MMX.L Regulatory News (MMX)

Strictly embargoed until: 07.00, 3rd April 2019

Minds + Machines Group Limited

("MMX" or the "Company")

Final Results

 Minds + Machines Group Limited (AIM: MMX), the top-level domain registry company, is pleased to announce Final Results for the year ended 31 December 2018.

Toby Hall, CEO of MMX, commented:

"2018 has been a transformative year, the ICM acquisition accelerating our ability to mature into a business where growing, highly predictable, recurring revenues now account for the majority of our income and underpin the business's forward momentum in place of the one-off revenues that historically enabled the Group to fast-track its way to maiden operating profits over the prior 24 months.

"In addition to driving growth from our significant library of TLDs in the year, we also launched our first R&D Innovation project, .luxe, in November and are greatly encouraged by the progress it continues to make and the strategic relationships it is allowing us to develop.

As indicated in the Interims, the year has also been used to tackle certain historic contracts so that a clearer picture of the Company's ongoing progress can be presented in future periods. Consequently, the strong underlying performance of the business and cash collections in 2018 have been tempered by the provisions and restructuring costs affecting the reported profitability. Notwithstanding that, we have a robust operating platform and methodology which will enable us to continue successfully monetizing our portfolio, the business now being well positioned for future growth."

2018 Financial Highlights:

· Group revenue up 5% to $15.1m (2017: $14.3m) net of the impact of reversing $586k of revenues recognized in prior periods

· Cash collections on normal operations (i.e. net of contested domain resolution revenue/other income) up 30% to $16.1m (2017: $12.3m)

· Renewal revenue up 97% to $9.4m (2017: $4.8m) representing 62% of Group revenue (2017: 34%)

· Core milestone achieved of renewal revenue surpassing Cost of Sales and Fixed Overheads for the first time - Cost of Sales and Fixed Overheads contained at $3.5m and $5.5m respectively (2017: $3.4m and $5.3m) in spite of the expansion of the business

· Regional split of revenues improved, the US sales team contribution increased to 57% of Group revenue (2017: 32%), China reduced to 29% (2017: 53%), with Europe remaining broadly flat at 14% (2017: 15%)

· Exposure to one-off income from brokered premium sales reduced to under 15% (2017: 38%)

· Provisions of $13.4m made including a bad debt provision of $2.1m, onerous contract provision of $7.2m and impairment of the underlying asset of $4.1m, leading to an overall accounting loss of $12.6m

2018 Operational Highlights:

· Acquisition of ICM for $30.6m

· Domains under management grown 37% to over 1.81m (2017: 1.32m)

· .luxe launched to provide a common naming approach across multiple leading blockchains and the World Wide Web, Ethereum being the first partner

Post Period Highlights

· Q1 sales 246% ahead of same period last year with c. $500k of .law sales achieved in China

· .cpa and .gay contention sets resolved

· London & Capital loan facility retired in full ahead of schedule

· $510k of long-standing receivables collected

· Development partners for the integration of .luxe into the Bitcoin and EOS blockchains selected

· Bryan Disher, CPA, CA, appointed as independent non-executive director

Commenting on current trading and outlook he added:

"2019 has started exceptionally well, Q1 sales significantly ahead of the same period last year resulting from a combination of the first time contribution from ICM, healthy trading in China and steady growth in sales from the European and US teams. We likewise look forward to the benefits of certain underlying contract renegotiations beginning to feed through into the business in H2 and the subsequent period; the business is now well positioned for ongoing growth."

The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014.

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For further information:

About MMX

Minds + Machines Group Limited (LSE: MMX) is the owner of a world class portfolio of 32 ICANN approved top-level domains (gTLDs). The Company generates revenues through the registration and annual renewal of names by organisations and individuals within each of its top-level domains, sales being processed through the Group's network of global registrar and distribution partners.

