Company registration number 12966685 (England and Wales)
KINETIC GAMES LIMITED
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 OCTOBER 2023
KINETIC GAMES LIMITED
COMPANY INFORMATION
Director
Mr D P Knight
Company number
12966685
Registered office
Stag Gates House
63/64 The Avenue
Southampton
Hampshire
SO17 1XS
Auditor
Fiander Tovell Limited
Stag Gates House
63/64 The Avenue
Southampton
Hampshire
SO17 1XS
Business address
Lumiar House
Manor Farm Offices
Flexford Road
North Baddesley
Southampton
SO52 9DF
KINETIC GAMES LIMITED
CONTENTS
Page
Strategic report
1 - 2
Director's report
3 - 4
Independent auditor's report
5 - 7
Statement of comprehensive income
8
Balance sheet
9
Statement of changes in equity
10
Statement of cash flows
11
Notes to the financial statements
12 - 23
KINETIC GAMES LIMITED
STRATEGIC REPORT
FOR THE YEAR ENDED 31 OCTOBER 2023
- 1 -
The director presents their Annual Report, consisting of the Strategic Report and the Directors' Report, and the audited financial statements of Kinetic Games Limited ("the company") for the year ended 31 October 2023.
Review of business and future developments
The company operates a computer games software development business. It currently sells video games through the online stores Steam and Viveport and is aiming to sell Phasmophobia on the PlayStation 5 and Xbox Series S/X consoles in 2024. Turnover for the year to 31 October 2023 was £17,465,277 (2022: £20,878,101). Turnover comprises of income received from the online stores as a royalty under distribution agreements on titles developed by the company. The decrease in turnover for the company's third year is a result of the company's success in the first and second years with their first title Phasmophobia. The turnover for the third year was as expected and we hope to boost this once the game is available on console.
Key Performance Indicators (KPIs)
The company focuses on profit after tax for its KPIs as well as the financial information included in this report. The profit for the company for the year ended 31 October 2023 was £12,419,575 (2022: £15,426,840).
Business outlook
Video game revenue maintained a steady amount throughout the year due to the release of large content updates which follows our public content release roadmap. The company grew to 5 employees with expectations to double in size by the end of April 2024. The company will aim to reach 15-20 employees by the end of 2024.
The company will continue development for Phasmophobia on PC for the foreseeable future as it remains amongst the top selling games on PC. The company is working on porting Phasmophobia to the PlayStation 5 and Xbox Series S/X which was originally targeted for August 2023 however due to the overall workload of the team, this was delayed. Console releases will help to reach new audiences who would not have been able to play previously as well as bringing more players to the PC version due to the boost in popularity.
Post year-end the company finalized its purchase of a large office in Southampton which can fit up to 23 employees inside. The company is also looking to purchase another smaller office next door which can fit an additional 10 employees to allow for future growth. The new office would allow for an improved work life for the employees and allow the company to grow even further.
The company aims to open an online merchandise store to sell items related to Phasmophobia by the end of 2024 which would be sold worldwide. With the very loyal fan base, we believe this would sell very well.
Principal risks and uncertainties
The company operates in a constantly evolving and highly competitive market. Our business is therefore subject to many risks and uncertainties which may affect our future financial performance. Principal risks and uncertainties in the current environment are:
Competitors
Our entire development time is on our only game Phasmophobia. Due to the success and uniqueness of the game there has been many similar games released on the same platform which could take players away or make potential new customers buy those games instead. These could negatively impact future financial results and player retention however no similar games currently released have done this.
Phasmophobia is currently only available on PC, the company’s aim is to release on other platforms in 2024 to avoid the competition releasing first. Phasmophobia has had many delays on releasing for consoles which could cause competition to catch up.
Employees
The company currently has a total of five employees, all working in important areas for the development of Phasmophobia. If one of these were to leave or must stop working for an extended period, it would massively impact the ability to release new content or keep up to deadlines. The company expects to at least double in size by the end of April 2024 and expand to 20 employees over the year.
