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Registered number: 09669260
















PIRATE STUDIOS LIMITED




ANNUAL REPORT AND FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022


































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PIRATE STUDIOS LIMITED

 
COMPANY INFORMATION


DIRECTORS
S Andrews (appointed 19 October 2023)
D Borrie 
S Kwan (appointed 19 October 2023)
R Kyle (appointed 19 October 2023)
E Solberg (appointed 19 October 2023)
H Teck 
M De Jesus (resigned 19 October 2023)
M Hammerton (resigned 19 October 2023)
M Maar (resigned 19 October 2023)




REGISTERED NUMBER
09669260



REGISTERED OFFICE
13 Rothbury Road

London

E9 5HA




INDEPENDENT AUDITORS
Bishop Fleming LLP
Chartered Accountants & Statutory Auditors

10 Temple Back

Bristol

BS1 6FL






PIRATE STUDIOS LIMITED


CONTENTS



Page
Group strategic report
 
1 - 6
Directors' report
 
7 - 8
Directors' responsibilities statement
 
9
Independent auditors' report
 
10 - 13
Consolidated statement of comprehensive income
 
14
Consolidated statement of financial position
 
15
Company statement of financial position
 
16
Consolidated statement of changes in equity
 
17
Company statement of changes in equity
 
18
Consolidated statement of cash flows
 
19 - 20
Notes to the financial statements
 
21 - 47



PIRATE STUDIOS LIMITED

 
GROUP STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2022

INTRODUCTION
 
The directors present their strategic report and financial statements for the year ended 31 December 2022. 

PRINCIPAL ACTIVITY

The principal activity of Pirate Studios Limited (the "company") and its subsidiaries (together "the group") was that of provision of music studios and facilities.
The company is a trading company and acts as a holding company for the group’s trading subsidiaries, Pirate Studio LLC and Pirate Studio GmbH, incorporated in USA and Germany respectively. The company's results also include the results of its foreign branch registered in Ireland.

BUSINESS REVIEW

The company is the world’s first and only global self-service studio provider, established in July 2015 with 36 locations worldwide (2021 - 36 locations worldwide).
The company has developed a powerful and highly disruptive customer proposition that is differentiated from traditional studios and appeals to a broad range of consumers. Our aim is to empower artists by providing state- of-the-art creative studios to rent hourly, at an affordable price. 
The key elements of our proposition include:
An innovative studio design allowing for cost-effective and efficient assembly, reducing time to market.
Non-prime location rents and reduced staffing which are passed to customers in the form of low prices.
Unique  self-service  operating  model,  facilitating  unmanned  buildings  which  are  open  24/7  compared  to competitors who are open 12 hours a day.
Proprietary technology allowing artists to capture and share their performances direct from the studio.

The company's strategy is to continue to roll out new studios with high returns on capital whilst continuing to develop its product offering.

Page 1


PIRATE STUDIOS LIMITED


GROUP STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022

SECTION 172 STATEMENT
 
This section describes how we have considered and had regard to the interests of our key stakeholders when exercising our duty to promote the success of the company under section 172(1) of the Companies Act 2006. The  principles  set  out  within  this  section  are  not  just  something  considered  at  board  level  but  are  in  fact embedded throughout the company.
Our key stakeholder groups are set out below. All of these groups are key to the continued success of our business and their views and needs, as well as any long term consequences of our actions, are taken into account when making any decision at any level throughout out the business. Sometimes decisions must be made based on competing priorities.
Investors - we rely on investors and providers of debt funding as essential sources of capital for our global expansion plan and digital product development. They rely on us to manage cash prudently and generate a return on their investment by striking a balance between ambitious growth and sustainability.
Suppliers - we rely on our suppliers to provide the real estate through which we operate, supply the materials and labour  required  to  build new  studios and  provide  essential services we need  to operate  our business.  Our suppliers rely on us to generate revenue and employment for them.
Customers  -  our  customers  are  the  reason  we  exist and  we  are  passionate about  not  just  providing  safe, accessible and comfortable spaces for them to create but also the tools and opportunities for them to realise their  true  potential.  Connecting  customers with each other as well  as their audience  and  the wider market remains a key part of our mission. In doing so, we build our brand value and loyalty.
Our  workforce  -  our  ambitious  plans  would  not  be  possible  without  the  hard  work  and  dedication  of  our employees. Our employees rely on us to provide a safe and respectful working environment, stable employment and the training and opportunities to further develop their skillsets. 
Communities and the environment - we engage with local communities, local government and the police to ensure  that  we  act  both  as  a  responsible  company  and  a  responsible  neighbour.  Our  business  and  the customers that use our studios have the potential to enrich local communities but it has to be done in a way that is acceptable to those existing communities the safety of our customers as well as the surrounding community is our highest priority. At a wider level we are always looking at new ways we can reduce any adverse impact of our business on the environment.

FINANCIAL AND OPERATIONAL HIGHLIGHTS
 
Revenue increased from £7,230,712 in 2021 to £10,292,517 in 2022 representing an increase of 42%, this is due to the easing of COVID-19 restrictions as well as the underlying growth in demand. An analysis of revenue is set out in Note 4.

Page 2


PIRATE STUDIOS LIMITED


GROUP STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022

FREE BOOKINGS AND CREDIT BOOKINGS
 
Free credit is given for the first month after a go live of a new location. This marketing exercise is a very effective way of generate hype and acquiring new customers. Credit is also offered through other marketing promotions such as our “refer a friend” scheme. The directors monitor credit and the analysis below shows the year on year growth in credit revenue, driving total bookings and therefore total revenue as new studios launched during 2020 continue to grow. The use of credit bookings as an effective way to generate revenue can be seen by the growth in revenue year on year, and reduction in the credit bookings as a proportion of total sales.

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Given the backdrop of the global pandemic, and the cost of living crisis that followed, the directors were satisfied with the performance of the business against these KPIs and consider the business to be well on track to becoming a self-sustaining business.  

Page 3


PIRATE STUDIOS LIMITED


GROUP STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022

PRINCIPAL RISKS AND UNCERTAINTIES
 
Attracting and retaining customers
As the majority of our revenue is derived from our studios operations, our success is dependent on attracting and retaining customers within our studios. Consequently, we must continually engage existing customers and attract new customers in order to maintain or increase our studio occupancy levels. If we are unable to attract and retain customers, it could have a material adverse effect on our rate of growth, business and prospects.
The factors that may influence this include:
 
Competition from other studio operators 
Changes in customer preference away from our self-service value offering
A decline in general interest to our product offering
Changes in customer spending habits due to adverse economic conditions
Changes in the level of positive referrals from current and former customers
Enforced closures as a result of pandemics

New site availability
A key part of our expansion strategy is the opening of new studios. Currently all of our sites are leaseholds and we are dependent upon finding and securing new leasehold sites where we can open new studios. Our site selection strategy includes a variety of criteria to determine the optimal locations of new sites such as demographics, population density, accessibility, competition and other music-led demand indicators. Our ability to identify and negotiate acceptable lease terms for new sites may be adversely affected by the availability of sites that meet our selection criteria or fluctuations in the property market. As a result, we may be unable to identify suitable sites and secure them acceptable terms or in a timely manner. This could have a material adverse effect on our rate of growth, business and prospects. Moving to a business model that is able to also fund freehold opportunities reduces this risk as it widens the pool of locations available as well as enabling the company to share the economic benefits of property ownership and this is something the company is currently looking at.
Supply chain management
We  rely  on  third-party  contractors  and  suppliers  for  various  services  and  products,  such  as  site  fit  out, equipment, maintenance and cleaning. Whilst there are a number of providers for each of these services and we closely  monitor  their  performance,  there  are  risks  that  are  beyond  our  control.  If  we  encounter  delays  or difficulties in securing the products or services provided by our third-party contractors and suppliers or there is a deficiency, lack of or poor quality of such products or services provided, it may impact our service offering and have a material adverse effect on our rate of growth, business and prospects.
Systems
We are a technology enabled company and any disruptions or failures that affect our website, studio access, marketing, finance and other administrative functions could have an adverse effect on our operations. While we have a full business continuity plan in place, conduct regular data back-ups and have processes in place to protect customer data, disruptions, failures or cyber attacks involving our information technology systems could have a material adverse effect on our rate of growth, business and prospects.
New business lines
Our strategy is to develop a number of digital products and services which are complementary to our studios. This requires additional capital investment as well as management time and other resources. It is possible any such products or services may not perform in line with expectations, which could have a material adverse effect on our rate of growth, business and prospects.
Access to capital
During the ramp-up phase, our business will be capital intensive, and we require significant capital to finance
Page 4