 The MMX portfolio is currently focused around generic names (e.g. .work, .vip), consumer interest (e.g. .fashion, .wedding), lifestyle (e.g. .fit, .surf, .yoga), professional occupations (e.g. .law), and geographic domains (e.g. .london, .boston, .miami, .bayern). In 2018, the Company completed its first acquisition, the ICM portfolio, and recently launched its first innovation based project, .luxe, which combines the strengths of the World Wide Web's naming system with that of blockchain. For more information on MMX and its rapidly growing renewal base, please visit www.mmx.co 

Executive Summary

Overview

2018 has been a transformational year for our Company: the acquisition in June of ICM; the growth in our headline registrations that for the third consecutive year has outperformed the wider registry market; and, most importantly, the significant increase in the level of predictable recurring revenues that now underpin the business's forward momentum in place of the one-off revenues that previously had enabled management to take the business to maiden operating profits in the prior 24 months. In addition to driving profitable growth from our library of TLDs through traditional DNS based activity on the World Wide Web, 2018 also saw MMX launch its first R&D project, .luxe, the purpose of our Innovation based activity being to explore new avenues relating to broader Internet-based naming protocols that can potentially unlock meaningful new revenue opportunities for MMX. As disclosed in the Interims, the period was also used to address the underperformance of certain historic contracts, including those inherited by current management, which led to the one-off accounting losses indicated at the half-year and will enable a clearer picture of the Company's ongoing progress to be presented in future periods. The impact of the adjustments on the full-year are discussed in full in the financial review.

2018 Highlights

· Acquisition of ICM for $30.6m

· Domains under management up 37% to over 1.81m (2017: 1.32m)

· Group revenue up 5% to $15.1m (2017: $14.3m) net of the impact of reversing $586k of revenues recognized in prior periods

· Cash collections on normal operations (i.e. net of contested domain resolution revenue/other income) up 30% to $16.1m (2017: $12.3m)

· Renewal revenue up 97% to $9.4m (2017: $4.8m)

· Regional split of revenues significantly improved, revenues from the US sales teams increased to 57% (2017: 32%), China reduced to 29% (2017: 53%), with Europe remaining broadly flat at 14% (2017: 15%)

· .luxe launched to provide a common naming approach across multiple leading blockchains and the World Wide Web

· Provisions of $13.4m made including a bad debt provision of $2.1m, onerous contract provision of $7.2m and impairment of the underlying asset of $4.1m, leading to an overall accounting loss of $12.6m

Operational Review

As outlined in the 2017 Report and Accounts, management's strategy for delivering value to shareholders is based on three core principles:

1. driving profitable growth through organic business development and operational efficiencies in each of our key geographic regions: US, Europe and China;

2. accelerating scale and earnings through targeted acquisitions; and

3. innovation.

Organic Growth

The registry industry is rare in that a large amount of data is publicly available on the entire industry in terms of daily registration volumes, pricing, and promotional activities.

As such, it is an industry where both data mining and data analysis can provide genuine insight and competitive advantage across multiple areas of the business.

A key characteristic of MMX's development in 2018 has therefore been an increasing use of data-driven insights to better:

1. shape management's strategic priorities and associated product development;

2. set relevant targets for sales teams;

3. provide more relevant data-sets for sales teams to better leverage their discussions across the existing registrar channel, as well as identify relevant new distribution partners; and

4. improve internal operational efficiencies.

The success of this approach, combined with the ongoing streamlining of our sales teams to improve accountability, is best evidenced by analyzing the performance of the original MMX portfolio (ie. net of the ICM contribution) which again significantly exceeded the industry norm of 3 - 4% annual registration growth with registrations up 23% to 1.63m, renewal revenue up 19% to $5.7m, and an underlying improvement in cash collections with cash collected on brokered sales outside of the registrar channel improved by an impressive 243% to $2.3m. The improvement in collected cash on brokered sales followed the decision by the Company to withdraw the provision of extended payment programs that were introduced in H2 2017, in-line with industry practices at that time, and which were subsequently provisioned for at the half year in accordance with IFRS 9 and which is discussed in greater length in the Financial Review below.