KINETIC GAMES LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 OCTOBER 2023
- 2 -
Reliance on third party platforms
We are reliant upon third-party digital delivery platforms such as Steam and Viveport, and other third-party services such as Exit Games or Unity Gaming Services for their servers which we require for multiplayer on Phasmophobia.
Connectivity issues could affect customers from accessing these services and platforms making them not be able to play. A big risk is distributed denial-of-service (DDoS) attacks on our servers' making players across multiple regions not be able to play or experience disconnects which could make them not want to play further. Server protections are in place for this to maintain a very high uptime.
We rely on Discord for most of our community engagement. If anything happened to prevent that it would massively impact our ability to interact with the Phasmophobia gaming community.
Intellectual Property infringement
We regard our products, brands, and intellectual property as proprietary and take measures to protect our assets from infringement. We are aware that some unauthorised copying of Phasmophobia occurs, and if a significantly greater amount were to occur, it could negatively impact our business.
IT security
A breach of IT security could result in major business disruption and reputational damage to the company as well as an operational and financial cost. The company has a robust security and backup system to minimise loss in the event of an attack. We have systems in place to scale our security to work with a large number of employees.
Mr D P Knight
Director
30 March 2024
KINETIC GAMES LIMITED
DIRECTOR'S REPORT
FOR THE YEAR ENDED 31 OCTOBER 2023
- 3 -
The director presents his annual report and financial statements for the year ended 31 October 2023.
Principal activities
The principal activity of the company was the operation of a computer games software development business. It currently sells video games through the online stores Steam and Viveport.
Results and dividends
The results for the year are set out on page 8.
Ordinary dividends were paid amounting to £429,862. The director does not recommend payment of a final dividend.
Director
The director who held office during the year and up to the date of signature of the financial statements was as follows:
Mr D P Knight
Financial instruments
The company manages its cash and borrowing requirements in order to maximise interest income and minimise interest expense, whilst ensuring the company has sufficient liquid resources to meet the operating needs of the business.
The company is exposed to fair value interest rate risk on its fixed rate borrowings and cash flow interest rate risk on floating rate deposits, bank overdrafts and loans. The company uses interest rate derivatives to manage the mix of fixed and variable rate debt so as to reduce its exposure to changes in interest rates.
The company’s principal foreign currency exposures arise from trading with overseas companies. Company policy permits but does not demand that these exposures may be hedged in order to fix the cost in sterling. This hedging activity involves the use of foreign exchange forward contracts.
Investments of cash surpluses, borrowings and derivative instruments are made through banks and companies which must fulfil credit rating criteria approved by the Board.
All customers who wish to trade on credit terms are subject to credit verification procedures. Trade debtors are monitored on an ongoing basis and provision is made for doubtful debts where necessary.
Auditor
The auditor, Fiander Tovell Limited, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
KINETIC GAMES LIMITED
DIRECTOR'S REPORT (CONTINUED)
FOR THE YEAR ENDED 31 OCTOBER 2023
- 4 -
Statement of director's responsibilities
The director is responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.
Company law requires the director to prepare financial statements for each financial year. Under that law the director has elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the director must not approve the financial statements unless he is satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the director is required to:
select suitable accounting policies and then apply them consistently;
make judgements 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 company will continue in business.
The director is 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 enable them to ensure that the financial statements comply with the Companies Act 2006. He is also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Disclosure in Strategic Report
The company has chosen in accordance with Companies Act 2006, s. 414C(11) to set out in the company's strategic report information required by Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, Sch. 7 to be contained in the directors' report. It has done so in respect of future developments.
Statement of disclosure to auditor
So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information of which the company’s auditor is unaware. Additionally, the directors individually have taken all the necessary steps that they ought to have taken as directors in order to make themselves aware of all relevant audit information and to establish that the company’s auditor is aware of that information.
Medium-sized companies exemption
This report has been prepared in accordance with the provisions applicable to companies entitled to the medium-sized companies exemption.