PIRATE STUDIOS LIMITED


GROUP STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022

such activities, as well as to fund ongoing investments in our business and to meet our debt obligations. Any inability or delay in raising additional capital if and when required may affect our ability to execute on our growth strategy or cause us to lose future opportunities. This could have a material adverse effect on our rate of growth, business and prospects.
Brexit
The direct impact of Brexit on the company is considered to be negligible. Our business model doesn’t rely on importing or exporting goods or providing services across borders so any supply chain issues that Brexit may have caused or increased duty costs or VAT considerations do not pose a threat. Whenever we are building new studios in the EU, our local subsidiary will work with local contractors also based within the EU and the project is paid for in EUR. Once operational both the revenue and costs generated by that location are also in Euros so the foreign exchange risk is negligible. We’re also still able to attract a diverse workforce.
Cost of living and inflation
As is the case with most other UK businesses we have experienced higher costs since Brexit, the pandemic and the war in Ukraine. This was particularly pronounced throughout 2022 driven by unusually high inflation and increased fuel costs in the UK. We have had to mitigate this risk by increasing our prices at the end of 2021 and the end of 2022. It is likely this will now become an annual pricing review.

Page 5


PIRATE STUDIOS LIMITED


GROUP STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022

GOING CONCERN
 
The Group and Company recovered quickly from the COVID-19 pandemic and whilst there are still some knock on effects of the pandemic and other factors like the war in Ukraine resulting in a cost of living crisis we have seen the underlying business continue to improve from both a revenue and profitability point of view throughout 2022 and 2023.
 
Management has run various forecast scenarios for a period of at least 24 months from the date of signing of these financial statements to determine the impact on profitability and cashflow in the event of depressed revenue. In each scenario, the group’s current portfolio and cost base, including the servicing of operating lease commitments that are held off balance sheet (note 27 to the financial statements), produces a sustainable, cash-generative business and, as a result, the financial statements are prepared on a going concern basis. The Directors recognise the importance of the leased property portfolio to the functioning of the business model, therefore regularly review the performance of each location which helps to inform future decisions related to the properties they operate in. 
The minimum cash requirement for the next 24 months is $4m. However, under the worst case scenarios $6m of capital would be required in 2024 and a further $2m would then be needed in 2025 which would mean having to draw down the full $15m of the initial investment being sought as part of the current fundraising round detailed below, alongside a further $1m of the second tranche. This is the worst case scenario considered by management from a cash burn point of view but it does include some growth and revenue driving initiatives. As it only requires $1m of the second tranche of $15m, management also consider this to be ample headroom on cash. 
 
The directors have a successful history of raising financing from similar transactions, having raised additional equity and debt from both existing and new investors in each of the previous years. Notably, since the end of 2021, the group has raised over £12m in additional capital as well as negotiating the framework of a debt restructure agreement as part of it’s current funding round.
 
The current fundraising round is for an initial investment of $15m (of which $8m has been received to date in the form of promissory notes) followed by another $15m expected within the next 12-24 months to fund growth. The lead investor also has the option to invest a further $25m. This initial funding is now expected to close by the end of Q1 2024 after some unexpected delays to the process.
 
While the Company has received $8m of this funding already, in the form of promissory notes, the fundraising round has not completed, and the remaining capital has not yet been received and so a material uncertainty exists which may cast significant doubt about the group and the company’s ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business. In the event that the current fundraising round does not complete, this may crystallise the payment of redemption premiums related to convertible loan instruments issued by the group and company (see note 25 for more details). However, the directors believe that, taken as a whole, the factors described above enable the group and the company to continue as a going concern for the foreseeable future. The financial statements do not include the adjustments that would be required if the group and company were unable to continue as a going concern. 


This report was approved by the board and signed on its behalf.



D Borrie
Director

Date: 8 February 2024

Page 6


PIRATE STUDIOS LIMITED

 
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 2022

The directors present their report and the financial statements for the year ended 31 December 2022.

RESULTS AND DIVIDENDS

The loss for the year, after taxation, amounted to £12,242,687 (2021: loss £17,216,587).

DIRECTORS

The directors who served during the year were:

D Borrie 
H Teck 
M De Jesus (resigned 19 October 2023)
M Hammerton (resigned 19 October 2023)
M Maar (resigned 19 October 2023)

MATTERS COVERED IN THE STRATEGIC REPORT

The company has included mandatory directors' report disclosures within the strategic report as they are considered by the directors to be of strategic importance; as permitted by the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013.

DISCLOSURE OF INFORMATION TO AUDITORS

Each of the persons who are directors at the time when this Directors' report is approved has confirmed that:
 
so far as the director is aware, there is no relevant audit information of which the Company and the Group's auditors are unaware, and

the director has taken all the steps that ought to have been taken as a director in order to be aware of any relevant audit information and to establish that the Company and the Group's auditors are aware of that information.

POST BALANCE SHEET EVENTS

Since the end of 2022, the group has raised $8m in additional capital as well as negotiating rolling extensions to all non-convertible debt currently held until the current fundraising round is complete.
 
It is a key term of the current fundraising round that all debt and convertible debt holders agree to convert their debt to equity before the new capital is committed and the Company has agreement from the required majority of debt holders for this.
 
The current fundraising round is for an initial investment of $15m (of which $8m has been received to date in the form of promissory notes) followed by another $15m expected within the next 12-24 months. The lead investor also has the option to invest a further $25m. This funding is expected to close by the end of Q1 2024.

AUDITORS

The auditorsBishop Fleming LLPwill be proposed for reappointment in accordance with section 485 of the Companies Act 2006.

Page 7


PIRATE STUDIOS LIMITED
 
 
DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
This report was approved by the board and signed on its behalf.
 






D Borrie
Director

Date: 8 February 2024

13 Rothbury Road
London
E9 5HA

Page 8


PIRATE STUDIOS LIMITED

 
DIRECTORS' RESPONSIBILITIES STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2022

The directors are responsible for preparing the Group strategic report, the Directors' report and the consolidated financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland'. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Group for that period.

 In preparing these financial statements, the directors are required to:

select suitable accounting policies for the Group's financial statements and then apply them consistently;

make judgments and accounting estimates that are reasonable and prudent;


prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and to enable them to ensure that the financial statements comply with the Companies Act 2006They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Page 9


PIRATE STUDIOS LIMITED

 
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF PIRATE STUDIOS LIMITED
OPINION


We have audited the financial statements of Pirate Studios Limited (the 'parent Company') and its subsidiaries (the 'Group') for the year ended 31 December 2022, which comprise the Consolidated statement of comprehensive income, the Consolidated Statement of Financial Position, the Company Statement of Financial Position, the Consolidated Statement of Cash Flows, the Consolidated Statement of Changes in Equity, the Company Statement of Changes in Equity and the related notes, including a summary of significant accounting policiesThe financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland' (United Kingdom Generally Accepted Accounting Practice).


In our opinion the financial statements:


give a true and fair view of the state of the Group's and of the parent Company's affairs as at 31 December 2022 and of the Group's loss for the year then ended;
have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
have been prepared in accordance with the requirements of the Companies Act 2006.


BASIS FOR OPINION


We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the United Kingdom, including the Financial Reporting Council's Ethical Standard and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.


MATERIAL UNCERTAINTY RELATED TO GOING CONCERN


We draw attention to note 2.3 in the financial statements, which indicates that the Group and Parent Company are currently seeking additional funding to allow the Group and Parent company to trade for the foreseeable future, which is yet to be secured. As stated in note 2.3, these events or conditions, along with the other matters as set forth in note 2.3, indicate that a material uncertainty exists that may cast significant doubt on the Group's or the parent Company's ability to continue as a going concern. Our opinion is not modified in respect of this matter.


In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. 


Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.