For the US sales team, data-driven insights directly influenced the introduction and structure of highly successful first year discount based initiatives for certain generic TLD's, notably .work in Japan and .vip outside of China, which led to year-on-year new registration growth of 262% and 109% respectively and renewal rates five times greater than typically seen for aggressive discount based promotions in the industry. Data based insights also led to the identification and introduction of a key distribution partner for the vertical sector property in the US, .wedding, and likewise the subsequent campaign structure which led to a near doubling of new registrations in the year for that domain. The US business development team is now looking to leverage this knowledge and apply it to other generic and vertical properties.

In China, the growth of channel related sales in the year has also benefited from the use of analytics to better structure relevant promotions with lead registrar partners. Separately, an important part of the ongoing development of the Chinese market has been the identification and selection of partners for new initiatives - notably .gouwu, .luxe and .law. Sales from .gouwu and .luxe in their early launch phases in 2018 exceeded $1m, with healthy billings achieved in Q1 2019 for .law.

In Europe, MMX's activities in 2018 were primarily focused on its geographic TLDs, our German properties firmly establishing themselves within the industry as the model by which geo based TLDs can succeed. Key components that have led to the steady year-on-year registration growth, and renewal rates exceeding 90%, included: an appropriate commercial structure with the municipality; the active support and promotion of the properties by the respective governing bodies coupled with the channel relationships; and guidance by MMX on those marketing initiatives that can return value. Meanwhile, .london sales declined in spite of significant marketing investment.

To support the increased emphasis on data analytics the Company has specifically targeted the recruitment of individuals with exceptionally strong skills in data analysis. These hires have come from both from within as well as from outside the industry and have directly contributed to helping the Company achieve a better balance of revenues across its main geographic markets. Within the MMX part of the portfolio (ie. excluding the ICM properties), revenues from China were reduced to 39%, and those from the US and Europe increased to 42% and 19% respectively. Post the ICM integration, this regional balance was further improved, sales generated by the US team at the year-end for the enlarged group accounting for 57% of total revenue (2017: 32%), China reducing to 29% (2017: 53%), and Europe remaining broadly flat at 14% (2017: 15%).

Accelerating scale

The key drivers for the ICM acquisition were:

1. to reduce the Group's overall exposure to China;

2. accelerate the growth of our renewal revenue base;

3. use the insights gained by the MMX team to re-invigorate new registrations within the mature ICM portfolio where overall registrations have declined year-on-year over the last three years; and

4. strengthening MMX's operational team.

I am pleased to report that across the board, the ICM acquisition has been an overwhelming success, its maiden contribution accelerating the Group's key metrics: domains under management increased 37% on a year-on-year basis to over 1.81m; cash collections on normal operations (i.e. net of contested domain resolution revenue/other income) up 30% to $16.1m (2017: $12.3m); and renewal revenue up by 97% to $9.4m, now representing 62% (2017: 34%) of the Group's total revenues. Importantly, one-off revenue from brokered sales was reduced to under 15% of total revenues (2017: 38%). As already indicated above, the acquisition has also accelerated the balancing of revenues across the three main regions of the business's activities.

The integration of the ICM team into MMX has likewise progressed well. The initiatives put in place in H2 to re-introduce growth into the ICM portfolio are proceeding better than expected with renewal rates in Q4 across the ICM portfolio at 90% and new registration growth now trending ahead of the same period last year.

The acquisition has also strengthened the Group's senior management, as well as enabled the business to further upgrade its staff by being able to attract a higher calibre of professionals without negatively impacting overall operating expenses ("OPEX"). In 2018, OPEX increased by less than 4% to $5.5m (2017: $5.3m), well within the $6m cap originally set by management in 2016 when restructuring the business, in spite of taking on certain overhead associated with the ICM acquisition and making further hires.

