GCON Global Connectivity PLC

2.2           Significant accounting estimates and judgements

The Company makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions.  The estimates and assumptions 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.

(a)           Trade receivables and loans and receivables  

The Company assesses its trade receivables and loans and receivables for impairment at the end of each reporting period. In determining whether an impairment loss should be recorded in profit or loss, the Company makes judgements as to whether there is observable data indicating a measurable decrease in the estimated future cash flows from a financial asset.

(b)           Fair value of financial assets - Level 3

The Company reviews the fair value of its unquoted equity instrument at each Statement of Financial Position date. This requires management to make an estimate of the value of the unquoted security in the absence of an active market. At year end, management's best judgement is based on the information provided to them by the investee company. Where all of the information available is positive but there is insufficient information to demonstrate that the fair value is anything other than cost as a result of a lack of other inputs or evidence to suggest an uplift of the value, no fair value increase is recognised to be prudent.

2.3           Foreign currency translation

(a)           Functional and presentation currency

Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The financial statements are presented in Pound Sterling, which is the Company's functional and presentation currency.

(b)           Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the company income statement.

2.4           Revenue and expense recognition

The Company provides management services and revenue comprises of certain costs incurred during the period which are then recharged. The pricing of these services (which drives the revenue recognition) depends on the service level required by the client, and on the commercial imperatives and pricing sensitivities of the client. The contractual performance obligations will typically be embedded in an agreement with the client. Where that agreement is detailed, the revenue recognition will follow the allocation of fees and revenues against the completion of the agreed performance milestones in the accounting period. Where the agreement is not specific, the revenue recognition will be in proportion to the completion of performance milestones in the relevant accounting period against the internal costings prepared in advance for each project.

Interest income is recognised in the financial statements on a time-proportionate basis using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the period.

Expenses are accounted for on an accruals basis.

2.5           Financial assets and financial liabilities

Financial instruments

IFRS 9 requires an entity to address the classification, measurement and recognition of financial assets and liabilities.

a) Classification

The Company classifies its financial assets in the following measurement categories:

•                     those to be measured subsequently at fair value (either through OCI or through profit or loss); and

•                     those to be measured at amortised cost.

The classification depends on the Company's business model for managing the financial assets and the contractual terms of the cash flows.

For assets measured at fair value, gains and losses will be recorded either in profit or loss or in OCI. For investments in equity instruments that are not held for trading, this will depend on whether the Company has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI).

The Company classifies financial assets as amortised costs only if both of the following criteria are met:

•             the asset is held within a business model whose objective is to collect contractual cash flows; and

•             the contractual terms give rise to cash flows that are solely payment of principal and interest.

b) Recognition

Purchases and sales of financial assets are recognised on trade date (that is, the date on which the Company commits to purchase or sell the asset). Financial assets are de-recognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership.

c) Measurement

At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset.

Transaction costs of financial assets carried at FVPL are expensed in profit or loss.

To determine the fair value of the investment, the Directors have reviewed all information received form the investee company. Where all of the information available is positive but there is insufficient information to demonstrate that the fair value is anything other than cost as a result of a lack of other inputs, or evidence to suggest an uplift or impairment of the value, no fair value movement is recognised.

Assets carried at amounts based on fair value are defined as follows:

·      Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).

·      Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2).

·      Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).

Debt instruments

Amortised cost: assets that are held for collection of contractual cash flows, where those cash flows represent solely payments of principal and interest, are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses. Impairment losses are presented as a separate line item in the statement of profit or loss.

d) Impairment

The Company assesses, on a forward-looking basis, the expected credit losses associated with any debt instruments carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the Company applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables.

2.6           Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

2.7           Warrants and share options

The Company estimates the fair value of the future liability relating to issued warrants and share options using:

·      residual method, where a warrant was issued and included as a part of a package placement of "1 share + 1 warrant"

·      the Black-Scholes pricing model taking into account the terms and conditions upon which the warrants and share options were issued, if the warrant or share option was granted on its own.

Warrants relating to equity finance are recorded as a reduction of share premium based on the fair value of the warrants. The charge for the share options is recorded under administrative expenses in the income statement.

2.8           Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. The carrying amount of these assets approximates their fair value.