Page 10


PIRATE STUDIOS LIMITED
 
 
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF PIRATE STUDIOS LIMITED (CONTINUED)

OTHER INFORMATION


The other information comprises the information included in the Annual Report other than the financial statements and our Auditors' report thereon. The directors are responsible for the other information contained within the Annual ReportOur opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.


We have nothing to report in this regard.


OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006
 

In our opinion, based on the work undertaken in the course of the audit:


the information given in the Group strategic report and the Directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the Group strategic report and the Directors' report have been prepared in accordance with applicable legal requirements.


MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
 

In the light of the knowledge and understanding of the Group and the parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the Group strategic report or the Directors' report.


We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:


adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us; or
the parent Company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors' remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.


RESPONSIBILITIES OF DIRECTORS
 

As explained more fully in the Directors' responsibilities statement set out on page 9, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.


In preparing the financial statements, the directors are responsible for assessing the Group's and the parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so.


Page 11


PIRATE STUDIOS LIMITED
 
 
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF PIRATE STUDIOS LIMITED (CONTINUED)

AUDITORS' RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
 

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an Auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Group financial statements.


Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:

Identifying and assessing potential risks related to irregularities
 
We have considered the nature of the industry and sector, control environment and business performance including the design of the Company's bonuses.
We have considered the results of our enquiries of management including the CEO and CFO about their own identification and assessment of the risk of irregularities.
For any matters identified we have obtained and reviewed the Company's documentation of their policies and procedures relating to:
°Identifying, evaluating, and complying with laws and regulations whether they are aware of any instances of non-compliance;
°Detecting and responding to the risk of fraud and whether they have knowledge of actual, suspected, or alleged fraud; and
°The internal controls established to mitigate the risks of fraud or non-compliance with laws and regulations.
We have considered the matters discussed among the audit engagement team including internal tax specialists regarding how and where fraud might occur in the financial statements and potential indicators of fraud.

As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified recognition of revenue, particularly regarding year end cut off, as the greatest potential for fraud.
In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory frameworks that the Group operates in, focusing on provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and regulations we considered in this context included the UK Companies Act and tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements, but compliance with which may be fundamental to the Company's ability to operate or to avoid a material penalty. These included employment legislation and sales tax compliance. 
Audit response to risks identified
We identified the recognition of revenue around year end cut off as key audit matter related to the potential risk of fraud. Our procedures to respond to risks identified included the following:
 
Undertaking various substantive tests of detail related to the recognition of revenue.  
Reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws and regulations described as having a direct effect on the financial statements.
Enquiring of management concerning actual and potential litigation claims.
Page 12


PIRATE STUDIOS LIMITED
 
 
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF PIRATE STUDIOS LIMITED (CONTINUED)

Performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement or fraud.
In addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.

We also communicated relevant laws and regulations and potential fraud risks to all engagement team members and remained alert to any indications of fraud or non-compliance with laws or regulations throughout the audit. 
Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from an error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it.


A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our Auditors' report.


USE OF OUR REPORT
 

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an Auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed.






Gary Woodhall ACA (Senior statutory auditor)
for and on behalf of
Bishop Fleming LLP
Chartered Accountants
Statutory Auditors
10 Temple Back
Bristol
BS1 6FL

8 February 2024
Page 13


PIRATE STUDIOS LIMITED

 
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2022

2022
As restated
2021
Note
£
£

  

Turnover
 4 
10,292,517
7,230,712

Cost of sales
  
(6,926,780)
(6,324,033)

Gross profit
  
3,365,737
906,679

Administrative expenses
  
(12,131,026)
(16,008,360)

Other operating income
 5 
-
687,020

Operating loss
 6 
(8,765,289)
(14,414,661)

Interest payable and similar expenses
 10 
(3,511,408)
(2,857,920)

Loss before taxation
  
(12,276,697)
(17,272,581)

Tax on loss
 11 
34,010
55,994

Loss for the financial year
  
(12,242,687)
(17,216,587)

  

Currency translation differences
  
(1,044,632)
286,543

Other comprehensive income for the year
  
(1,044,632)
286,543

Total comprehensive income for the year
  
(13,287,319)
(16,930,044)

  

  

The notes on pages 21 to 47 form part of these financial statements.

Page 14


PIRATE STUDIOS LIMITED
REGISTERED NUMBER:09669260

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022

2022
As restated
2021
Note
£
£

Fixed assets
  

Intangible assets
 12 
1,542,445
993,496

Tangible assets
 13 
18,390,585
20,819,264

  
19,933,030
21,812,760

Current assets
  

Debtors: amounts falling due after more than one year
 15 
1,228,828
1,146,288

Debtors: amounts falling due within one year
 15 
627,653
310,466

Cash at bank and in hand
 16 
458,649
345,544

  
2,315,130
1,802,298

Creditors: amounts falling due within one year
 17 
(7,825,308)
(6,583,537)

Net current liabilities
  
 
 
(5,510,178)
 
 
(4,781,239)

Total assets less current liabilities
  
14,422,852
17,031,521

Creditors: amounts falling due after more than one year
 18 
(49,810,992)
(39,244,171)

Provisions for liabilities
  

Other provisions
 20 
(717,970)
(608,560)

Net liabilities
  
(36,106,110)
(22,821,210)


Capital and reserves
  

Called up share capital 
 21 
938
922

Share premium account
 22 
30,074,446
30,074,446

Capital redemption reserve
 22 
512
512

Foreign exchange reserve
 22 
(1,056,641)
(14,412)

Profit and loss account
 22 
(65,125,365)
(52,882,678)

  
(36,106,110)
(22,821,210)


The financial statements were approved and authorised for issue by the board and were signed on its behalf by: 


D Borrie
Director

Date: 8 February 2024

The notes on pages 21 to 47 form part of these financial statements.

Page 15


PIRATE STUDIOS LIMITED
REGISTERED NUMBER:09669260

COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022

2022
As restated
2021
Note
£
£

Fixed assets
  

Intangible assets
 12 
1,542,445
993,496

Tangible assets
 13 
9,863,279
11,664,688

Investments
 14 
22,168
22,168

  
11,427,892
12,680,352

Current assets
  

Debtors: amounts falling due after more than one year
 15 
653,838
624,307

Debtors: amounts falling due within one year
 15 
19,294,065
17,811,471

Cash at bank and in hand
 16 
332,959
242,974

  
20,280,862
18,678,752

Creditors: amounts falling due within one year
 17 
(5,931,728)
(4,927,018)

Net current assets
  
 
 
14,349,134
 
 
13,751,734

Total assets less current liabilities
  
25,777,026
26,432,086

  

Creditors: amounts falling due after more than one year
 18 
(48,890,354)
(38,484,615)

Provisions for liabilities
  

Other provisions
 20 
(557,386)
(554,799)

Net liabilities
  
(23,670,714)
(12,607,328)


Capital and reserves
  

Called up share capital 
 21 
938
922

Share premium account
 22 
30,074,446
30,074,446

Capital redemption reserve
 22 
512
512

Foreign exchange reserve
 22 
1,468
1,577

Profit and loss account
 22 
(53,748,078)
(42,684,785)

  
(23,670,714)
(12,607,328)

The financial statements were approved and authorised for issue by the board and were signed on its behalf by: 


D Borrie
Director

Date: 8 February 2024

The notes on pages 21 to 47 form part of these financial statements.

Page 16


PIRATE STUDIOS LIMITED



CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2022



Called up share capital
Share premium account
Capital redemption reserve
Foreign exchange reserve
Other reserves
Profit and loss account
Total equity


£
£
£
£
£
£
£



At 1 January 2021 (as previously stated)
919
30,074,446
512
(300,955)
4,322,318
(35,517,591)
(1,420,351)


Prior year adjustment - correction of error
-
-
-
-
(4,322,318)
(148,500)
(4,470,818)



At 1 January 2021 (as restated)
919
30,074,446
512
(300,955)
-
(35,666,091)
(5,891,169)





Loss for the year (as restated)
-
-
-
-
-
(17,216,587)
(17,216,587)


Currency translation differences
-
-
-
286,543
-
-
286,543


Shares issued during the year
3
-
-
-
-
-
3





At 1 January 2022 (as previously stated)
922
30,074,446
512
(14,412)
5,262,704
(52,407,086)
(17,082,914)


Prior year adjustment - correction of error
-
-
-
-
(5,262,704)
(475,592)
(5,738,296)



At 1 January 2022 (as restated)
922
30,074,446
512
(14,412)
-
(52,882,678)
(22,821,210)





Loss for the year
-
-
-
-
-
(12,242,687)
(12,242,687)


Currency translation differences
-
-
-
(1,042,229)
-
-
(1,042,229)


Shares issued during the year
16
-
-
-
-
-
16



At 31 December 2022
938
30,074,446
512
(1,056,641)
-
(65,125,365)
(36,106,110)



The notes on pages 21 to 47 form part of these financial statements.

