Minds + Machines Group Limited (LON:MMX) said it is commencing a formal investigation to determine whether certain revenue has been correctly recognised, with a focus principally on a specific contract with multiple elements that was entered into in 2019.
The group said the investigation relates to whether all requirements for the recognition of revenue had been met prior to December 31, 2019, and June 30, 2020, or whether such amounts should have been classified as a refundable deposit against future sales or deferred revenue at those dates.
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The company said cash of US$1.125mln has been received in connection with the relevant contract and revenue of US$938,000 was recognised in the year ended December 31, 2019, and US$25,000 in the six months ended June 30, 2020.
Minds + Machines emphasised that the investigation relates to revenue recognition and it does not expect it to have any impact on cash save for a maximum exposure of approximately US$1mln if the amounts received under the contract were to be refundable and no further revenue was generated.
The firm added that it had cash of US$7.3mln as at June 30, 2020 and said it will make further announcements in due course.
In a note, analysts at house broker finnCap said they did not think the investigation will have "any significant impact on cash" and kept its target price for the firm under review
The shares were 11.4% lower at 5.2p in mid-morning trading on Friday.
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