Final Results

Strictly embargoed until: 07.00 on 25 April 2017

Minds + Machines Group Limited

("mmx" or the "Company")

Final Results for the Year Ended 31 December 2016

Minds + Machines Group Limited (AIM: MMX), one of the world's leading owners and operators of Internet Top-Level Domains ("TLDs"), announces Final Results for the year ended 31 December 2016.

Financial Highlights

· FY 2016 billings up 100% to $15.8million (2015: $7.9million);

· FY 2016 revenue less partner payments up 146% to $13.5million (2015: $5.5million);

· FY 2016 gross profit up 159% to $10.9million (2015: $4.2million);

· FY 2016 ongoing operating costs cut 44% to $6.5million (2015: $11.7million) with the current OPEX run-rate now below the $6.0million target;

· FY 2016 operating EBITDA before one-off restructuring costs up to $3.6million delivering FY 2016 EBITDA profit before restructuring costs of $3.0million compared to a FY2015 loss of $4.4million;

· FY 2016 Billings Operating EBITDA before restructuring costs up to $4.2million (FY 2015: loss of $6.6million);

· Cash & cash equivalents post share buy-backs, tender offer, foreign currency charges, share payments and costs associated to discontinued operations and restructuring of $15.3million (2015: $34.7million);

· Intangible assets of $45.6million based on their book value; and

· Ongoing operations Earning per Share, on Operating EBITDA (before restructuring costs), of 0.49 cents.

Operating Highlights

· Company successfully transitioned into a pure-play registry on-time and on-budget:

o Registrar operations shut down and customers migrated to a registrar partner;

o Registry technical back-end outsourced to industry leading registry service partner;

· Cumbersome historic partner contract successfully renegotiated onto terms that can now potentially deliver future economic value;

· Office opened in Xiamen, China and US offices centralised into single location in Seattle;

· Company headcount reduced from 43 to 20 and staffing comprehensively restructured with only nine of the original team kept;

· Board reduced from seven to four; and

· Issued share capital reduced from 767,104,685 (2015) to 699,857,562 (2016), with warrants, options, and RSU's reduced from 73,141,493 (2015) to 42,809,590 (2016).

Post Period Highlights

· Business development teams strengthened;

· 40%+ registration growth year-to-date when confirmed sales taken into account:

o US and European registrations up 37% to circa 350,000;

o China registrations up 44% to over 817,000;

· Launch of .boston scheduled for release in September 2017;

· Submissions to MIIT, China's regulatory body for the Internet, being progressed on up to a further eight of MMX's wholly owned TLDs, which (if approved) will allow mmx to further target the China's growing SME; and

· New gTLD market growth up circa 6% year-to-date at over 29 million domain name registrations (source nTLDStats.com), this following on from last year where net new registrations in new gTLDs outstripped those in .com/.net by nearly seven-fold, and those in country codes by nearly four-fold.

Commenting on the results Toby Hall, CEO of MMX said:

"To understand the key market drivers of the new gTLD industry that saw net new registrations outstrip those in .com and the country codes combined in 2016, it is important to recognize the trends both from within the industry as well as external factors.

"It is therefore central to our strategy that we are positioned to support the three end markets that management sees are looking to benefit from those trends through our registrar partners - namely; new-start SME's that are coming online for the first time, as well as established businesses already online; digital entrepreneurs that are looking to develop significant new markets and applications based around domain address conventions and domain investors who serve both as early pioneers, as well as marketeers, of new extensions.

"We believe much of the business development work and tests we have been conducting over the last 12 months are now providing the backdrop to the growth the portfolio is now enjoying and will, we believe, continue to enjoy."

Commenting on current trading and outlook he added:

 "We continue to have significant scope for billings and revenue improvement as the Group's premium and standard name inventory across its world-class portfolio of top-level domains is better monetized.

"In short, the progress we made in 2016 to restructure the business into a pure-play registry and cost efficiently enter new markets has built strong foundations for the current year and beyond. We therefore remain confident of our ability to deliver meaningful value as we continue to grow our domains under management and resulting revenues and transition the Group into a highly predictable annuity based business of scale."