Product innovation

Separately, as part of the longer-term development plan for the business, the management team launched its first Innovation led R&D project, .luxe, in November 2018. The goal of the project is to establish a common naming approach across multiple leading blockchains and the World Wide Web. Currently blockchain addresses are typically long alphanumeric strings, useable only within the specific blockchain where they were generated, with no interoperability with other blockchains or the World Wide Web. The first blockchain to participate in the .luxe initiative was Ethereum, the project gathering significant interest from both the traditional DNS community as well as blockchain community, notably in China, where twelve distribution partners from the blockchain industry are now supporting the project.

Post year-end, the project gained further momentum, as the Company announced the appointment of its development partner for integrating .luxe into the Bitcoin ecosystem and has now selected its development partner for integrating into the EOS blockchain. Further updates on the progress of .luxe and Innovation based initiatives are provided in the Current trading and Outlook section.

2018 KPI's

The 2018 KPI's very much reflect the operational priorities of the year:

· renewal revenue grown for a third year running to $9.4m (2017: $4.7m), helped by the acquisition of ICM - importantly, the Group was able to achieve a core milestone of renewal revenue surpassing Cost of Sales and Fixed Overheads for the first time in the year;

· domains under management increased 37% to 1.81m (2017: 1.32m) reflecting the increased internal focus on new standard sales activity and renewals plus the inclusion of ICM registrations;

· fixed overheads only slightly increased by less than 4% to $5.5m from $5.3m on a like-for-like basis, in spite of the added operational costs from operating ICM for 6.5 months;

· Cost of Sales reduced from 24% to 23% of gross revenue reflecting the containment of Cost of Sales at $3.5m (2017: $3.4m) in spite of the broadened portfolio, and increased revenues.

However, gross revenue and Operating EBITDA, net of contested application revenue, only reflect 5% and 12.5% improvements respectively following the reversing $586k of revenues recognized in prior periods.

Management likewise addressed certain difficult legacy contracts in the period which is discussed in full in the One-off items of the Financial Review below.

Financial Review

Profit & Loss

Top-line revenue continues to trend positively. Group revenue, net of the impact of reversing $586k of revenues recognized in prior periods, grew overall by 5% to $15.1m (2017: $14.3m) with a significant growth in renewal revenue, up 97% to $9.4m resulting in renewals accounting for 62% of total revenue in the calendar year. Renewal revenue now covers the combined Cost of Sales ($3.5m) and Operating Expenditures ($5.5m), which is ahead of Management's target of achieving this milestone by year end 2019.

Meanwhile Cost of Sales remained relatively flat at $3.5m (2017: $3.4 million) despite the Group onboarding four established top-level domains from the ICM acquisition. Management continues to review its overall Cost of Sales and in 2018 made managing marketing expenditures a specific focus to ensure efficient and effective spend as it is clear that marketing expenses can balloon quickly with little return on investment if proper controls are not maintained.

To that end, marketing expenditures in 2018 were managed down to $1.3m compared to $1.5m in 2017 in spite of taking on four new properties, and launching two in China, while other costs (such as registry service provider and ICANN fees) increased to $2.2m in FY 2018 (FY 2017: $1.9m) reflecting the underlying growth of the business. Management believes there is a clear need for marketing and will continue to be opportunistic as it looks for ways to support sales within its top-level domains. Management will also seek to streamline other Costs of Sale as the ICM portfolio is fully integrated.

In the year under review, overall Cost of Sales were reduced down to 23% of Group revenue and 22% of cash collections in 2018 (2017: 24% of gross revenue and 28% of cash collections). However, while exceeding the Management KPI goal of 20% gross revenue, Cost of Sales are trending in the right direction and will benefit from the negotiation post year-end of certain underlying contracts in future periods.

As a result of efficient marketing and Cost of Sales spend in the year under review, the Group saw its Gross Profit percentage increase to 72% (2017: 71%).