Page 17


PIRATE STUDIOS LIMITED



COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2022



Called up share capital
Share premium account
Capital redemption reserve
Foreign exchange reserve
Other reserves
Profit and loss account
Total equity


£
£
£
£
£
£
£



At 1 January 2021 (as previously stated)
919
30,074,446
512
(8,531)
4,322,318
(29,722,525)
4,667,139


Prior year adjustment - correction of error
-
-
-
-
(4,322,318)
(148,500)
(4,470,818)



At 1 January 2021 (as restated)
919
30,074,446
512
(8,531)
-
(29,871,025)
196,321





Loss for the year (as restated)
-
-
-
-
-
(12,813,760)
(12,813,760)


Currency translation differences
-
-
-
10,108
-
-
10,108


Shares issued during the year
3
-
-
-
-
-
3





At 1 January 2022 (as previously stated)
922
30,074,446
512
1,577
5,262,704
(42,209,193)
(6,869,032)


Prior year adjustment - correction of error
-
-
-
-
(5,262,704)
(475,592)
(5,738,296)



At 1 January 2022 (as restated)
922
30,074,446
512
1,577
-
(42,684,785)
(12,607,328)





Loss for the year
-
-
-
-
-
(11,063,293)
(11,063,293)


Currency translation differences
-
-
-
(109)
-
-
(109)


Shares issued during the year
16
-
-
-
-
-
16



At 31 December 2022
938
30,074,446
512
1,468
-
(53,748,078)
(23,670,714)



The notes on pages 21 to 47 form part of these financial statements.

Page 18


PIRATE STUDIOS LIMITED


CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2022

2022
As restated
2021
£
£

Cash flows from operating activities

Loss for the financial year
(12,242,687)
(17,216,587)

Adjustments for:

Amortisation of intangible assets
342,588
155,174

Depreciation of tangible assets
4,508,765
3,839,120

Loss on disposal of tangible assets
257,110
234,819

Interest paid
3,511,408
2,857,920

Taxation charge
(34,010)
(55,994)

(Increase)/decrease in debtors
(399,727)
628,959

Increase in creditors
1,151,753
2,130,866

Increase in provisions
109,410
357,855

Corporation tax received
34,010
55,994

Net cash generated from operating activities

(2,761,380)
(7,011,874)


Cash flows from investing activities

Purchase of intangible fixed assets
(891,537)
(441,376)

Purchase of tangible fixed assets
(2,257,050)
(3,041,704)

Disposal of tangible fixed assets
(80,146)
686,570

HP interest paid
-
(1,204)

Net cash from investing activities

(3,228,733)
(2,797,714)
Page 19


PIRATE STUDIOS LIMITED


CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022


2022
2021

£
£



Cash flows from financing activities

Issue of ordinary shares
16
3

New loans
991,313
1,178,000

Repayment of loans
-
(1,000,000)

Repayment of finance leases
(5,908)
(5,897)

Interest paid
(119,974)
(404,878)

New convertible loans
6,280,000
4,917,677

Foreign exchange on consolidation
(1,042,229)
286,543

Net cash used in financing activities
6,103,218
4,971,448

Net increase/(decrease) in cash and cash equivalents
113,105
(4,838,140)

Cash and cash equivalents at beginning of year
345,544
5,183,684

Cash and cash equivalents at the end of year
458,649
345,544


Cash and cash equivalents at the end of year comprise:

Cash at bank and in hand
458,649
345,544

458,649
345,544


The notes on pages 21 to 47 form part of these financial statements.

Page 20


PIRATE STUDIOS LIMITED

 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022

1.


GENERAL INFORMATION

Pirate Studios Limited is a private company, limited by shares, incorporated in England and Wales under the Companies Act 2006. The address of the registered office is given on the company information page and the nature of the company's operations and its principal activities are set out in the strategic report.
The company has determined that GBP is its functional currency.

2.ACCOUNTING POLICIES

 
2.1

BASIS OF PREPARATION OF FINANCIAL STATEMENTS

The financial statements have been prepared under the historical cost convention unless otherwise specified within these accounting policies and in accordance with Financial Reporting Standard 102, the Financial Reporting Standard applicable in the UK and the Republic of Ireland and the Companies Act 2006.

The preparation of financial statements in compliance with FRS 102 requires the use of certain critical accounting estimates. It also requires Group management to exercise judgment in applying the Group's accounting policies (see note 3).

The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and has not presented its own Statement of comprehensive income in these financial statements.

The following principal accounting policies have been applied:

 
2.2

BASIS OF CONSOLIDATION

The consolidated financial statements present the results of the Company and its own subsidiaries ("the Group") as if they form a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.
The consolidated financial statements incorporate the results of business combinations using the purchase method. In the Statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the Consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date control ceases.

Page 21


PIRATE STUDIOS LIMITED

 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022

2.ACCOUNTING POLICIES (continued)

 
2.3

GOING CONCERN

The Group and Company recovered quickly from the COVID-19 pandemic and whilst there are still some knock on effects of the pandemic and other factors like the war in Ukraine resulting in a cost of living crisis we have seen the underlying business continue to improve from both a revenue and profitability point of view throughout 2022 and 2023.
 
Management has run various forecast scenarios for a period of at least 24 months from the date of signing of these financial statements to determine the impact on profitability and cashflow in the event of depressed revenue. In each scenario, the group’s current portfolio and cost base, including the servicing of operating lease commitments that are held off balance sheet (note 27 to the financial statements), produces a sustainable, cash-generative business and, as a result, the financial statements are prepared on a going concern basis. The Directors recognise the importance of the leased property portfolio to the functioning of the business model, therefore regularly review the performance of each location which helps to inform future decisions related to the properties they operate in. 
The minimum cash requirement for the next 24 months is $4m. However, under the worst case scenarios $6m of capital would be required in 2024 and a further $2m would then be needed in 2025 which would mean having to draw down the full $15m of the initial investment being sought as part of the current fundraising round detailed below, alongside a further $1m of the second tranche. This is the worst case scenario considered by management from a cash burn point of view but it does include some growth and revenue driving initiatives. As it only requires $1m of the second tranche of $15m, management also consider this to be ample headroom on cash. 
 
The directors have a successful history of raising financing from similar transactions, having raised additional equity and debt from both existing and new investors in each of the previous years. Notably, since the end of 2021, the group has raised over £12m in additional capital as well as negotiating the framework of a debt restructure agreement as part of it’s current funding round.
 
The current fundraising round is for an initial investment of $15m (of which $8m has been received to date in the form of promissory notes) followed by another $15m expected within the next 12-24 months to fund growth. The lead investor also has the option to invest a further $25m. This initial funding is now expected to close by the end of Q1 2024 after some unexpected delays to the process.
 
While the Company has received $8m of this funding already, in the form of promissory notes, the fundraising round has not completed, and the remaining capital has not yet been received and so a material uncertainty exists which may cast significant doubt about the group and the company’s ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business. In the event that the current fundraising round does not complete, this may crystallise the payment of redemption premiums related to convertible loan instruments issued by the group and company (see note 25 for more details). However, the directors believe that, taken as a whole, the factors described above enable the group and the company to continue as a going concern for the foreseeable future. The financial statements do not include the adjustments that would be required if the group and company were unable to continue as a going concern. 

Page 22


PIRATE STUDIOS LIMITED

 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022

2.ACCOUNTING POLICIES (continued)

 
2.4

FOREIGN CURRENCY TRANSLATION

Functional and presentation currency

The Company's functional and presentational currency is GBP.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the spot exchange rates at the dates of the transactions.

At each period end foreign currency monetary items are translated using the closing rate. Non-monetary items measured at historical cost are translated using the exchange rate at the date of the transaction and non-monetary items measured at fair value are measured using the exchange rate when fair value was determined.