*-ends-*

For further information:

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

EXECUTIVE SUMMARY

Much has been discussed already about the successful restructuring of the Group's ongoing operations into a pure-play registry and its accessing of China by the new management team over the last 12 months - the results of which, speak loudly for themselves:

· FY 2016 billings up 100% to $15.8million (2015: $7.9million);

· FY 2016 revenue less partner payments up 146% to $13.5million (2015: $5.5million);

· FY 2016 gross profit up 159% to $10.9million (2015: $4.2million);

· FY 2016 ongoing operating costs cut 44% to $6.5million (2015: $11.7million) with the current OPEX run-rate now below the $6.0million target;

· FY 2016 operating EBITDA before one-off restructuring costs up to $3.6million delivering FY 2016 EBITDA profit before restructuring costs of $3.0million compared to a FY2015 loss of $4.4million;

· FY 2016 Billings Operating EBITDA before restructuring costs up to $4.2million from FY 2015 Billings Operating EBITDA loss of $6.6million;

· Cash & cash equivalents post share buy-backs, tender offer, foreign currency charges, share payments and costs associated to discontinued operations and restructuring of $15.3million (2015: $34.7million);

· Intangible assets of $45.6million based on their book value; and

· Ongoing operations Earning per Share, on Operating EBITDA (before restructuring costs), of 0.49 cents.

Of equal importance is the significant registration growth we are now seeing across our portfolio and the wider continued growth of the new gTLD sector. In particular,

· In China we have experienced a 44% registration growth year-to-date with currently over 817,000 registrations in .vip;

· In our US and European portfolio we are now seeing real indications of meaningful development with a 37% registration growth year-to-date when confirmed sales are taken into account, with existing and committed registrations now at circa 350,000; and

· Significantly, new gTLD market growth is up circa 6% year-to-date in 2017 at over 29 million domains under management (source nTLDStats.com), this following on from last year where net new registrations in new gTLDs outstripped those in .com/.net by nearly seven-fold, and those in country codes by nearly four-fold.

In short, we are a young business experiencing significant growth in a rapidly expanding, but still nascent, industry that has the potential to match .com/.net or the country codes (142.2m and 142.7m registrations respectively at 31 December 2016) within a five to 10 year time-frame.

Likewise, the registration growth that we are now achieving is being done without MMX adopting the "freemium" strategy favored by many of our competitors, where first year registrations are effectively given away for free. Our new registrations are real sales generating revenue and profits in their first year of registration.

Our portfolio and its strengths

As a registry operator, we currently operate or have financial interests in 23 launched new gTLDs - of which 20 we wholly or majority own.

We own an additional five TLDs that remain unlaunched.

We also have interests in seven TLDs that remain contested, .eco having been awarded to another applicant, some of which may be resolved via private auctions in 2017.

It should be noted, a basic core strength of our portfolio is its diversity - both in terms of underlying standard name price points, geography, and target audiences. It has allowed us to establish strong footprints in China and Europe as well as the US.

In 2016, the geographic break-down of gross billings was China 59%, US 24%, Europe 17%. In 2017, MMX anticipates China will account for approximately 50% of Group billings, with growing contributions from North America and Europe.

As can be expected, each geography and domain extension sector has its own dynamics. In essence, we see four complementary dynamics emerging:

· High volume lower standard-priced generics (e.g., .work) and Asia specific domains (e.g., .vip) where premium inventory rises in popularity broadly in-line with the number of paid standard name registrations achieved;

· Mid volume, higher priced geographic domains (e.g., .bayern) where renewal rates typically trend significantly above industry norms and which present significant opportunities to strategic partners;

· Lower volume, mid-priced vertical interest domains (e.g., .fashion, .beer) where the Board believes there is significant scope for deeper market penetration, particularly in the US over the coming 18 months; and

· High priced, low volume specialist interest domains (e.g.,.law) where usage and renewal rates also trend significantly above industry norms.

However, given that in commercial terms many of the extensions within MMX's portfolio are still in their infancy, we believe it is not appropriate to provide more granular break-downs per category at this stage of the Group's development other than to indicate each group is materially contributing to both the blended top-line billings and renewal rates currently being experienced by the Group where top-line registrations are up 44% year to date in China and 37% in Europe and US when new orders are taken into account. Likewise, renewal rates in US/Europe for a significant majority of our TLDs are currently trending above 75% with early indications from China being that renewal rates for .vip will be significantly ahead of new gTLD renewal rates for that region, given investors of certain key categories of .vip names have confirmed they will be renewing all of their inventory in these categories.

In terms of unrealized asset value, it should also be noted that our portfolio is listed at its book value - $45.6million which the Board believes does not accurately reflect its true potential. For example, in context to the wider market, the unlaunched .shop top-level domain was acquired via public auction for $41.5million and .web for $135million; as it relates to the MMX portfolio - .vip was won at an ICANN auction for $3.1 million and recouped that investment within the first four weeks of launch and subsequently has derived significantly more in revenue within its first 11 months since launch.