Operating expenditures have increased marginally to $5.5m in 2018 (2017: $5.3m) however they remain below the $6m target set in 2016. The net change from 2017 is a result of Management's continued review of the existing cost base while onboarding senior resources from the acquisition of ICM, as well as bringing onboard experienced, senior resources to drive the growth of the business further. Consolidation of certain activities will continue as the ICM integration nears completion.

Management believes that overall operating expenditure will remain within the $6m target for the foreseeable future.

One-off items

As highlighted in the 2018 interims, certain one-off costs were accounted for during the year. These related to:

· a change in accounting policies as a result of new International Financial Reporting Standards (IFRS);

· a revenue adjustment identified during the Company's review of IFRS 15;

· the provision for an onerous contract inherited by management; and

· one-off costs from the Strategic review completed in April 2018.

Change in Accounting Policies

In accordance with new accounting standards, the Company has reviewed both its provisions for the possibility of not collecting the full amounts due to the Company on long term arrangements (under IFRS 9) as well as accounting practices on revenue recognition (under IFRS 15). Under IFRS 9 there is a requirement to review for the provision of bad debt in the event that management believes that there is a possibility of not collecting full amounts due based on facts and circumstances. The Company has never had any bad debts since it began generating operational revenue in 2014 and its long-term debtors have historically been diligent in fulfilling their obligations to date. Nevertheless, following the extension of payment time-frames on certain contracts, the Company believes that it is prudent to provision $2.1m against the possibility of bad debt based on fluctuations in market conditions and possible changes in circumstances related to certain existing partners in the US and China. It should be noted that the Company continues to work with its partners and underlying counterparties to collect on monies due with receipts of over $510k currently in process on long-term outstanding receivables from China reflecting an underlying improvement in that region beginning Q1 2019.

Revenue adjustment

As highlighted in the interims, during the IFRS 15 adoption review we identified the need for an adjustment of $586,000 against a contract signed in 2016 to properly reflect revenue. On grounds of lack of materiality, the adjustment is being made to current year 2018 revenue instead of a prior period adjustment to 2016 as indicated in the Interims. As previously disclosed, the contract had a variable component that was recognized as 2016 revenue.

Onerous Contract Provision

In 2016, Management successfully renegotiated certain aspects of a partnership agreement to reduce the then marketing obligations of $10.8m to nearly half this amount under the condition that those marketing funds be provided directly to the commercial partner to manage. In addition, Management negotiated that the runway on its 2017 minimum guaranteed commitment be extended from 12 months to 17 months to allow the revised marketing strategy to come into effect. Unfortunately, to date, a significant portion of that marketing budget has been spent with minimal impact on registrations and revenues in the current year and no expectation of any material uplift in future periods. Accordingly, given recent performance, and expected future performance, the Company has, as indicated at the time of the Interims, impaired the intangible asset ($4.1m) and has provided for a one-time Onerous Contract Provision in the amount of $7.2m, subject to foreign exchange rate gains/losses. The Provision is based on Management's assessment of future earnings against future obligations (i.e., projected annual revenue less minimum annual revenue guarantees), which covers the period from 2018 through August 2021 when the contract ends. $1.1m of the provision has been utilized in FY 2018, leaving a balance of $5.8m. The Company is currently seeking to renegotiate a more equitable settlement given the losses incurred on this asset, which now stand at c. $13.7m since the start of the contract.

Strategic Review

Costs for the Strategic Review totalled nearly $1.4m which consisted of amounts paid to restructure certain existing contracts and professional fees paid to advisers in relation to the acquisition of ICM. 

Balance sheet

As a result of corporate activity and the onerous contract provision, intangible assets have increased from $46.2m at the end of FY 2017 to $81.5m at the end of 2018. The change reflects the acquisition of ICM at $39.6m which is based on consideration of $30.6m ($10m cash and 225million in MMX shares), the value of deferred revenue ($9.5m and net assets taken on board of $0.5m less the impairment of intangible assets ($4.1m) as a result of the onerous contract, and amortization of $0.2m.