Foreign exchange gains and losses resulting from the settlement of transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss except when deferred in other comprehensive income as qualifying cash flow hedges.

On consolidation, the results of overseas operations are translated into Sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations are translated at the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income.

 
2.5

REVENUE

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured as the fair value of the consideration received or receivable, excluding discounts, rebates, value added tax and other sales taxes. Revenue is respect of studio and other revenue is recognised as the services are delivered to the customer. Any consideration received upfront is recognised as deferred revenue. 

 
2.6

OPERATING LEASES: THE GROUP AS LESSEE

Rentals paid under operating leases are charged to profit or loss on a straight-line basis over the lease term.

Benefits received and receivable as an incentive to sign an operating lease are recognised on a straight-line basis over the lease term, unless another systematic basis is representative of the time pattern of the lessee's benefit from the use of the leased asset.

 
2.7

RESEARCH AND DEVELOPMENT

In the research phase of an internal project it is not possible to demonstrate that the project will generate future economic benefits and hence all expenditure on research shall be recognised as an expense when it is incurred. Intangible assets are recognised from the development phase of a project if and only if certain specific criteria are met in order to demonstrate the asset will generate probable future economic benefits and that its cost can be reliably measured. The capitalised development costs are subsequently amortised on a straight-line basis over their useful economic lives, which range from 3 to 6 years.
If it is not possible to distinguish between the research phase and the development phase of an internal project, the expenditure is treated as if it were all incurred in the research phase only.

Page 23


PIRATE STUDIOS LIMITED

 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022

2.ACCOUNTING POLICIES (continued)

 
2.8

GOVERNMENT GRANTS

Grants are accounted under the accruals model as permitted by FRS 102. Grants relating to expenditure on tangible fixed assets are credited to profit or loss at the same rate as the depreciation on the assets to which the grant relates. The deferred element of grants is included in creditors as deferred income.
Grants of a revenue nature are recognised in the Consolidated statement of comprehensive income in the same period as the related expenditure.

 
2.9

FINANCE COSTS

Finance costs are charged to profit or loss over the term of the debt using the effective interest method so that the amount charged is at a constant rate on the carrying amount. Issue costs are initially recognised as a reduction in the proceeds of the associated capital instrument.

 
2.10

BORROWING COSTS

All borrowing costs are recognised in profit or loss in the year in which they are incurred.

 
2.11

PENSIONS

DEFINED CONTRIBUTION PENSION PLAN

The Group operates a defined contribution plan for its employees. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. Once the contributions have been paid the Group has no further payment obligations.

The contributions are recognised as an expense in profit or loss when they fall due. Amounts not paid are shown in accruals as a liability in the Statement of financial position. The assets of the plan are held separately from the Group in independently administered funds.

 
2.12

SHARE-BASED PAYMENTS

Where share options are awarded to employees, the fair value of the options at the date of grant is charged to profit or loss over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. The cumulative expense is not adjusted for failure to achieve a market vesting condition.
The fair value of the award also takes into account non-vesting conditions. These are either factors beyond the control of either party (such as a target based on an index) or factors which are within the control of one or other of the parties (such as the Group keeping the scheme open or the employee maintaining any contributions required by the scheme).
Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to profit or loss over the remaining vesting period.
Where equity instruments are granted to persons other than employees, profit or loss is charged with fair value of goods and services received.

Page 24


PIRATE STUDIOS LIMITED

 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022

2.ACCOUNTING POLICIES (continued)

 
2.13

TAXATION

Tax is recognised in profit or loss except that a charge attributable to an item of income and expense recognised as other comprehensive income or to an item recognised directly in equity is also recognised in other comprehensive income or directly in equity respectively.

The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where the Company and the Group operate and generate income.

 
2.14

INTANGIBLE ASSETS

Intangible assets are initially recognised at cost. After recognition, under the cost model, intangible assets are measured at cost less any accumulated amortisation and any accumulated impairment losses.

All intangible assets are considered to have a finite useful life. If a reliable estimate of the useful life cannot be made, the useful life shall not exceed ten years.

 
2.15

TANGIBLE FIXED ASSETS

Tangible fixed assets under the cost model are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes expenditure that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

Depreciation is charged so as to allocate the cost of assets less their residual value over their estimated useful lives, using the straight-line method.

Depreciation is provided on the following basis:

Leasehold improvements
-
Between 2 and 15 years
Studio equipment and machinery
-
3 years
Motor vehicles
-
5 Years
Fixtures and fittings
-
5 years
Computer equipment
-
3 years

The assets' residual values, useful lives and depreciation methods are reviewed, and adjusted prospectively if appropriate, or if there is an indication of a significant change since the last reporting date.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in profit or loss.

 
2.16

VALUATION OF INVESTMENTS

Investments in subsidiaries are measured at cost less accumulated impairment.

 
2.17

DEBTORS

Short-term debtors are measured at transaction price, less any impairment. Loans receivable are measured initially at fair value, net of transaction costs, and are measured subsequently at amortised cost using the effective interest method, less any impairment.

Page 25


PIRATE STUDIOS LIMITED

 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022

2.ACCOUNTING POLICIES (continued)

 
2.18

CASH AND CASH EQUIVALENTS

Cash is represented by cash in hand and deposits with financial institutions repayable without penalty on notice of not more than 24 hours. Cash equivalents are highly liquid investments that mature in no more than three months from the date of acquisition and that are readily convertible to known amounts of cash with insignificant risk of change in value.

In the Consolidated statement of cash flows, cash and cash equivalents are shown net of bank overdrafts that are repayable on demand and form an integral part of the Group's cash management.

 
2.19

CREDITORS

Short-term creditors are measured at the transaction price. Other financial liabilities, including bank loans, are measured initially at fair value, net of transaction costs, and are measured subsequently at amortised cost using the effective interest method.

 
2.20

PROVISIONS FOR LIABILITIES

Provisions are recognised when an event has taken place that gives rise to a legal or constructive obligation, a transfer of economic benefits is probable and a reliable estimate can be made.
Provisions are measured as the best estimate of the amount required to settle the obligation, taking into account the related risks and uncertainties.
 
Increases in provisions are generally charged as an expense to profit or loss.

 
2.21

FINANCIAL INSTRUMENTS

The Group has elected to apply the provisions of Section 11 “Basic Financial Instruments” of FRS 102 to all of its financial instruments.

Financial instruments are recognised in the Group's Statement of financial position when the Group becomes party to the contractual provisions of the instrument.

Financial assets and liabilities are offset, with the net amounts presented in the financial statements, when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

Basic financial assets

Basic financial assets, which include trade and other receivables, cash and bank balances, are initially measured at their transaction price including transaction costs and are subsequently carried at their amortised cost using the effective interest method, less any provision for impairment, unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest.

Discounting is omitted where the effect of discounting is immaterial. The Group's cash and cash equivalents, trade and most other receivables due with the operating cycle fall into this category of financial instruments.

Other financial assets

Other financial assets, which includes investments in equity instruments which are not classified as subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the recognised transaction price. Such assets are subsequently measured at fair value with the changes in fair value being recognised in the profit or loss. Where other financial assets are not publicly traded, hence their fair value cannot be measured reliably, they are measured at cost less
Page 26


PIRATE STUDIOS LIMITED

 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022

2.ACCOUNTING POLICIES (continued)


2.21
FINANCIAL INSTRUMENTS (CONTINUED)

impairment.

Financial liabilities

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instruments any contract that evidences a residual interest in the assets of the Group after the deduction of all its liabilities.

Basic financial liabilities, which include trade and other payables, bank loans, other loans and loans due to fellow group companies are initially measured at their transaction price after transaction costs. When this constitutes a financing transaction, whereby the debt instrument is measured at the present value of the future receipts discounted at a market rate of interest. Discounting is omitted where the effect of discounting is immaterial.

Debt instruments are subsequently carried at their amortised cost using the effective interest rate method.

Trade payables are obligations to pay for goods and services that have been acquired in the ordinary course of business from suppliers. Trade payables are classified as current liabilities if the payment is due within one year. If not, they represent non-current liabilities. Trade payables are initially recognised at their transaction price and subsequently are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial.