Key market drivers

To understand the key market drivers of the new gTLD industry that saw net new registrations outstrip those in .com and the country codes combined in 2016, it is important to recognize trends both from within the industry as well as external factors.

It is therefore central to our strategy that we are positioned to support the three end markets that management sees are looking to benefit from those trends through our registrar partners - namely:

· New-start SME's that are coming online for the first time, as well as established businesses already online;

· Digital entrepreneurs that are looking to develop significant new markets and applications based around domain address conventions; and

· Domain investors who serve both as early pioneers, as well as marketeers, of new extensions.

We believe much of the business development work and tests we have been conducting over the last 12 months are now providing the backdrop to the growth the portfolio is now enjoying and will, we believe, continue to enjoy.

Our revenue model

Much work has been carried out over the last 12 months so that we have the appropriate pricing and revenue models in place to allow us to deliver the growth we are now experiencing.

As a business, we have both premium and standard inventory. Premium inventory are names that carry specific meaning or interest to given audiences where we are able to charge a higher first year amount with annual renewal fees then reverting to the standard rate. Standard inventory is where the first and following year charges remain constant.

Across our portfolio of TLDs, the value of our not yet released or sold premium names, based on values achieved in 2016, remains significant and has the potential to be multiples of the current book value of our underlying portfolio of top-level domains. Meanwhile our standard name inventory per TLD is potentially limitless, it being made up of any letter or number combination an end-user may want.

Therefore, over the next three to five years our monetization strategy is to achieve accelerated high-margin earnings in the early years of each TLD's development through the sale of correctly priced premium and high-value sequences of standard name inventory, whilst allowing standard renewals and sales volume to grow over the same period. This will ensure that revenue from standard names are able to account for the majority of a domain's revenue by the end of the development phase of each top-level domain. In short, it is a model designed to allow us to achieve high-margin sales in the early years which can then morph into a highly predictable annuity based model, such as Verisign's, based on standard registrations and renewals as each TLD properly establishes itself.

Critical to this strategy is finding the appropriate pricing points for our premium inventory across our portfolio of TLDs. If we set the first year pricing, or equally the renewal pricing, too high then both sales and renewals can be adversely impacted. To that end, significant work has been conducted over the last six months to better structure the pricing of our premium inventory, and this new pricing will be introduced to the market shortly.

It should also be noted that under this model, first year sales can provide a healthy yard-stick by which to gauge where the likely registration levels might be for a TLD as it matures. For example, the success of .vip in its first eleven months would indicate a target of 2.5 million standard registrations being readily achievable over the next five years, a target we believe we are on track to meet and hopefully exceed.

In line with management's expectations, premium sales in 2016 accounted for 66% of our total billings. We would anticipate this percentage trending down in future years as standard renewal and new registration revenue grows.

Development programme

Core to MMX's ongoing development of top-line billings and renewal revenues will be:

· The successful launch of new extensions;

· The ongoing development of first year premium sales in areas of the portfolio where there has been historic under-performance; and

· The ongoing expansion of MMX's geographic footprint.

To that end, MMX is pleased to confirm:

· .boston will formally enter General Availability in mid September;

· The completion and relaunch of MMX's premium inventory to the US and European markets;

· The application to MIIT, China's industry regulator, of up to 8 wholly-owned MMX extensions; and

· The ongoing evaluation of opportunities in India, South East Asia and South America.

As stated earlier, the Group's monetization strategy is to achieve accelerated high-margin earnings in the early years of each TLD through the sale of correctly priced premium inventory whilst allowing standard renewals and sales volume to grow over the same period to allow for balanced and measurable revenue growth as each TLD matures.

Key Performance Indicators ("KPI's")

The Board sees the following as the business's KPI's:

· Domains under management ("DUM"s) (the number of registrations we have);

· Annual gross billings;

· Gross margin;

· Annual renewals - $ amount and percentage of OPEX; and

· Billings operating EBITDA.

1) Domains under management (DUMs)

In 2016, our domains under management grew nearly threefold from approximately 289,000 as of 31 December 2015 to approximately 821,000 at 31 December 2016. As at the time of writing registrations, including committed orders, now stand at approximately 1.2million DUMs.

2) Annual gross billings

This is a key measurement for management as it presents the underlying incoming cash from domain sales for the year. In 2016 we experienced a 100% increase to $15.8million (2015: $7.9million).