Trade receivables (before taking into account bad debt provisions) decreased to $6.7m at the end of FY 2018 from $7.3m at the end of FY 2017 due to the revenue adjustment highlighted above.

Cash and cash equivalents have reduced from $15.9m at the end of FY 2017 to $10.4m at the end of FY 2018. The primary reason for the reduction in cash is the $10m paid to acquire ICM. During the period the Company has moved restricted cash of $2.2million from Other Long-Term Assets to Cash and Cash Equivalents. Current liabilities increased from $12.7m at the end of FY 2017 to $27.3m at end of FY 2018. The increase in 2018 primarily relates to an increase in deferred revenue due to the acquisition of ICM ($8.3m), registrar deposits ($1.4m), onerous contract provision ($2.9m) and drawing down on the working capital facility ($3m) which has subsequently been repaid in Q1 2019, and paying down of trade and other payables ($1m). Importantly, during the period, the Company paid down liabilities, including taxes, in the amount of $1.1m. However, overall liabilities have increased primarily due to an increase in registrar deposits of $1.4m, the inclusion of deferred revenue from ICM, the onerous contract provision, which currently stands at $5.8m of which $2.9m is current, and a $3m working capital facility to support future innovation and acquisition orientated activity by the Company.

Cash-flow

Overall, cash and cash equivalents decreased by $5.5m to $10.4m at the end of FY 2018. Cash inflows comprise of cash from operations of $3.2m, net of one-off costs, $3.0m in funds received from a working capital facility and cash acquired as a result of the acquisition of $0.9m. Major cash outflows comprise the acquisition of ICM of $10m, one-off costs paid of $1.4m, paying down of 2016 restructured liabilities of $0.8m, acquisition of FF&E and intangibles of $0.1m and interest expense of $0.2m.

Restricted cash of $2.2m previously classed as a long-term asset is now reclassified to cash and cash equivalents.

Post year-end the London & Capital facility of $3m has been repaid in full. This has been made possible by a strong renewal season on ICM's lead property, healthy ongoing sales, and resolution of two contested TLD applications, .cpa and .gay.

Current Trading & Outlook

2019 has started well with domain registrations up to 1.87m from 1.81m at the year-end. Importantly, billings are up 246% for Q1 due to a combination of the first time ICM contribution and a significant increase in billings from China, up more than three-fold for the first quarter, greatly helped by .law registrations where sales of approximately $500k were recorded in March, in addition to healthy ongoing .vip sales. Meanwhile, MMX's US and German portfolios continue to grow, 7% up over the same period last year.

We are also watching .luxe developments in China with much interest as limited testing programmes for activating existing Ethereum users by our partners are now being undertaken which has already resulted in some 2000 new activations in recent weeks. Separately, a direct outreach programme to introduce .luxe to SME's is also being piloted in the Beijing area. Importantly, the Company has additionally identified its development partner for the integration of .luxe into its third crypto blockchain, EOS, and expects this integration, along with the Bitcoin integration announced last month, to occur in H2. These roll-outs will be initially focused on the Asia market.

Meanwhile, in the US and Europe our next Innovation initiative is a high-value defensive registration product for corporate registrars to offer to their corporate customers. This is expected to launch Q3.

We are also pleased to announce today the appointment of an independent non-executive director, Bryan Disher, to the Board. Bryan Disher trained as a Chartered Accountant in Canada and enjoyed a successful career spanning over 37 years at PricewaterhouseCoopers (PwC), which he joined in 1978 and where he was appointed as a Partner in 1991. He held a number of senior positions in PwC Canada where he was Chair of the Partnership Board, and Chair of each of the Finance Committee, Governance Committee and Admissions Committee of the Board. He was also Managing Partner of PwC's Ottawa office (2001 - 2008) and Ottawa Audit and Assurance Leader (1995 - 2001). His final role at PwC was Managing Partner of its Ukrainian practice between 2012 and 2015. He will chair the Audit Committee moving forward. Further details of his appointment can be found in today's announcement.