On behalf of the board
Mr D P Knight
Director
30 March 2024
KINETIC GAMES LIMITED
INDEPENDENT AUDITOR'S REPORT
TO THE MEMBER OF KINETIC GAMES LIMITED
- 5 -
Opinion
We have audited the financial statements of Kinetic Games Limited (the 'company') for the year ended 31 October 2023 which comprise the statement of comprehensive income, the balance sheet, the statement of changes in equity, the statement of cash flows and notes to the financial statements, including significant accounting policies. The 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 company's affairs as at 31 October 2023 and of its profit 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.
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 Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’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.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the director's use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the director with respect to going concern are described in the relevant sections of this report.
The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The director is responsible for the other information contained within the annual report. Our 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.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit:
the information given in the strategic report and the director's report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the director's report have been prepared in accordance with applicable legal requirements.
KINETIC GAMES LIMITED
INDEPENDENT AUDITOR'S REPORT (CONTINUED)
TO THE MEMBER OF KINETIC GAMES LIMITED
- 6 -
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the director's 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, or returns adequate for our audit have not been received from branches not visited by us; or
the financial statements are not in agreement with the accounting records and returns; or
certain disclosures of remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Responsibilities of director
As explained more fully in the director's responsibilities statement, the director is 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 director determines 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 director is responsible for assessing the 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 director either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so.
Auditor's 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 auditor's 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 financial statements.
The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
Extent to which the audit was considered capable of detecting irregularities, including fraud
Our approach to identifying and assessing the risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, was as follows:
the engagement partner ensured that the engagement team collectively had the appropriate competence, capabilities and skills to identify or recognise non-compliance with applicable laws and regulations.
we identified the laws and regulations applicable to the company through discussions with the director, and from our commercial knowledge and experience.
we focused on specific laws and regulations which we considered may have a direct material effect on the financial statements or the operations of the company, including the Companies Act 2006, taxation legislation, data protection, anti-bribery, employment, environmental and health and safety legislation.
we assessed the extent of compliance with laws and regulations identified above through making enquiries of the director.
We assessed the susceptibility of the company’s financial statements to material misstatement, including obtaining an understanding of how fraud might occur, by:
making enquiries of the director as to where they considered there was susceptibility to fraud, their knowledge of actual, suspected and alleged fraud.
considering the internal controls in place to mitigate risks of fraud and non-compliance with laws and regulations.
KINETIC GAMES LIMITED
INDEPENDENT AUDITOR'S REPORT (CONTINUED)
TO THE MEMBER OF KINETIC GAMES LIMITED
- 7 -
Audit response to risks identified
To address the risk of fraud through management bias and override of controls, we:
performed analytical procedures to identify any unusual or unexpected relationships.
tested journal entries to identify unusual transactions.
assessed whether judgements and assumptions made in determining the accounting estimates were indicative of potential bias.
investigated the rationale behind significant or unusual transactions.
In response to the risk of irregularities and non-compliance with laws and regulations, we designed procedures which included, but were not limited to:
There are inherent limitations in our audit procedures described above. The more removed that laws and regulations are from financial transactions, the less likely it is that we would become aware of non-compliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the directors and other management and the inspection of regulatory and legal correspondence, if any.
Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they may involve deliberate concealment or collusion.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
This report is made solely to the company's member in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's member those matters we are required to state to the member in an auditor's 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 member, for our audit work, for this report, or for the opinions we have formed.
Mark Gregory ACA
Senior Statutory Auditor
For and on behalf of Fiander Tovell Limited
4 April 2024
Chartered Accountants
Statutory Auditor
Stag Gates House
63/64 The Avenue
Southampton
Hampshire
SO17 1XS
KINETIC GAMES LIMITED
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 OCTOBER 2023
- 8 -
2023
2022
Notes
£
£
Turnover
3
17,465,277
20,878,101
Cost of sales
(674,861)
(482,909)
Gross profit
16,790,416
20,395,192
Administrative expenses
(1,121,521)
693,145
Operating profit
4
15,668,895
21,088,337
Interest receivable and similar income
8
924,321
344,435
Interest payable and similar expenses
9
(2,042)
(20,177)
Gains/(losses) on investments
10
(562,563)
(2,460,001)
Profit before taxation
16,028,611
18,952,594
Tax on profit
11
(3,609,036)
(3,525,774)
Profit for the financial year
12,419,575
15,426,820
The profit and loss account has been prepared on the basis that all operations are continuing operations.