3) Gross margin

In April 2016, we gave guidance that cost of sales would be contained to within 20% of top-line billings (i.e. before partner payments). We are pleased to report this has been achieved for 2016, cost of sales being flat at 16.08% ($2.5million) of top line billings compared to 15.96% of top line billings ($1.3million) in 2015, delivering a gross profit margin against top-line billings of 84% for FY2016 and a reported gross margin profit of 81% net of partner payments. We aim to target gross profit margins against top line billings of 80% or above on a go-forward basis.4) Annual renewals - $ amount & as percentage of OPEX

In 2015, revenue from renewals stood at $1.8million, growing to $3.8million in 2016. As our DUMs grow, we expect renewal revenue to increase in line with this growth. Trend to date in 2017 reinforces management's expectation and target for renewal revenue to cover the Group's fixed operating expenditure ("OPEX") over the next eighteen to twenty-four months, meaning that once this point has been reached, revenue from new registrations after partner payments and cost of sale, drops directly to the bottom line.

This objective has been aided by the significant steps taken in 2016 to reduce OPEX, it being cut from $11.5million (FY 2015) to $6.5million (FY 2016) with the Group now operating within its $6.0million OPEX target. Indeed, as a percentage of gross billings, OPEX has been reduced to 45% from 148% in FY 2015. Management's target moving forward is that OPEX should not exceed 33% of gross billings in a stable state environment.

In relation to managing OPEX, management does not, however, subscribe to the notion of simply stripping the business down to a skeleton staff simply to inflate EBITDA numbers. We will continue to manage our costs, and likewise invest in talented staff, so that the business can continue to be profitably grown within our stated OPEX guidelines. To that end, we are pleased to report that consultancy fees and commissions, which in 2016 accounted for over $700,000, have been reduced to just under $250,000 for 2017.

5) Billings Operating EBITDA, before profits on gTLD auctions and restructuring costs for 2016

Billings Operating EBITDA is a key metric for the management team as it is based on current year billings against current year costs and provides a better snapshot of current year performance than accounting Operating EBITDA where billings are subject deferred revenue calculations.

Given the significant restructuring that occurred in 2016 to transition MMX into a pure-play registry, for the purposes of presenting a clear picture of our ongoing operations, we are focusing on Billings Operating EBITDA before profits on gTLD auctions and the one-off restructuring costs for the year under review. In 2017, we will simply report Billings Operating EBITDA as a KPI.

As can be seen, on a like-for-like basis, the combination of increased gross billings growth and a restructuring of the business and its operating costs has resulted in a significant turnaround in Billings Operating EBITDA, before profits on gTLD auctions and restructuring costs, up from a loss of $6.6million in 2015 to a profit of $4.2million in 2016. It should be noted there was no one-off revenue from gTLD auctions in 2016.

Financials - Ongoing Operations

As we have indicated in previous financial statements and above, accounting rules dictate that revenue generated from domain billings are subject to deferred revenue calculations which can distort an investor's perspective of Group performance over the short term i.e., over the financial reporting year. Accordingly, Billings Operating EBITDA, which is based on current year billings against current year costs, is provided below. Management believes that the Billings Operating EBITDA provides a better snapshot of current year performance.

(1) Billings refer to total sales generated during the year (not deferred for accounting purposes)

(2) Operating earnings before interest, tax, depreciation & amortization and other non-cash charges where earnings are calculated on the basis of billings as opposed to accounting revenue. It should be noted that for accounting purposes Operating EBITDA before restructuring was $3.6 million as highlighted in the Group's 2016 Income Statement.

By transitioning into a pure-play registry and focusing our attention to registry revenue growth, we have successfully been able to double our top line billings in 2016 to $15.8million from $7.9million in 2015 while reducing our overall cost base significantly to $6.5million in 2016 from $11.7million in 2015. Included in the Group's income statement is $0.7million of forfeited operating expenses, which are expenses that the Group is no longer expected to incur in 2017. Going into 2017, we remain committed to running an effective and efficient cost base with operating costs expected to be below the management's stated $6.0million cap.

The net result, which reflects the underlying strength of the Group's restructured business, is that Billings Operating EBITDA has grown to $4.2million compared to a loss of $6.6million in 2015.

Restructuring and one-offs

There are three major areas to highlight in relation to the one-off costs incurred in 2016.

Discontinued operations

As highlighted in our financials, we have separated the reporting of the revenue and costs associated with running the discontinued registrar operations. The registrar operation was a large undertaking by the previous management team with considerable investments in software development, staffing and other resources. It was a strategy that did not prove to be a profitable venture.