Derecognition of financial assets

Financial assets are derecognised when their contractual right to future cash flow expire, or are settled, or when the Group transfers the asset and substantially all the risks and rewards of ownership to another party. If significant risks and rewards of ownership are retained after the transfer to another party, then the Group will continue to recognise the value of the portion of the risks and rewards retained.

Derecognition of financial liabilities

Financial liabilities are derecognised when the Group's contractual obligations expire or are discharged or cancelled.

 
2.22

CONVERTIBLE DEBT

The proceeds received on issue of the Group's convertible debt are allocated into their liability and equity components and presented separately in the Statement of financial position.

The amount initially attributed to the debt component equals the discounted cash flows using a market rate of interest that would be payable on a similar debt instrument that did not include an option to convert.

The difference between the net proceeds of the convertible debt and the amount allocated to the debt component is credited direct to equity and is not subsequently remeasured. On conversion, the debt and equity elements are credited to share capital and share premium as appropriate.

Transaction costs that relate to the issue of the instrument are allocated to the liability and equity components of the instrument in proportion to the allocation of proceeds.

Page 27


PIRATE STUDIOS LIMITED

 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022

3.



JUDGMENTS IN APPLYING ACCOUNTING POLICIES AND KEY SOURCES OF ESTIMATION UNCERTAINTY

The preparation of the financial statements requires management to make judgments, estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenues and expenses during the period. However, the nature of estimation means that actual outcomes could differ from those estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised 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.
The critical judgments made by management that have a significant effect on the amounts recognised in the financial statements are described below.
Critical judgments
Impairment of the group's tangible and intangible assets
Factors taken into consideration in reaching such a decision include the economic viability, capitalisation of software development and expected future financial performance of the asset and where it is a component of a larger cash-generating unit, the viability and expected future performance of that unit.
Capitalisation of software development costs 
There is judgement involved with regards to development costs being capitalised and whether they satisfy the criteria per FRS 102 to be capitalised. Capitalisation of a particular activity commences after proof of concept, requirements and function concept stages are complete, and once the directors are satisfied that future economic benefit will be delivered by the assets developed.
Capitalisation of payroll costs
There is judgement involved with regards to payroll costs being capitalised and whether they satisfy the criteria per FRS 102 to be capitalised. Software developer and project manager costs relating to the creation of digital assets that satisfy this criteria are tracked by time spent on a project basis and are classified as intangible assets and amortised on a straight line basis over 5 years in line with the intangible asset amortisation policy. Payroll costs incurred by our rollout and construction team are entirely associated with both current and future studio builds that satisfy the criteria to be capitalised and are classified as leasehold improvements and depreciated on a straight line basis over 5 years as their time is not allocated by project and 5 years is the shortest lease length within our portfolio.
Classification of preference shares 
There is judgement involved in determining whether preference shares are classified as debt, equity or compound financial instruments. Key factors that impact decision making are: whether there exists a mandatory obligation for the company to redeem the shares in cash and whether the conversion feature, if exercised, results in a fixed number of preference shares being converted into a fixed number of ordinary shares.
Recognition of convertible loan note redemption premium (see note 25)
There is judgement involved in determining whether the redemption premium associated with debt instruments should be accrued in the financial statements. The directors have considered the possibility of the events that trigger redemption occurring and have concluded it is not probable that a redemption event will occur. Key factors that impact the judgement include the directors' track record of successfully converting similar instruments into equity, and the status of the current fundraising round. 
Key sources of estimation uncertainty
Cash flow forecasts - going concern
Cash flow forecasts from the year ended 2022 have been prepared in support of the going concern assessment. Estimates have been explored in more detail within the going concern section of the accounting policy note 2.3, which relates to the future estimated revenue, costs and cash position expected until at least March 2026. Multiple scenarios have been assessed based on revenue
Page 28


PIRATE STUDIOS LIMITED

 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022

3.JUDGMENTS IN APPLYING ACCOUNTING POLICIES (CONTINUED)

transactions. The sensitivity of this has been modelled by a reasonable worst-case scenario. The Group considers this worst-case scenario to be highly unlikely. Under both the expected and reasonable worst-case models there is sufficient headroom of effective cash available. These forecasts are all based on just receiving the initial $15m investment from the current fundraising round (out of a total of $30m available over two tranches).
Tangible fixed assets (see note 13)
Tangible fixed assets are depreciated over their useful lives taking into account residual values, where appropriate. The actual lives of the assets and residual values are assessed annually and may vary depending on the number of factors. In re-assessing asset lives, factors such as technological innovation, product life cycles and maintenance programmes are taken into account. Residual value assessments consider issues such as future market conditions, the remaining life of the asset and projected disposal values.
Dilapidations provisions (see note 20)
Dilapidations provisions are recognised where there are "make good" clauses in the group’s operating lease agreements. The directors build up their dilapidations provisions over the term of the lease such that they represent the directors' best estimate of the amount required to remove leasehold improvements and put the property back into the condition at the inception of the lease.


4.


TURNOVER

The whole of the turnover is attributable to the principal activity of the group. 

Analysis of turnover by country of destination:

2022
2021
£
£

United Kingdom
6,984,108
5,439,413

Rest of Europe
869,522
521,967

Rest of the world
2,438,887
1,269,332

10,292,517
7,230,712



5.


OTHER OPERATING INCOME

2022
2021
£
£

Government grants receivable
-
687,020

-
687,020


The Group took advantage of the various government initiatives to support businesses during the Covid-19 pandemic and utilised the UK Coronavirus Job Retention Scheme. 

Page 29


PIRATE STUDIOS LIMITED

 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022

6.


OPERATING LOSS

The operating loss is stated after charging:

2022
2021
£
£

Loss on disposal of fixed assets
257,110
234,819

Exchange differences
(1,793,362)
865,726

Depreciation of tangible fixed assets
4,256,120
4,379,222

Amortisation of intangible fixed assets
342,588
151,312

Operating lease rentals - Cost of sales
3,816,108
3,828,010

Operating lease rentals - Administration expenses
226,589
540,133


7.


AUDITORS' REMUNERATION

During the year, the Group obtained the following services from the Company's auditors:


2022
2021
£
£

Fee's payable to the Group's auditor in respect of the audit of the financial statements
49,600
47,500

Fees payable to the Company's auditors in respect of:

Additional fees related to the audit of the prior year financial statements
-
70,466

All other non audit services
13,093
27,391

Page 30


PIRATE STUDIOS LIMITED

 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022

8.


EMPLOYEES

Staff costs, including directors' remuneration, were as follows:


Group
Group
Company
Company
2022
2021
2022
2021
£
£
£
£


Wages and salaries
3,259,824
3,657,243
3,065,623
3,205,760

Social security costs
470,898
403,116
455,792
344,415

Cost of defined contribution scheme
104,076
81,028
104,076
81,028

3,834,798
4,141,387
3,625,491
3,631,203


The average monthly number of employees, including the directors, during the year was as follows:


        2022
        2021
            No.
            No.







Management
5
5



Administration
111
85

116
90


9.


DIRECTORS' REMUNERATION

2022
2021
£
£

Directors' emoluments
236,834
242,306

Group contributions to defined contribution pension schemes
17,400
16,519

254,234
258,825


During the year retirement benefits were accruing to 22 directors (2021: 2) in respect of defined contribution pension schemes.

The highest paid director received remuneration of £150,000 (2021: £146,696).

The value of the Group's contributions paid to a defined contribution pension scheme in respect of the highest paid director amounted to £12,000 (2021: £10,026).

Page 31


PIRATE STUDIOS LIMITED

 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022

10.


INTEREST PAYABLE AND SIMILAR EXPENSES

2022
As restated
2021
£
£


Interest charged on convertible loan notes
3,040,575
2,192,528

Interest charged on deep discount bonds
222,446
203,963

Other loan interest payable
248,387
461,429

3,511,408
2,857,920


11.


