price we have enjoyed in the last 30 months was on 3rd May 2018 – the day before the ICM purchase – with mmx valued at £70m (10p - 700m shares in circ). On the day of the ICM acquisition announcement the share price declined – and six weeks later hit 6.5p – mmx valuation £45m – a loss of £25m in six weeks post the ICM acquisition. This was prior to any announcements which covered bad debts. I want to make it clear I am not having a go at the deal – it was a good bit of business (probably the only one carried out by the previous team) – but the reality is in valuation terms it removed a significant amount of shareholder value.

The unaudited accounts announcement in Sept 2018 with its $14m ‘hit’ actually saw a small price increase – with the share price meandering its way from 6p up to 8p in the 18 months up to Feb 2020 – then whammo – covid_19 which wiped out all gains over the last 18 months and then some. We saw some recovery – SJL sold his remaining holding at 6p - then the October revenue announcement and ground zero again.

My point - if there is one – possibly relates to the ability to prove loss and therefore damages as a result of the warranted information given the company valuation movements noted above – the biggest decline of which was when ICM was purchased. The market works in funny ways. Sorry bakky – but I had started so thought it worth posting! SB