In Q3 2016, having successfully navigated an extensive ICANN process, the Group:

· Sold the registrar's customers to Uniregistry in exchange for a perpetual ongoing affiliate commission from the renewal of those domains;

· Worked with our reseller customer, join.gop to move their back-end to another registrar platform; and

· Completed the outsourcing of the reseller business for .law (i.e. join.law) to Instra, a leading registrar.

In our H1 2016 interims we indicated that the registrar operations had incurred a loss of $2.0million and gave guidance that registrar losses in H2 would be less than $0.5million. We are pleased to report that H2 losses were less than indicated with annual losses from the registrar standing at $2.3million versus $2.5million. It should be noted that a significant portion of the loss can be attributed to writing off capitalized software development costs of $1.0million which is a non-cash item.

Restructuring - operations

A significant restructuring of the Group was carried out in 2016. A summary of the key points are:

· A significant reduction in personnel where, as of 24 April 2017, there are now 20 personnel, of which 11 reside in the US compared to 43 at the beginning of 2016;

· outsourcing our technical registry service provider operations to Nominet completed in November with great success and within budget;

· our US offices consolidated into a single location in Seattle, Washington and the office footprint in Dublin decreased; and

· As highlighted in Discontinued operations, the registrar operations closed down.

As indicated in our H1 2016 interim financials, we had incurred restructuring costs of $0.9 million in the first half and gave guidance that restructuring costs in H2 would be less than $0.4 million. We are pleased to report that H2 restructuring costs were below this target at $0.3million, bringing total restructuring costs to $1.2million for the full year. Restructuring activities will result in ongoing operational savings of approximately $1.5million on an annualised basis.

Restructuring - contracts

In very early 2012, at the time when ICANN was still accepting new generic Top Level Domain applications, the then Executive Team entered into an overly ambitious agreement that it believed would provide value to the overall profile of the Group. The agreement had very significant financial commitments over the life of the contract and did not include any clauses that could allow the Group to renegotiate those commitments should the specific top-level domain not perform to the agreed financial projections. The growth of this top-level domain has not come close to meeting those expectations and the agreement has proven - and would have continued proving - to be a significant drag on the Group's ability to generate positive cashflow from the given TLD.

In late Q4 of 2016 the current Executive team was able to successfully conclude renegotiations of certain components of the agreement by either restructuring or buying out certain financial commitments thus making it more economically viable going forward. As a result of the renegotiation effort, the Group has revised its modeling and believes that it can derive future economic benefit from the renegotiated contract. Accordingly, based on Management's review, a portion of the buy out ($3.8million) has been expensed as a one-off restructuring cost while the remaining portion ($3.9million) will be capitalized as an intangible asset with future economic benefit.

Use of cash

As at the year-end cash stood at $15.3million compared to $34.7million at the start of the year.

The change is as a direct result of significant outflows relating to the share buy program and tender offer ($20.3million), acquisition of intangible assets ($1.8million), executive and other option payouts ($1.2million), one-time restructuring operating costs ($1.2million), financing the Group's registrar business which has been shut down and is treated as discontinued operations ($1.3million), the paying off trade payables (approximately $0.4million), and finally the restructuring of an economically challenging contract, which resulted in a cash payout in 2016 ($1.9million).

However, the cash balance was boosted by the share issuance to Hony Capital which amounted to $6.5million and the net cash flow contribution from continuing operations of $4.2million to cash (of which approximately $2.0million is collectible as trade receivables at the year end).

We have seven contended applications remaining (.eco was awarded by ICANN to another applicant) with the possibility that some may be resolved via a private auction. As such the Board believes that maintaining its existing cash reserves better positions the Group's ability to participate in the resolution of these contended applications.

It is also evident that there are increasing opportunities for consolidation in the industry and maintaining a strong balance sheet is beneficial in this regard. Indeed, it is the Board's belief that the ultimate winners in the currently fragmented new gTLD arena will be those that can achieve significant scale both in terms of top-line billings and renewal growth.

The Board also remains committed to returning surplus cash to shareholders whether in the form of a share buy-back, a special dividend, the introduction of a progressive dividend policy or mechanism that is believed to be in the best interest of the Group's shareholders at that time. An example of such an event, beyond the ongoing cashflow generation of operations, may be one-off cash proceeds from the private auction process from the Group's remaining seven contested new gTLD applications.