3              Risk management in respect of financial instruments

The Company's activities expose it to a variety of financial risks: market risk (including foreign currency risk and interest rate risk), credit risk and liquidity risk. The financial risks relate to the following financial instruments: investments, loans and receivables and other liabilities as detailed in note 2.5.

Foreign currency risk

Foreign currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. The Company's operations are not conducted in jurisdictions which generate revenue, expenses, assets and liabilities in currencies other than Pound Sterling ("the functional currency of the Company"). As a result, there was no exposure to foreign currency risk as at 31 December 2022 or 31 December 2023.

Credit risk

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company.

The carrying amounts of financial assets best represent the maximum credit risk exposure at the balance sheet date. This relates also to financial assets carried at amortised cost.

At the reporting date, the Company's financial assets exposed to credit risk amounted to the following:

The Company manages its credit risk by monitoring the creditworthiness of counterparties regularly. Cash transactions and balances are limited to high-credit-quality financial institutions.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. The Company currently manages its liquidity risk by maintaining sufficient cash and with the personal support of the Chairman for shortfalls as a result of the timing of loan repayments. The Company's liquidity position is monitored by the Board of Directors.

The residual undiscounted contractual maturities of financial liabilities are as follows:

Interest rate risk

Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. The Company is exposed to interest rate risk from the cash held in interest bearing accounts at floating rates or short-term deposits of one month or less and on loans from third parties. The Company's Board of Directors monitor and review the interest rate fluctuations on a continuous basis and act accordingly.

During the year ended 31 December 2023 should interest rates have decreased by 100 basis points, with all other variables held constant, the shareholders' equity and profit for the period would have been £2k lower (2022: 100 basis points, £nil lower).

Capital risk management

The Company's primary objective when managing its capital base is to safeguard its ability to continue as a going concern. Capital comprises share capital (see note 12) and reserves.

No changes were made in respect of the objectives, policies or processes in respect of capital management during the years ended 31 December 2022 and 31 December 2023.

4              Other administration fees and expenses

* costs incurred in 2021 were able to be recovered from Tiger when the reorganisation completed on 25 October 2022

Included within other administration fees and expenses are the following:

Directors' remuneration

The maximum amount of basic remuneration payable by the Company by way of fees to the Non-executive Directors permitted under the Articles of Association is £200,000 per annum. All Directors are each entitled to receive reimbursement of any expenses incurred in relation to their appointment. Mr Langoulant and Mr Lewis are entitled to receive an annual fee of £6,000.

Executive Directors' fees

The Chairman is entitled to an annual fee of £80,000 (2022: £90,000 but permitted a reduction when he was receiving fees from Secure Web Services Limited whilst it was a wholly owned subsidiary).

All directors' remuneration and fees

Total fees and basic remuneration (including VAT where applicable) paid to the Directors for the year ended 31 December 2023 amounted to £61,883 (31 December 2022: £112,213) and was split as below. Directors' insurance cover amounted to £15,968 (31 December 2022: £20,883).

5              Taxation

The Company is resident in the Isle of Man for taxation purposes. The Isle of Man has a 0% rate of corporate income tax (2022: 0%) to which the Company is subject.

6              Basic and diluted profit/(loss) per share

(a)           Basic

Basic profit/(loss) per share is calculated by dividing the profit/(loss) of the Company by the weighted average number of shares in issue during the year.

(b)           Diluted

Diluted profit/(loss) per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has two category of dilutive potential ordinary shares: warrants and share options.

Although the Company is reporting a profit from continuing operations for the year the exercise price of the warrants or performance criteria for the share options have not been met and therefore exercise cannot take place yet. The basic and diluted profit per share as presented on the face of the Income Statement are therefore identical.

7              Subscriptions due

On 10 September 2019, 75 million Ordinary Shares were allotted, 37.5 million to Michael Meyer (former Chairman of the Company) and 37.5 million to Barry Hersh. The Ordinary Shares were issued at a price of 1 pence per share. The consideration for the Ordinary Shares is to be left outstanding on terms that it shall be paid to the Company in full by 31 December 2024.

On 17 March 2020, 20 million Ordinary Shares were allotted to Keith Harris (Chairman of the Company). The Ordinary Shares were issued at a price of 1 pence per share. The consideration for the Ordinary Shares is to be left outstanding on terms that it shall be paid to the Company in full by 31 December 2024.