Looking ahead into H2 and 2020, management also looks forward to the benefits derived from the renegotiation of certain key underlying contracts impacting the Company's performance.

In summary, the strong underlying performance of the business and cash collections was tempered by the provisions and restructuring costs affecting the reported profitability. Notwithstanding this, we have a robust operating platform and methodology which will enable us to continue to monetize our portfolio. We believe the business is now well positioned for future growth.

Toby Hall Michael Salazar

Chief Executive Officer Chief Financial Officer

Date: 2 April 2019 Date: 2 April 2019

Group Statement of Comprehensive Income for the year ended 31 December 2018

All operations are considered to be continuing.

The notes form an integral part of these financial statements.

Company Statement of Comprehensive Income for the year ended 31 December 2018

All operations are considered to be continuing.

The notes form an integral part of these financial statements.

Group Statement of Financial Position as at 31 December 2018

The notes form an integral part of these financial statements. These financial statements were approved by the Board of Directors on 2 April 2019 and signed on its behalf by:

Toby Hall Michael Salazar

Chief Executive Officer Chief Financial Officer

Company Statement of Financial Position as at 31 December 2018

The notes form an integral part of these financial statements.

These financial statements were approved by the Board of Directors on 2 April 2019 and signed on its behalf by:

Toby Hall Michael Salazar

Chief Executive Officer Chief Financial Officer

Group Cash Flow Statement for the year ended 31 December 2018

The notes form an integral part of these financial statements

Company Cash Flow Statement for the year ended 31 December 2018

The notes form an integral part of these financial statements

Group Statement of Changes in Equity for the year ended 31 December 2018

· 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

· Shares to be issued - This reserve represents shares to issued arising from the acquisition of ICM Registry, LLC.

· Other reserves - This reserve represents the gains and losses arising from assets held for sale designated at fair value through OCI.

· 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 form an integral part of these financial statements.

Company Statement of Changes in Equity for the year ended 31 December 2018

· 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

· Shares to be issued - This reserve represents shares to issued arising from the acquisition of ICM Registry, LLC.

· Other reserves - This reserve represents the gains and losses arising from assets held for sale designated at fair value through OCI.

· Retained earnings - This reserve represents the cumulative profits and losses of the Company.

The notes form an integral part of these financial statements.

Notes to Financial Statements for the year ended 31 December 2018

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 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 2017 except for the implementation of a number of standards issued which applied for the first time in 2018:

Adoption of revised standards

At the date of authorization of these financial statements, the following Standard was in effect but not mandatory until the 1 January 2019:

(c) Basis of accounting

The consolidated financial statements have been prepared on the historical cost basis, except for investments in equity instruments which are designated at FVTOCI.

 (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.

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. At the year end, the Group had net current liabilities of $7.8m which includes $14.8m of deferred revenue. Excluding deferred revenue, the Group has net current assets of $7m including $10.4m held as cash and cash equivalents. 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 8.

(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 acquire 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.

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 in note 1(f).

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.

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

The Group and Company recognizes revenue to depict the transfer of promised goods or services to customers is an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Group and Company follow these steps;

1. Identify the contract(s) with a customer

2. Identify the performance obligations in the contract

3. Determine the transaction price

4. Allocate the transaction price to the performance obligations in the contract

5. Recognize revenue when (or as) the entity satisfies a performance obligation

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, including any minimum revenue guarantees.

Such payments are based on the Group's and Company's billing and are deferred in line with accounting revenue.

(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.

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 5 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.

(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

The Group has adopted IFRS 9 Financial Instruments from the 1 January 2018. IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, FVOCI and FVTPL. The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. IFRS 9 eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available for sale investments.

The adoption of IFRS 9 has not had a significant effect on the Group's accounting policies for 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: 'investments in equity instruments designated at FVTOCI' and 'financial assets at amortized cost'. 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.

Financial assets at amortize cost

Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as 'financial assets at amortized cost'. These assets 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.

Financial assets at amortize cost 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.