Conclusion

In conclusion:

· We are a young business that is experiencing significant growth in a rapidly expanding, but still nascent, industry that has the potential to match .com/.net or the country codes (142.2million and 142.7million registrations respectively at 31 December 2016) within a 5-10 year time-frame;

· MMX's registrations are already up over 40% year to date, following a near three-fold increase of registrations in 2016;

· A loss making business has been transformed into a profitable one - Billings Operating EBITDA before one off restructuring costs has grown to $4.2million compared to a loss of $6.6million in 2015;

· We have an expanding global foot-print and distribution partner network; and

· We continue to have significant scope for billings and revenue improvement as the Group's premium and standard name inventory across its world-class portfolio of top-level domains is better monetized.

In short, the progress we made in 2016 to restructure the business into a pure-play registry and cost efficiently enter new markets has built strong foundations for the current year and beyond. We therefore remain confident of our ability to deliver meaningful value as we continue to grow our DUMs and resulting revenues and transition the Group into a highly predictable annuity based business of scale.

Toby Hall Michael Salazar

CEO COO/CFO

Date: 24 April 2017 Date: 24 April 2017

GROUP STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2016

The notes set out below form an integral part of these financial statements.

COMPANY STATEMENT OF COMPREHENSIVE INCOME

 for the year ended 31 December 2016

All operations are considered to be continuing.

The notes set out below form an integral part of these financial statements.

GROUP STATEMENT OF FINANCIAL POSITION

as at 31 December 2016

The notes set out below form an integral part of these financial statements.

These financial statements were approved by the Board of Directors on 24 April 2017 and signed on its behalf by:

Toby Hall Michael Salazar

CEO COO/CFO

COMPANY STATEMENT OF FINANCIAL POSITION

as at 31 December 2016

The notes set out below form an integral part of these financial statements.

These financial statements were approved by the Board of Directors on 24 April 2017 and signed on its behalf by:

Toby Hall Michael Salazar

CEO COO/CFO

GROUP CASH FLOW STATEMENT

for the year ended 31 December 2016

The notes set out below form an integral part of these financial statements

COMPANY CASH FLOW STATEMENT

for the year ended 31 December 2016

The notes set out below form an integral part of these financial statements

GROUP STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2016

· Share premium - This reserve includes any premiums received on issue of share capital. Any transaction costs associated with the issue of shares are deducted from share premium

· Foreign exchange translation reserve - This reserve represents gains and losses arising on the translation of foreign operations into the Group's presentational currency.

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

· Non-controlling interests reserve - This reserve represents the share of the interest held by the non-controlling shareholders of the subsidiary undertakings.

The notes set out below form an integral part of these financial statements.

Company Statement of Changes in Equity

for the year ended 31 December 2016

· Share premium - This reserve includes any premiums received on issue of share capital. Any transaction costs associated with the issue of shares are deducted from share premium

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

The notes set out below form an integral part of these financial statements.

NOTES TO FINANCIAL STATEMENTS

for the year ended 31 December 2016

1 Summary of Significant Accounting Policies

a) General information

Minds + Machines Group Limited is a company is 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 2 and in the Strategic Report on pages 8 to 10.

These financial statements are presented in US Dollars and rounded to the nearest thousand.

Foreign operations are included in accordance with the policies set out in note 1(l).

(b) Statement of compliance with IFRS

The Group's and Company's financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

Adoption of new and revised standards

The Group's and Company's financial statement have been prepared on the basis of accounting policies consistent with those applied in the financial statement for the year ended 31 December 2015 except for the change in the partner payments accounting policy as set out in note 1(k) and for the implementation of a number of minor adjustments issued which applied for the first time in 2016. These new pronouncements do not have a significant impact on the accounting policies, methods of computation or presentation applied by the Group and Company and therefore prior-year financial statements have not been restated for these pronouncements.

Future changes in accounting policies

At the date of authorization of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective:

The directors do not expect that the adoption of the Standards and Interpretations listed above will have a material impact on the financial statements of the Group in future periods, except that:

· IFRS 9 will impact both the measurement and disclosure of Financial Instruments; and

· IFRS 16 will impact on the recognition of those leases currently classified as operating leases. Information on the undiscounted amount of the Group's operating lease commitments under IAS 17, the current lease standard, is disclosed in note 26. Under IFRS 16, the present value of these commitments would be shown as a liability on the balance sheet together with an asset representing the right of use.

Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these standards until a detailed review has been completed

(c) Basis of accounting

The consolidated financial statements have been prepared on the historical cost basis.