TAXATION


2022
2021
£
£

CORPORATION TAX


Current tax on profits for the year
(34,010)
(55,994)


TOTAL CURRENT TAX
(34,010)
(55,994)


TOTAL TAX (CREDIT)/CHARGE FOR THE YEAR
(34,010)
(55,994)

FACTORS AFFECTING TAX CHARGE FOR THE YEAR

The tax assessed for the year is higher than (2021: higher than) the standard rate of corporation tax in the UK of 19% (2021: 19%). The differences are explained below:

2022
As restated
2021
£
£


Loss on ordinary activities before tax
(12,276,697)
(17,272,581)


Loss on ordinary activities multiplied by standard rate of corporation tax in the UK of 19% (2021: 19%)
(2,332,572)
(3,281,790)

EFFECTS OF:


Expenses not deductible for tax purposes, other than goodwill amortisation and impairment
-
245,480

Capital allowances for year in excess of depreciation
-
421,035

Remeasurement of deferred tax for changes in tax rates
-
(2,051,541)

Deferred tax not recognised
2,332,572
4,708,217

Other differences leading to an increase (decrease) in the tax charge
(34,010)
(97,395)

TOTAL TAX (CREDIT)/CHARGE FOR THE YEAR
(34,010)
(55,994)

Page 32


PIRATE STUDIOS LIMITED

 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
 
11.TAXATION (CONTINUED)


FACTORS THAT MAY AFFECT FUTURE TAX CHARGES

No deferred tax asset has been recognised in respect of trading losses available to carry forward and offset against future profits. 
As enacted by the Government on 24 May 2021, the main rate of corporation tax will increase from 19% to 25% with effect from 1 April 2023.


12.


INTANGIBLE ASSETS

Group and Company





Development expenditure

£



COST


At 1 January 2022
1,301,120


Additions
891,537



At 31 December 2022

2,192,657



AMORTISATION


At 1 January 2022
307,624


Charge for the year on owned assets
342,588



At 31 December 2022

650,212



NET BOOK VALUE



At 31 December 2022
1,542,445



At 31 December 2021
993,496

Capitalised software development relates to the group's booking platform, which is critical to the delivery of the group's services.



Page 33


PIRATE STUDIOS LIMITED



 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
 
  



13.


TANGIBLE FIXED ASSETS


Group







Leasehold improvements
Studio equipment and machinery
Motor vehicles
Fixtures and fittings
Office equipment
Total

£
£
£
£
£
£



COST


At 1 January 2022
27,326,663
3,311,356
30,270
308,022
233,025
31,209,336


Additions
1,849,457
366,152
-
13,309
28,132
2,257,050


Disposals
(176,301)
(710)
-
-
-
(177,011)



At 31 December 2022

28,999,819
3,676,798
30,270
321,331
261,157
33,289,375



DEPRECIATION


At 1 January 2022
8,280,558
1,749,870
24,216
154,789
180,639
10,390,072


Charge for the year
3,766,562
654,441
6,054
44,688
37,020
4,508,765


Disposals
-
(47)
-
-
-
(47)



At 31 December 2022

12,047,120
2,404,264
30,270
199,477
217,659
14,898,790



NET BOOK VALUE



At 31 December 2022
16,952,699
1,272,534
-
121,854
43,498
18,390,585



At 31 December 2021
19,046,105
1,561,486
6,054
153,233
52,386
20,819,264

Page 34


PIRATE STUDIOS LIMITED



 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
 
  


           13.TANGIBLE FIXED ASSETS (CONTINUED)



Company







Leasehold improvements
Studio equipment and machinery
Motor vehicles
Fixtures and fittings
Office equipment
Total

£
£
£
£
£
£

COST


At 1 January 2022
16,983,489
2,493,396
30,270
233,754
210,223
19,951,132


Additions
742,006
157,829
-
2,658
16,411
918,904



At 31 December 2022

17,725,495
2,651,225
30,270
236,412
226,634
20,870,036



DEPRECIATION


At 1 January 2022
6,502,481
1,481,660
24,216
112,377
165,710
8,286,444


Charge for the year 
2,223,116
436,911
6,054
25,420
28,812
2,720,313



At 31 December 2022

8,725,597
1,918,571
30,270
137,797
194,522
11,006,757



NET BOOK VALUE



At 31 December 2022
8,999,898
732,654
-
98,615
32,112
9,863,279



At 31 December 2021
10,481,008
1,011,736
6,054
121,377
44,513
11,664,688






Page 35


PIRATE STUDIOS LIMITED

 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022

14.


FIXED ASSET INVESTMENTS

Company





Investments in subsidiary companies

£



COST OR VALUATION


At 1 January 2022
22,168



At 31 December 2022
22,168





SUBSIDIARY UNDERTAKINGS


The following were subsidiary undertakings of the Company:

Name

Registered office

Class of shares

Holding

Pirate Studios LLC
USA
Ordinary
100%
Pirate Studios GmbH
Germany
Ordinary
100%

The registered office of Pirate Studios LLC is 1013 Centre Road, Suite 403-B, Wilmington, Delaware, 19805, USA.
The registered office of Pirate Studios GmbH is Unit 5, Bergholzstrabe 4, Berlin, 12099, Germany.

Page 36


PIRATE STUDIOS LIMITED

 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022

15.


DEBTORS

Group
Group
Company
Company
2022
2021
2022
2021
£
£
£
£

DUE AFTER MORE THAN ONE YEAR

Other debtors
1,228,828
1,146,288
653,838
624,307

1,228,828
1,146,288
653,838
624,307


Other debtors due in more than one year are deposits paid to landlords at the commencement of leases. Each lease deposit is recoverable at the end of the relevant lease term. 

Group
Group
Company
Company
2022
2021
2022
2021
£
£
£
£

DUE WITHIN ONE YEAR

Trade debtors
261,840
14,761
261,343
12,306

Amounts owed by group undertakings
-
-
18,677,850
17,616,196

Other debtors
29,029
61,236
24,829
56,130

Prepayments and accrued income
336,784
234,469
330,043
126,839

627,653
310,466
19,294,065
17,811,471


Amounts owed by group undertakings are unsecured and repayable on demand.


16.


CASH AND CASH EQUIVALENTS

Group
Group
Company
Company
2022
2021
2022
2021
£
£
£
£

Cash at bank and in hand
458,649
345,544
332,959
242,974

458,649
345,544
332,959
242,974


Page 37


PIRATE STUDIOS LIMITED

 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022

17.


CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

Group
Group
Company
Company
2022
2021
2022
2021
£
£
£
£

Trade creditors
2,031,067
1,084,206
1,848,133
905,130

Amounts owed to group undertakings
-
-
2,148
-

Other taxation and social security
959,562
564,701
931,826
541,438

Obligations under finance lease and hire purchase contracts
1,371
7,279
1,371
7,279

Other creditors
2,467,581
2,347,439
1,054,909
1,117,826

Accruals and deferred income
2,181,560
2,405,065
2,000,630
2,263,598

Lease incentives
184,167
174,847
92,711
91,747

7,825,308
6,583,537
5,931,728
4,927,018


Page 38


PIRATE STUDIOS LIMITED

 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022

18.


CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR

Group
Group
Company
Company
2022
As restated
2021
2022
As restated
2021
£
£
£
£

Deep discount bonds
3,203,590
2,804,954
3,007,059
2,784,613

Loans and promssory notes
3,121,536
2,178,000
3,121,536
2,178,000

Convertible loans
41,793,647
32,473,072
41,793,647
32,473,072

Lease incentives
1,692,219
1,788,145
968,112
1,048,930

49,810,992
39,244,171
48,890,354
38,484,615


Convertible loans
There are 4 facilities included within the convertible loans balance:
Facility 1: £20,000,000 facility originally dated 15 May 2019, and restated on 14 July 2020 to become a £7,900,000 facility, of which £7,893,000 has been drawn down. 
Facility 2: £7,100,000 facility dated 14 July 2020, which has been fully drawn down. 
Facility 3: £10,000,000 facility, half funded by existing investors, and half funded by the British Business Bank, which has been fully drawn down. 
Facility 4: £4,000,000 facility, of which £3,967,187 has been drawn down. 
Facility 5: £3,500,000 facility, of which £1,880,000 has been drawn down.
Facility 6: £5,000,000 facility, which has been fully drawn down. 
The balances included on the balance sheet are the principal and accrued interest amounts. 
No equity component has been recognised in respect of the above convertible loan notes due to the conversion being into a variable number of shares. 
The redemption premium payable on the redemption of the loans has not been recognised in the financial statements (see note 25 for more details in relation to this). 
Deep discount bonds
Deep discount bonds originally redeemable on 21 June 2020 were extended until 21 June 2022. Since the year end it was agreed that these bonds would be extended on a rolling basis until the current fundraising process is complete. The increase in balance of deep discounted bonds is entirely due to the accrued effective interest during the year. No new bonds were issued.
Loans and promissory notes
Loans consist of two long term loans with annual interest rates of 10.95%, one totalling £1,055,962 (2021: £1,000,000), and another totalling £1,243,923 (2021: £1,178,000). During 2021 a previous loan of £1,000,000 was repaid, and the loan for £1,178,000 was drawn down. Both loans have been extended on a rolling basis until the current fundraising process is complete. 
Promissory notes consists of 2 notes of $500,000 each. Interest accrues at 20% per annum with a 5% cash coupon paid quarterly in arrears and the balance of 15% of unpaid interest added to the principal of the note. The note is callable on the occurrence of certain future events, in which case additional interest would be payable. Management have assessed the likelihood of those future events occurring and consider them unlikely to occur. Management have calculated the additional interest that would be accrued to the balance sheet date under those conditions and have concluded it to be immaterial. 