8              Other financial assets

The infrastructure funding deal with Tiger Infrastructure Partners Fund III LP ("Tiger") completed on 25 October 2022. As a result, the Company transferred ownership of its two previously wholly owned subsidiaries, Secure Web Services Limited and Cadence Networks (note 18) to a new intermediate holding company, Rural Broadband Solutions Holdings Limited, of which the Company now owns 15%. At the same time part of intercompany loan with Secure Web Services Limited was capitalised leaving a balance of £825,000 to be repaid over three years at a rate of £275,000 per annum (note 18).

The Company has estimated the fair value of its investment in Rural Broadband Solutions Holdings Limited, an unquoted equity instrument, and recognised an increase in fair value based on the information provided by the investee company.

9              Amounts due from related parties

This balance was unsecured and interest free. £nil (31 December 2022: £725,000) relates to a loan, see note 18. £32,760 (31 December 2022: £32,760) relates to management services recharges which are repayable on demand.

10            Trade and other receivables

The fair value of trade and other receivables approximates their carrying value.

11            Cash and cash equivalents

12            Share capital

The holders of Ordinary Shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.

No distributions were paid during the year (31 December 2022: none).

13            Warrants and share options

Warrants

The number and weighted average exercise price of warrants in issue for the year ended 31 December 2023 and 2022 is as follows:

* 100 million warrants were due to expire on 21 April 2024. On 28 March 2024, the Company agreed to extend the warrant exercise period by two years to 20 April 2026 and decreased the warrant exercise price to 1.5p per share.

The estimate of the fair value of the Warrants is measured based on the Black-Scholes model. The following inputs were used in the calculation of the fair value of the warrants granted.

* exercise period was extended

The expected volatility is based on the historical share prices of a group of companies deemed to be comparable.

Share options

The Company has issued share options as an incentive to the senior management of the Company (and up to the reorganisation in October 2022 to the management of the subsidiary company Secure Web Services Limited). In addition, the Company has issued warrants to senior management and advisers in payment or part payment for services provided to the Company. All share options granted in prior years were granted under individual agreements and are subject to market and service vesting conditions. These options were HMRC approved EMI options up to the date of the reorganisation in October 2022. The vesting conditions fall into the 3 main categories:

·      Salary sacrifice for certain individuals where no further vesting condition is required;

·      Numbers of monthly paying customers sustained over a three month period;

·      Share price hurdles based on share values of 4.5p, 7.5p and 10.5p over 3 consecutive months or a liquidity event at that price per share at any time following the award of the options.

Each share option converts into one ordinary share of the Company on exercise and are accounted for as equity-settled share-based payments. The equity instruments granted carry neither rights to dividends nor voting rights.

Share options in issue:

The fair value is estimated at the date of grant using the Black-Scholes model taking into account the terms and conditions attached to the grant.

The share options outstanding as at 31 December 2023 have a weighted remaining contractual life of 0.5 years with an exercise price of £0.01.

The value of share options charged to administrative expenses in the Statement of Comprehensive Income during the year is as follows:

14            Reserves

The following describes the nature and purpose of each reserve within equity:

15            Net asset value ("NAV") per share

16            Trade and other payables

The fair value of trade and other payables approximates their carrying value.

17            Contingent liabilities and commitments

As at 31 December 2023 the Company had no contingent liabilities or commitments.

18            Related party transactions

Parties are considered to be related if one party has the ability to control the other party or to exercise significant influence over the other party in making financial or operational decisions. Key management is made up of the Board of Directors who are therefore considered to be related parties and the transactions were made at arm's length. Fees in relation to the Directors are disclosed in note 4. Shares allotted to related parties are disclosed in note 7.

Management fees in the prior year charged to the former wholly owned subsidiary, Secure Web Services Limited, up to the date of reorganisation amounted to £82,000 and related to management services performed over time. At the balance sheet date there was a balance of £32,760 (2022: £32,760) owed to the Company.

During the year, £nil was provided to Secure Web Services Limited, by way of an intercompany loan (2022: £521K). At the balance sheet date there was a loan outstanding of £nil (2022: £725,000). This loan was unsecured and interest free. £275,000 was due 31 December 2023 and the remaining £275,000 was due 31 December 2024 however the balance was paid early and in full on 13 October 2023.

19            Investment in subsidiaries

20            Ultimate controlling party

There is no one controlling party.