KINETIC GAMES LIMITED
BALANCE SHEET
AS AT
31 OCTOBER 2023
31 October 2023
- 9 -
2023
2022
Notes
£
£
£
£
Fixed assets
Intangible assets
13
1
1
Tangible assets
14
43,983
48,386
Investments
15
35,565,837
20,697,387
35,609,821
20,745,774
Current assets
Debtors
16
2,301,920
2,405,411
Cash at bank and in hand
19,446,780
22,664,781
21,748,700
25,070,192
Creditors: amounts falling due within one year
17
(1,842,773)
(2,289,931)
Net current assets
19,905,927
22,780,261
Net assets
55,515,748
43,526,035
Capital and reserves
Called up share capital
20
10
10
Profit and loss reserves
55,515,738
43,526,025
Total equity
55,515,748
43,526,035
These financial statements have been prepared in accordance with the provisions relating to medium-sized companies.
The financial statements were approved and signed by the director and authorised for issue on 30 March 2024
Mr D P Knight
Director
Company registration number 12966685 (England and Wales)
KINETIC GAMES LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 OCTOBER 2023
- 10 -
Share capital
Profit and loss reserves
Total
Notes
£
£
£
Balance at 1 November 2021
10
28,130,905
28,130,915
Period ended 31 October 2022:
Profit and total comprehensive income
-
15,426,820
15,426,820
Dividends
12
-
(31,700)
(31,700)
Balance at 31 October 2022
10
43,526,025
43,526,035
Year ended 31 October 2023:
Profit and total comprehensive income
-
12,419,575
12,419,575
Dividends
12
-
(429,862)
(429,862)
Balance at 31 October 2023
10
55,515,738
55,515,748
KINETIC GAMES LIMITED
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 OCTOBER 2023
- 11 -
2023
2022
Notes
£
£
£
£
Cash flows from operating activities
Cash generated from operations
24
15,967,460
15,212,844
Interest paid
(2,042)
Income taxes paid
(4,257,037)
(8,306,517)
Net cash inflow from operating activities
11,708,381
6,906,327
Investing activities
Purchase of tangible fixed assets
(14,709)
(3,769)
Purchase of investments
(28,850,280)
(22,256,751)
Proceeds from disposal of investments
12,957,606
14,707,900
Repayment of loans
24,881
(24,881)
Interest received
273,531
5,117
Other income received from investments
650,790
339,318
Net cash used in investing activities
(14,958,181)
(7,233,066)
Financing activities
Dividends paid
(429,862)
(31,700)
Net cash used in financing activities
(429,862)
(31,700)
Net decrease in cash and cash equivalents
(3,679,662)
(358,439)
Cash and cash equivalents at beginning of year
23,386,121
23,744,560
Cash and cash equivalents at end of year
19,706,459
23,386,121
KINETIC GAMES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 OCTOBER 2023
- 12 -
1
Accounting policies
Company information
Kinetic Games Limited is a private company limited by shares incorporated in England and Wales. The registered office is Stag Gates House, 63/64 The Avenue, Southampton, Hampshire, SO17 1XS.
1.1
Accounting convention
These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
The financial statements have been prepared under the historical cost convention, modified to include the revaluation of listed investments at fair value. The principal accounting policies adopted are set out below.
1.2
Going concern
Atruet the time of approving the financial statements, the director has a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. Thus the director continues to adopt the going concern basis of accounting in preparing the financial statements.
1.3
Turnover
Turnover is recognised at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, and is shown net of VAT and other sales related taxes. The fair value of consideration takes into account trade discounts, settlement discounts and volume rebates.
