Minds + Machines Group Limited (LON:MMX) said it has concluded its formal investigation to determine whether certain revenue associated with a specific contract had been correctly recognised in the year ended December 31, 2019, and the six months to June 30, 2020.
The domain name specialist said it believes that revenue attached to the specific contract has been incorrectly recognised. It was previously announced that cash of US$1.125mln was received in connection with the specific contract and revenue of US$938,000 was recognised in the 2019 financial year.
Following its investigation the company said it believes any cash sums initially received pursuant to this contract should have been classified as a deposit against future sales and then recognised as revenue as the company’s partner made sales to end-users. To date, the partner has made US$201,900 of end-user sales under the contract.
MMX said that the investigation has also identified two additional contracts entered into in the 2019 financial year totalling US$790,000 where receipts were incorrectly categorised as revenue. These contracts were offset with payment contracts that have been recorded as deferred charges or capital expenditures, thereby impacting earnings. It said the reversal of these amounts will not impact the cash position of the company.
As a result of the findings of the investigation, the company said its revenue for the 2019 financial year was impacted and was adjusted to US$17.2mln from US$18.9mln, while net income was adjusted to US$2.8mln from US$4.7mln. The results for the first half of the 2020 financial year were also adjusted to report revenues of US$8.48mln from US$8.4mln previously, while net income was adjusted to US$1.42mln from US$1.21mln.
The company also said that chief executive Toby Hall and chief financial officer Michael Salazar have by mutual agreement resigned from the board with immediate effect. Non-executive chairman Guy Elliott has agreed to assume the role of executive chairman on an interim basis.
Minds + Machines said it has appointed Tony Farrow as interim CEO to oversee the day-to-day operations of the company. He will not join the board at this time.
Independent non-executive director Bryan Disher has also agreed to oversee the finance function of the group and will assume the role of interim CFO until a permanent CFO can be appointed.
The firm added that given the investigation and the board changes, it said it believed it is prudent to postpone a proposed tender offer of £3mln, previously announced in September. The company said it remains committed to returning excess capital to shareholders and continues to have a strong balance sheet and surplus cash to its operating requirements.