(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 a Group loses control of a subsidiary, the gain or loss on disposal recognized in profit or loss is calculated as the difference between the aggregate of the fair value of the consideration received and the fair value of any retained interest and the previous carrying amount of the assets (including goodwill), less liabilities of the subsidiary and any non-controlling interests. All amounts previously recognized in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified / permitted by applicable IFRS). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the costs on initial recognition of an investment in an associate or jointly controlled entity.

When a separate identifiable segment meets the definition of Discontinued Operations (i.e. when agreement has either been reached to sell a component of the Group's business or the sale has taken place in the reporting period), results of that segment are accounted for, in line with those applicable accounting standards, as discontinued operations on the Group Statement of Total Comprehensive Income. Prior period results are also disclosed on a like for like basis. Any assets in still held by the group at the end of the reporting period are in respect of these discontinued operations are classified as held for sale in the Group Statement of Financial Position. 

(e) Going concern

The directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. Further detail is contained in the Strategic Report on page 8.

(f) Business combinations

Acquisition of subsidiaries and business are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interest issued by the Group in exchange for control of the acquire. Acquisition-related costs are recognized in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value at the acquisition date, except that:

· deferred tax assets of liabilities and assets or liabilities related to employee benefits arrangement are recognized and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively; and

· assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.

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 have 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 venture is carried in the statement of financial position at cost plus post acquisition changes in the Group's share of net assets of the joint venture. The income statement reflects the share of the results of operations of the joint venture. The financial statements of the joint venture are prepared for the same reporting period as the Group. Adjustments are made where necessary to bring the accounting policies in line with those of the Group.

Losses on transactions are recognized immediately if the loss provides evidence of a reduction in the net realizable value of current assets or an impairment loss. The joint venture is accounted for using the equity method until the date on which the Group ceases to have joint control over the joint venture.

Upon loss of joint control, the Group measures and recognizes its remaining investment at its fair value. Any difference between the carrying amount of the former jointly controlled entity upon loss of joint control and the fair value of the remaining investment and proceeds on disposal are recognized in profit or loss. When the remaining investment constitutes significant influence, it is accounted for as investment in an associate.

(h) Goodwill

Goodwill is initially recognized and measured as set out above.

Goodwill is not amortized but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Group's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognized for goodwill is not reversed in a subsequent period.

On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

(i) Leases (the group as a lessee)

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Assets held under finance leases are recognized as assets of the group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation.

Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognized immediately in profit or loss.

Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the lease assets are consumed. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.

(j) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services provided in the normal course of business, net of discounts, VAT and other sales-related taxes. Revenue is reduced for estimated customer rebates and other similar allowances.

Registry revenue

Registry revenue primarily arise from fixed fees charged to registrars for the initial registration or renewal of domain names.

Where the fee from the initial registration matches the fee from the renewal, the fee from both the initial registration and renewal is recognized on a straight line basis over the registration term.

Where the fee from the initial registration is higher than the renewal fee (arising mainly from 'premium name'), the 'premium' (the difference between the first year fee and ongoing renewal fee) is recognized as revenue immediately with the balance recognized on a straight line basis over the registration period. The renewal fee carries on to be recognized on a straight line basis as well.

Fees from renewals are deferred until the new incremental period commences.

Rendering of services (Registry service provider ("RSP") revenue and consultancy services)

Revenue is generated by providing RSP and consultancy services over a period of time. Fees for these services are deferred and / or accrued and recognized as performance occurs, typically on a straight-line basis over that period.

(k) Partner payments

Partner payments represents the expense relating to certain TLDs where royalty and similar payments are required to be made.

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

This represents a change in the Group's and the Company's accounting policy. Previously the Group and the Company did not defer such payments, recognizing the payment immediately as an expense.

The change in accounting policy has been made to more accurately reflect the Group's and Company's performance in relation to its revenue. The change has been applied retrospectively. As such, a "third" balance sheet is presented showing the opening position of the 31 December 2015 period.

The change in accounting policy impacted the partner payment expense with the corresponding impact on either prepayments (trade and other receivables) or accruals (trade and other payables), as follows:

The cumulative impact prior to 2015 was a decrease in partner payments of $204,000.

(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 in terms of 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. As a consequence, certain software and development costs are amortized over eight months (previously over 3 years).

(n) De-recognition of intangible assets

An intangible asset is de-recognized on disposal, or when no future economic benefits are expected from use or disposal. Gains and losses arising from de-recognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in profit or loss when the asset is de-recognized.

(o) Fixtures & equipment

Fixtures & equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is recognized so as to write off the cost or valuation of assets less their residual values over their useful lives, using the straight line method, on the following basis.