Revenue is derived primarily from the sale of our interactive entertainment content, principally for personal computers. Our interactive entertainment content consists of full game software products that may contain offline gameplay, online gameplay, or a combination of offline and online gameplay.
Revenue is recognised at the point of sale through third-party marketplaces, under a distribution agreement made with those third party marketplaces.
1.4
Intangible fixed assets other than goodwill
Intangible assets acquired separately from a business are recognised at cost and are subsequently measured at cost less accumulated amortisation and accumulated impairment losses.
Intangible assets acquired on business combinations are recognised separately from goodwill at the acquisition date where it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity and the fair value of the asset can be measured reliably; the intangible asset arises from contractual or other legal rights; and the intangible asset is separable from the entity.
Amortisation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:
Software
Not amortised
1.5
Tangible fixed assets
Tangible fixed assets are initially measured at cost and subsequently measured at cost or valuation, net of depreciation and any impairment losses.
KINETIC GAMES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 OCTOBER 2023
1
Accounting policies
(Continued)
- 13 -
Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:
Fixtures and fittings
33% straight line
Computers
33% straight line
Motor vehicles
20% straight line
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is credited or charged to profit or loss.
1.6
Fixed asset investments
Fixed asset investments represent listed investments and are initially measured at transaction price excluding transaction costs, and are subsequently measured at fair value at each reporting date. Fair value is considered to be the open market value. Changes in fair value are recognised through profit and loss for the year. Transaction costs are expensed as incurred.
1.7
Impairment of fixed assets
At each reporting period end date, the company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
1.8
Cash and cash equivalents
Cash and cash equivalents are basic financial assets and include cash in hand, deposits held at call with banks, other short-term liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities.
1.9
Financial instruments
The company has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.
Financial instruments are recognised in the company's balance sheet when the company 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 debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method 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. Financial assets classified as receivable within one year are not amortised.
Other financial assets
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
KINETIC GAMES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 OCTOBER 2023
1
Accounting policies
(Continued)
- 14 -
Impairment of financial assets
Financial assets, other than those held at fair value through profit and loss, are assessed for indicators of impairment at each reporting end date.
Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.
If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.
Derecognition of financial assets
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Classification of financial liabilities
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Basic financial liabilities
Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Derecognition of financial liabilities
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
1.10
Equity instruments
Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
1.11
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
KINETIC GAMES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 OCTOBER 2023
1
Accounting policies
(Continued)
- 15 -
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.
Deferred tax
Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the profit and loss account, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when the company has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.
1.12
Employee benefits
The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or fixed assets.
The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.
Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.
1.13
Retirement benefits
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.
1.14
Leases
Rentals payable under operating leases, including any lease incentives received, are charged to profit or loss on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the leases asset are consumed.
1.15
Foreign exchange
Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting end date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting end date. Gains and losses arising on translation in the period are included in profit or loss.
KINETIC GAMES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 OCTOBER 2023
- 16 -
2
Judgements and key sources of estimation uncertainty
In the application of the company’s accounting policies, the director is required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The director does not consider there to be any critical judgements or key sources of estimating uncertainty affecting the current or comparative periods.
3
Turnover and other revenue
2023
2022
£
£
Turnover analysed by class of business
Video game sales
17,465,277
20,878,101
2023
2022
£
£
Other revenue
Interest income
273,531
5,117
The company's turnover is derived as part of a revenue sharing agreement on the Steam platform, a marketplace based in the United States. This is considered to be the only geographical market the company operates within.