Investments in equity instruments designated at FVTOCI

Investments in equity instruments designated at FVTOCI are non-derivatives that are designated as FVTOCI. Changes to the value of investments in equity instruments are accounted for through OCI.

Listed shares held by the Group that are traded in an active market are classified as being investments in equity instruments 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 from investments in equity instruments 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 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 investments in equity instruments designated at FVTOCI, 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 an 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.

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 15).

(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

· Sensitivity analysis Note 30

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 recognized in the consolidated financial statements:

Intangible Assets

Within intangible assets are assets classified as gTLD assets and contract based intangible assets.

Under the requirements of IAS 38 Intangible Assets and the Group's assessment thereof, the Group has determined that gTLD assets and contract based intangible 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 18.

Goodwill and gTLD assets have not been impaired in the current year. Contract based intangible assets have been impaired in the current year. Details of goodwill and intangible assets are set out in note 17 and 18 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 recognized 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 17 and Note 18.

Taxes

Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgement is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits, together with future tax planning strategies. The Group has $30.6m (2017: $30.2m) 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 recognize deferred tax assets on the tax losses carried forward. If the Group was able to recognize all unrecognized deferred tax assets, profit and equity would have increased by $5,594k. Further details on taxes are disclosed in Note 13.

Fair value measurement of financial instruments

Financial assets relate to cash and bank balances, loans, receivables and investments in equity instruments designated as at fair value through OCI, financial liabilities relate to trade and other payables. 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.

Credit losses

During 2018 the Directors of the Group re-evaluated the amounts due to it from customers on long term payment plans, it was estimated that a bad debt provision of $2,112k should be made.

In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The bad debt provision consists of individually impaired trade receivables due from companies. The bad debt provision represents the difference between the carrying amount of these trade receivables and the value of the expected proceeds.

Revenue recognition

Revenue is primarily driven from fixed fees charged to registrars for initial registrations 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.

Any fees charges on a variable basis is not recognized as revenue until each parties performance obligations are met.

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

Segment revenues and results

*Included within Operating EBITDA is profit on gTLD auctions of $480k (2017: $2,108k) allocated to the Registry segment.

Other segment information

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 17.

Geographical information

The Group's information about its segments by geographic location of assets is detailed below.

Included in revenues arising from the Registry segment are revenues of $1,596k (2017: $4,001k), which arose from sales to the Group's largest customer.

Revenue for the Company is all derived from the Registry segment from assets located in the British Virgin Islands.

Revenue primarily arises 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 terms.

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.

The timing of revenue recognition is detailed below:

FY 2016 revenue adjustment

In the year under review, the Directors of the company reviewed revenue contracts from prior years. A contract which was fully recognized as revenue in the 2016 financial statements consisted of two elements, a fixed portion and a portion contingent on certain events occurring which the Directors' believed had occurred. $586k, the portion contingent on certain events occurring, that was recognized as revenue in the 2016 financial statements. However, the events, as indicated in the interims, did not occur as anticipated and has resulted in the reversal of $586k from Group's and Company's current year revenue rather than a prior period adjustment on the basis of a lack of materiality.

The Directors will report revenue from the variable component as it is realized.

4 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.

5 Cost of sales

6 Strategic review costs

The Group concluded its strategic review resulting in the acquisition of ICM Registry, LLC (see note 16 and the Executive Summary for further details). Strategic review costs of $110k (2017: $301k) were incurred. The company incurred $110k (2017: $258k) in strategic review costs.

7 Acquisition costs

The Group and Company acquired ICM Registry, LLC in the period (see note 16 and Executive Summary for further details) and incurred acquisition costs, consisting of legal and professional fees as well as certain internal costs which totalled $595k (2017: $nil).

8 Restructuring costs

The Group and Company incurred restructuring costs of $743k (2017: $Nil) relates to costs incurred to re-negotiate certain legacy registry contracts.

9 EBITDA

EBITDA is arrived at after charging:

10 Employee information (excluding directors)