· Fixtures & equipment - over 3 to 7 years

(p) Impairment of fixtures & equipment and intangible assets excluding goodwill

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

An intangible asset, with an indefinite useful life is tested for impairment at least annually and whenever there is an indication that the asset may be impaired.

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, unless the relevant asset is carried at a re-valued amount, in which case the impairment loss is treated as a revaluation decrease.

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, unless the relevant asset is carried at a re-valued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

(q) Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, described in this note, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumption are based on historic experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Critical judgements in applying the Group's accounting policies

The Group does not have any critical judgements, apart from those involving estimations (which are dealt with separately below).

Key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainly at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below, in particular: Impairment of goodwill and intangible assets; Financial instruments; Taxation; provisions; Share-based payment transactions; and Investment in subsidiary undertakings.

(r) Impairment of goodwill and intangible assets

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill and intangible 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. Goodwill and intangible assets have not been impaired.

Details of goodwill and intangible assets are set out in note 17 and 18 respectively.

(s) Finance costs/revenue

Interest expenses are recognized using the effective interest method.

Finance revenue is recognized using the effective interest method.

(t) Financial instruments

Financial assets and financial liabilities are recognized in the Group's balance sheet when the Group becomes party to the contractual provision of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit of loss are recognized immediately in profit or loss.

Financial assets

All financial assets are recognized and derecognized on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial assets within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.

Financial assets are classified into the following specified categories: 'available for sale' financial assets and 'loans and receivables'. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest method

The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimates future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premium or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Income is recognized on an effective interest basis for debt instrument.

Loans and other receivables

Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as 'loans and receivables'. Loans and receivables are measured at amortized cost using the effective interest method, less Impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when recognition of interest would not be material.

Loans and receivables include cash and cash equivalents. Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

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 available for sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

De-recognition of financial assets

The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received.

On de-recognition of a financial asset in its entirety, the difference between the asset's carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.

Financial liabilities and equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognized at the proceeds received net of direct issue costs.

Financial liabilities

Financial liabilities are classified as other financial liabilities.

Other financial liabilities

Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.

Other financial liabilities 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.

(u) 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.

(v) 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.

(w) 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 27.

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 16)

(x) 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 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

Inter-segment sales are charged at prevailing market prices.

*Included within Operating EBITDA is Profit on gTLD auctions of $7,943k allocated to the Registry segment and loss on withdrawal of gTLD applications $148k allocated to RSP.

Inter-segment sales are charged at prevailing market prices.

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 segment assets by geographic location are detailed below.

Included in revenues arising from the Registry segment are revenues of $1,963k (2015: $589k), which arose from sales to the Group's largest customer.

Revenue for the Company is all derived from the Registry segment.

3 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. This represents a change in the Group's and the Company's accounting policy. Previously the Group and the Company did not defer such payments, recognizing the payment immediately as an expense. See note 1 (k) for further details.

4 Cost of sales

5 Restructuring costs - operating

The nature of the restructuring activities and costs are detailed in the Executive Summary.

6 Restructuring costs - contracts

Restructuring costs - contracts, relates to costs incurred to re-negotiate certain contracts. See the Executive Summary for further details.

7 Discontinued operations

During the year, the group entered into a sale agreement to dispose of the registrar customer list effectively closing down the registrar business. The disposal was affected to pursue the group's strategy of being a pure play registry. The disposal was completed during the year.

Discontinued operations contributed to a cash outflow of $1,312k (2015: $3,883k) to the group's net operating cash flows.

8 Operating expenses - ongoing / forfeited

Operating expenses have been separated into "ongoing" and "forfeited". Ongoing operating expenses represent expenses that the restructured Group and Company would have incurred for the current year.

Forfeited expenses represent expenses that the Group and Company would not have incurred under a restructured business, separate to those specifically allocated to restructuring costs (note 5). Forfeited expenses are mainly comprised of employee costs for employees and certain expenses no longer required under the restructured business.

During the year, the Group paid costs of $504k to Patrimoine International Limited of which $200k has been recognized within operating expenses, $90k within cost of goods sold and the remainder allocated to cost of cash issue in equity. In addition, Patrimoine International Limited was granted 2,500,000 share options, vesting over 3 years with an exercise price of 13 pence (15.9 cents) with a calculated fair value of $94k. The contract with Patrimoine was terminated in Q1 2017.

9 EBITDA before restructuring costs

EBITDA before restructuring costs is arrived at after charging:

10 Employee information (excluding directors)