4
Operating profit
2023
2022
Operating profit for the year is stated after charging/(crediting):
£
£
Exchange losses/(gains)
273,368
(1,102,981)
Depreciation of owned tangible fixed assets
19,112
16,873
Operating lease charges
38,366
34,819
KINETIC GAMES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 OCTOBER 2023
- 17 -
5
Auditor's remuneration
2023
2022
Fees payable to the company's auditor and associates:
£
£
For audit services
Audit of the financial statements of the company
13,000
11,000
For other services
Taxation compliance services
1,470
1,400
All other non-audit services
5,965
6,090
7,435
7,490
6
Employees
The average monthly number of persons (including directors) employed by the company during the year was:
2023
2022
Number
Number
Total
5
4
Their aggregate remuneration comprised:
2023
2022
£
£
Wages and salaries
133,626
94,259
Social security costs
7,791
2,649
Pension costs
42,813
41,795
184,230
138,703
7
Director's remuneration
2023
2022
£
£
Remuneration for qualifying services
9,600
8,800
Company pension contributions to defined contribution schemes
40,000
40,000
49,600
48,800
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 1 (2022 - 1).
KINETIC GAMES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 OCTOBER 2023
- 18 -
8
Interest receivable and similar income
2023
2022
£
£
Interest income
Interest on bank deposits
273,531
5,117
Income from fixed asset investments
Income from other fixed asset investments
650,790
339,318
Total income
924,321
344,435
2023
2022
Investment income includes the following:
£
£
Interest on financial assets not measured at fair value through profit or loss
273,531
5,117
9
Interest payable and similar expenses
2023
2022
£
£
Interest on financial liabilities measured at amortised cost:
Other interest on financial liabilities
2,042
20,177
10
Amounts written off investments
2023
2022
£
£
Fair value gains/(losses) on financial instruments
Loss on financial assets held at fair value through profit or loss
(562,563)
(2,460,001)
11
Taxation
2023
2022
£
£
Current tax
UK corporation tax on profits for the current period
3,599,147
3,725,376
Adjustments in respect of prior periods
(2,455)
Total current tax
3,596,692
3,725,376
Deferred tax
Origination and reversal of timing differences
12,344
(172,502)
Previously unrecognised tax loss, tax credit or timing difference
(27,100)
Total deferred tax
12,344
(199,602)
Total tax charge
3,609,036
3,525,774
KINETIC GAMES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 OCTOBER 2023
11
Taxation
(Continued)
- 19 -
From 1 April 2023, the rate of corporation tax has increased from 19% to 25%. Therefore, a hybrid rate has been applied for this period and has been used in the calculation of the tax liability.
In line with the previous year the deferred tax has been measured at 25% at the reporting date.
The actual charge for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:
2023
2022
£
£
Profit before taxation
16,028,611
18,952,594
Expected tax charge based on the standard rate of corporation tax in the UK of 22.52% (2022: 19.00%)
3,609,292
3,600,993
Tax effect of expenses that are not deductible in determining taxable profit
1,008
Adjustments in respect of prior years
(2,455)
Effect of change in corporation tax rate
1,226
Permanent capital allowances in excess of depreciation
(35)
(214)
Deferred tax adjustments in respect of prior years
(27,100)
Effective change in DT rate brought forward
(8,558)
Difference in CT and DT rates
(39,347)
Taxation charge for the year
3,609,036
3,525,774
12
Dividends
2023
2022
£
£
Interim paid
429,862
31,700
13
Intangible fixed assets
Software
£
Cost
At 1 November 2022 and 31 October 2023
1
Amortisation and impairment
At 1 November 2022 and 31 October 2023
Carrying amount
At 31 October 2023
1
At 31 October 2022
1
KINETIC GAMES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 OCTOBER 2023
- 20 -
14
Tangible fixed assets
Fixtures and fittings
Computers
Motor vehicles
Total
£
£
£
£
Cost
At 1 November 2022
14,205
64,290
78,495
Additions
117
4,592
10,000
14,709
At 31 October 2023
117
18,797
74,290
93,204
Depreciation and impairment
At 1 November 2022
5,464
24,645
30,109
Depreciation charged in the year
10
5,411
13,691
19,112
At 31 October 2023
10
10,875
38,336
49,221
Carrying amount
At 31 October 2023
107
7,922
35,954
43,983
At 31 October 2022
8,741
39,645
48,386
Post year end the company completed the purchase of a new office for £865,000 and a new motor vehicle for £177,617, a £10,000 deposit of which was paid in the year. The balances after deposit have been reflected as a capital commitment in the current year accounts.