Page 39


PIRATE STUDIOS LIMITED

 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022

19.


LOANS


Analysis of the maturity of loans is given below:


Group
Group
Company
Company
2022
As restated
2021
2022
As restated
2021
£
£
£
£


AMOUNTS FALLING DUE 1-2 YEARS

Loans and promissory notes
3,121,536
2,178,000
3,121,536
2,178,000

Deep discount bonds
3,203,590
2,804,954
3,007,059
2,784,613


6,325,126
4,982,954
6,128,595
4,962,613

AMOUNTS FALLING DUE 2-5 YEARS

Convertible loans
41,793,647
32,473,072
41,793,647
32,473,072


41,793,647
32,473,072
41,793,647
32,473,072


48,118,773
37,456,026
47,922,242
37,435,685


Page 40


PIRATE STUDIOS LIMITED

 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022

20.


PROVISIONS


Group






Dilapidation provision

£





At 1 January 2022
608,560


Charged to profit or loss
109,410



AT 31 DECEMBER 2022
717,970

The dilapidations are expected to be used in 1 to 16 years.

Company





Dilapidation provision
Total

£
£





At 1 January 2022
554,799
554,799


Charged to profit or loss
2,587
2,587



AT 31 DECEMBER 2022
557,386
557,386

The dilapidations are expected to be used in 1 to 16 years.


21.


SHARE CAPITAL

2022
2021
£
£
ALLOTTED, CALLED UP AND FULLY PAID



31,838 (2021: 31,838) Ordinary shares of £0.01 each
318
318
20,321 (2021: 20,321) Preference A shares of £0.01 each
203
203
21,469 (2021: 21,469) Preference B shares of £0.01 each
215
215
3,399 (2021: 3,399) Preference B1 shares of £0.01 each
34
34
12,885 (2021: 12,885) Preference B2 shares of £0.01 each
129
129
1,841 (2021: 1,841) Deferred shares of £0.01 each
18
18
2,090 (2021: 483) C Ordinary shares of £0.01 each
21
5

938

922


Page 41


PIRATE STUDIOS LIMITED

 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022

21.SHARE CAPITAL (CONTINUED)

Share class summary rights
- Preference B2 Ordinary shares accrue a fixed cumulative annual dividend of 10% and are redeemable preference shares with full voting rights. 
- Preference B1 Ordinary, Preference A Ordinary and Preference B Ordinary are shares are preference shares with full voting rights but do not confer any rights of redemption. 
- Deferred Shares do not confer any voting rights, nor do they confer rights of redemption or to dividends. 
Liquidation preference
- The preference B1 and Preference B2 Ordinary Shares rank first on a liquidation, followed by the Preference B and Preference A Ordinary shares.
Summary of activity in the year
- 1,607 C Ordinary shares were subscribed for. 


22.


RESERVES

Share premium account

The share premium account includes the premium on issue of equity shares, net of any issue costs.

Capital redemption reserve

Capital redemption reserve represents the amount of capital replenished following the cancellation of shares.

Foreign exchange reserve

This is the gain or loss arising on retranslating the net assets/liabilities of overseas operations into Pounds Sterling.

Profit and loss account

The profit and loss account represents cumulative profits or losses, net of dividends paid and other adjustments.

Page 42


PIRATE STUDIOS LIMITED

 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
23.


ANALYSIS OF NET DEBT





As restated
At 1 January 2022
Cash flows
Other non-cash changes
At 31 December 2022
£

£

£

£

Cash at bank and in hand

345,544

113,105

-

458,649

Debt due after 1 year

(37,456,026)

(7,271,313)

(3,391,434)

(48,118,773)

Finance leases

(7,279)

5,908

-

(1,371)



(37,117,761)
(7,152,300)
(3,391,434)
(47,661,495)

Other non-cash changes includes interest accrued on loans, which is held within the loans balance. 

Page 43


PIRATE STUDIOS LIMITED

 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022

24.


PRIOR YEAR ADJUSTMENT

A prior year adjustment has been recognised in respect of accounting for convertible loan notes issued in previous periods. Due to the conversion terms stating that the share price is set, and therefore the conversion being for a variable number of shares, no equity component should be accounted for on the issue of the instruments. As a result, the debt component of the instrument was under-valued, and therefore the residual value recognised in other components of equity being over-valued. This has also had an effect on the interest charge recognised in the profit and loss account. 
The effect of the prior year adjustment on previously reported results and balances is as follows:

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Page 44


PIRATE STUDIOS LIMITED

 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022

24.PRIOR YEAR ADJUSTMENT (CONTINUED)

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Page 45


PIRATE STUDIOS LIMITED

 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022

25.


CONTINGENT LIABILITIES

A number of the group's issued convertible loan notes have a redemption premium that is payable in the event that the notes are redeemed. 
Redemption can occur as a result of a number of events, these include:
- An event resulting in immediate redemption (this includes administration, winding-up, liquidation, and other similar events). 
- Redemption at maturity date. 
- Voluntary redemption, which requires an agreement in writing by a noteholder majority and the company.
The directors have considered the possibility of the loans being redeemed at some point in the future and consider that it is not probable that they will be redeemed. The key judgements in relation to this include the directors' track record of successfully converting similar instruments into equity, as well as the status of the current fundraising round, which is expected to close by the end of Q1 2024, and will result in the conversion of all existing convertible loan notes into equity. 
In the event that the loan notes are redeemed, the total redemption premium payable on all active instruments at the balance sheet date is £20,247,187. 


26.


PENSION COMMITMENTS

The Group operates a defined contributions pension scheme. The assets of the scheme are held separately from those of the Group in an independently administered fund. The pension cost charge represents contributions payable by the Group  to the fund and amounted to £104,076 (2021: £81,028). Contributions totalling £61,375 (2021: £87,957) were payable to the fund at the reporting date and are included in creditors.


27.


COMMITMENTS UNDER OPERATING LEASES

At 31 December 2022 the Group and the Company had future minimum lease payments due under non-cancellable operating leases for each of the following periods:


Group
Group
2022
2021
£
£

Not later than 1 year
4,220,048
4,116,819

Later than 1 year and not later than 5 years
15,218,577
14,388,305

Later than 5 years
19,633,392
21,762,698

39,072,017
40,267,822

28.


RELATED PARTY TRANSACTIONS

The company has taken advantage of the exemption available under paragraph 33.1A of the Financial Reporting Standard 102 not to disclose transactions with other wholly owned members of the group. 
Key management personnel are considered to be the directors and their remuneration is included in note 9. 

Page 46


PIRATE STUDIOS LIMITED

 
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022

29.


POST BALANCE SHEET EVENTS

Since the end of 2022, the group has raised $8m in additional capital as well as negotiating rolling extensions to all non-convertible debt currently held until the current fundraising round is complete.
 
It is a key term of the current fundraising round that all debt and convertible debt holders agree to convert their debt to equity before the new capital is committed and the Company has agreement from the required majority of debt holders for this.
 
The current fundraising round is for an initial investment of $15m (of which $8m has been received to date in the form of promissory notes) followed by another $15m expected within the next 12-24 months. The lead investor also has the option to invest a further $25m. This funding is expected to close by the end of Q1 2024.


30.


CONTROLLING PARTY

In the opinion of the directors there is no ultimate controlling party. 

 
Page 47