15
Fixed asset investments
2023
2022
£
£
Unlisted investments
35,565,837
20,697,387
Movements in fixed asset investments
Investments
£
Cost or valuation
At 1 November 2022
20,697,387
Additions
15,000,000
Valuation changes
(562,563)
Charges paid by fund
(219,777)
Income paid into fund
650,790
At 31 October 2023
35,565,837
Carrying amount
At 31 October 2023
35,565,837
At 31 October 2022
20,697,387
KINETIC GAMES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 OCTOBER 2023
- 21 -
16
Debtors
2023
2022
Amounts falling due within one year:
£
£
Trade debtors
1,840,572
2,166,563
Other debtors
29,698
32,624
Prepayments and accrued income
244,392
6,622
2,114,662
2,205,809
2023
2022
Amounts falling due after more than one year:
£
£
Deferred tax asset (note 18)
187,258
199,602
Total debtors
2,301,920
2,405,411
17
Creditors: amounts falling due within one year
2023
2022
£
£
Trade creditors
18,859
1,984
Corporation tax
1,392,978
2,053,323
Other creditors
196,478
Accruals and deferred income
234,458
234,624
1,842,773
2,289,931
18
Deferred taxation
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon:
Assets
Assets
2023
2022
Balances:
£
£
Accelerated capital allowances
(10,996)
(12,097)
Investments
143,156
155,792
Interest on directors loan
55,098
55,907
187,258
199,602
KINETIC GAMES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 OCTOBER 2023
18
Deferred taxation
(Continued)
- 22 -
2023
Movements in the year:
£
Asset at 1 November 2022
(199,602)
Charge to profit or loss
12,344
Asset at 31 October 2023
(187,258)
Deferred tax assets and liabilities are offset where the company has a legally enforceable right to do so. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:
19
Retirement benefit schemes
2023
2022
Defined contribution schemes
£
£
Charge to profit or loss in respect of defined contribution schemes
42,813
41,795
The company operates a defined contribution pension scheme for all qualifying employees. The assets of the scheme are held separately from those of the company in an independently administered fund.
20
Share capital
2023
2022
2023
2022
Ordinary share capital
Number
Number
£
£
Issued and fully paid
Ordinary shares of £1 each
10
10
10
10
The company has one class of ordinary shares which carry no right to fixed income.
21
Operating lease commitments
Lessee
At the reporting end date the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
2023
2022
£
£
Within one year
36,852
22
Capital commitments
Amounts contracted for but not provided in the financial statements:
2023
2022
£
£
Acquisition of tangible fixed assets
1,032,617
-
KINETIC GAMES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 OCTOBER 2023
- 23 -
23
Directors' transactions
During the period, the company operated a loan account with the Director, Mr D P Knight. At the period end date, Kinetic Games Limited owed D P Knight a total of £196,455 (2022: D P Knight owed £24,881). Interest has been charged on this loan at a rate of 2% rising to 2.25% in April 2023. The amount of interest owed to the Director as at 31 October 2023 totalled £220,391 (2022: £223,624).
24
Cash generated from operations
2023
2022
£
£
Profit for the year after tax
12,419,575
15,426,820
Adjustments for:
Taxation charged
3,609,036
3,525,774
Finance costs
2,042
20,177
Investment income
(924,321)
(344,435)
Depreciation and impairment of tangible fixed assets
19,112
16,873
Other gains and losses
562,563
2,460,001
Movements in working capital:
Decrease in debtors
66,266
208,050
Increase/(decrease) in creditors
213,187
(6,100,416)
Cash generated from operations
15,967,460
15,212,844
25
Analysis of changes in net funds
1 November 2022
Cash flows
31 October 2023
£
£
£
Cash and cash equivalents
23,386,121
(3,679,662)
19,706,459
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