Half-yearly financial report for the six months ended 31 December 2017

(1st half of financial year 2017/2018)

Digital Bros S.p.A.

Via Tortona, 37 – 20144 Milan, Italy VAT No. and Company tax code 09554160151 Share capital: Euro 5,644,334.80 fully paid Milan Companies Register No. 290680 Vol. 7394 Chamber of Commerce No.1302132

This report can be downloaded from the Investors section of the Company's website www.digitalbros.com

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	Contents
	Board of directors and supervisory bodies	4
	Directors' report	6
1.	Group structure	6
2.	The video games market	10
3.	Market seasonality	13
4.	Significant events during the period	14
5.	Guidelines	15
6.	Analysis of results for the period ended 31 December 2017	16
7.	Analysis of the statement of financial position as at 31 December 2017	21
8.	Results of the operating segments	23
9.	Intercompany and related party transactions and atypical/unusual transactions	32
10.	Treasury shares	34
11.	Reconciliation of result for the year and equity of parent company to those of group	35
12.	Contingent assets and liabilities	37
13.	Subsequent events	37
14.	Business outlook	38
15.	Other information	39
	Condensed consolidated financial statements for the period ended 31 December 2017	40
	Consolidated balance sheet at al 31 December 2017	42
	Consolidated statement of profit or loss for the period ended 31 December 2017	43
	Earnings per share at 31 December 2017	44
	Consolidated statement of comprehensive income for the period ended 31 December
	2017	44
	Consolidated statement of cash flows for the period ended 31 December 2017	45
	Consolidated statement of changes in equity	47
	Notes to the condensed consolidated financial statements for the period ended 30 September 2017	48

1.	Introductory note	49
2.	Consolidation methods	49
3.	Investments in associated companies and other entities	51
4.	Analysis of the statement of financial position	52
5.	Analysis of the statement of profit or loss	68
6.	Non-recurring income and expenses	71
7.	Information by operating segments	71
8.	Related party transactions	77
9	Atypical or unusual transactions	78
	Statement pursuant to Art. 154-bis (5) of the Consolidated Finance Act	79

BOARD OF DIRECTORS AND SUPERVISORY BODIES

Board of Directors

Lidia Florean Director (2) Davide Galante Director (2) Guido Guetta Director (3) (5) Luciana La Maida Director (3) Irene Longhin Director (3) Elena Morini Director (3) Stefano Salbe Director (1) (4) Bruno Soresina Director(3) Dario Treves Director (1)

Abramo Galante Chairman and managing director (1) Raffaele Galante Managing director (1)

(1) Executive directors

(2) Non-executive directors

(3) Independent directors
(4) Financial reporting manager pursuant to Art. 154 bis of Legislative Decree 58/98
(5) Lead Independent Director

Internal control and risk committee

Guido Guetta (Chairman) Elena Morini Bruno Soresina

Remuneration committee Guido Guetta (Chairman)

Elena Morini Bruno Soresina

Board of statutory auditors

Maria Pia Maspes Acting auditor Luca Pizio Acting auditor Paolo Villa Chairman Daniela Delfrate Acting auditor Christian Sponza Acting auditor

The shareholders' meeting of 27 October 2017 appointed the members of the Board of Directors and Board of Statutory Auditors. The terms of office of the directors and statutory auditors will end with the shareholders' meeting held to approve the financial statements for the year ending 30 June 2020.

On 27 October 2017 the Board of Directors appointed Abramo Galante to the position of chairman and managing director and Raffaele Galante to the position of managing director, granting them adequate powers.

Following a resolution passed by the Board of Directors on 7 August 2007, Board member Stefano Salbe was appointed to the position of financial reporting manager in terms of Art. 154 bis of Legislative Decree 58/98 and he was granted appropriate powers.

External auditors

Deloitte & Touche S.p.A.

On 26 October 2012, a shareholders' general meeting appointed Deloitte & Touche S.p.A, Via Tortona 25, Milan, as external auditors up to the approval of the financial statements for the year ending 30 June 2021.

Other information

Publication of half year financial report of Digital Bros Group for the period ended 31 December 2017 was authorised by a resolution of the Board of Directors on 28 Febraury 2018. Digital Bros S.p.A. is a company limited by shares, incorporated and domiciled in Italy. It is listed on the STAR segment of the MTA market managed by Borsa Italiana S.p.A.

DIRECTORS' REPORT

1. GROUP STRUCTURE

Digital Bros Group develops, publishes, distributes and markets video games on an international scale.

Following the decision to sell the investment in Pipeworks Inc., costs and revenues of this subsidiary are listed in a footnote, separated from the financial statements of the other companies line-by-line and listed in the consolidated financial statement. The development sector included this subsidiary only – for that reason, it has been removed from the table of comparative data for the previous fiscal year.

Accordingly, the Group is organised into five operating segments:

Premium Games: operations consist of the acquisition of video game content exploitation rights from developers and the subsequent distribution of the games through a traditional international sales network and via digital marketplaces such as Steam, Sony PlayStation Network and Microsoft Xbox Live.

The video games are normally acquired under exclusive licence and with international exploitation rights valid for several years. The Group operates globally in the Premium Games segment under the 505 Games brand.

Premium Games operations were conducted during the period by the subsidiary 505 Games S.p.A. Said company coordinates the operating segment, together with 505 Games France S.a.s., 505 Games Ltd., 505 Games (US) Inc., 505 Games Spain Slu and 505 Games GmbH which operate in the French, UK, U.S., Spanish and German markets, respectively. 505 Games Interactive (US) Inc. provides consulting services on behalf of 505 Games S.p.A

On 15 March 2017, the Group acquired the Italian company Kunos Simulazioni S.r.l., developer and publisher of the videogame Assetto Corsa.

Free to Play: operations consist of the development and publishing of video games that are made available to the public free of charge but which allow the gamer to purchase credits to use subsequently during the various stages of the game. Compared to Premium video games, Free to Play games are generally simpler but have a longer lifespan as the video game is continuously developed and improved subsequent to its launch. This is designed to encourage the public to continue playing and to spend money on the game, thus generating cash for the business.

The operating segment is coordinated by subsidiary 505 Mobile S.r.l. together with U.S. company 505 Mobile (US) Inc. which provides consulting services to Group companies; UK company DR Studios Ltd which is a developer of Free to Play games; and the newly established company Hawken Entertainment Inc., in charge of development of the videogame Hawken.

The Group operates globally in this segment under the 505 Mobile brand.

Italian distribution: this consists of the distribution in Italy of video games purchased from international

publishers. Business operations are conducted by the parent, Digital Bros S.p.A., under the Halifax brand and by the subsidiary Game Entertainment S.r.l. through the newsstand distribution channel.

The Group also distributes the Yu-Gi-Oh! trading card game in Italy.

Other Activities: this operating segment handles all of the Group's less significant activities which are allocated to a separate operating segment for presentation of the results. It includes the operations of subsidiary Game Network S.r.l., which manages paid games under concession from AAMS (Italian State Monopoly Administration) and the operations of subsidiary Digital Bros Game Academy S.r.l., which organises specialist IT and gaming courses, training courses and professional update courses, also through the use of multimedia.

The parent Company availed itself of the support of Digital Bros China Ltd. which operates as business developer for Eastern markets; 133 W Broadway Inc., owner of the Group's leased property in Eugene, Oregon, USA; and Digital Bros Holdings Ltd., inactive during the period.

Details of the Group structure at 31 December 2017 are provided below. All the investee companies shown are 100% held except for Pipeworks Inc. 87,5% held as detailed in the period significant events.

The Group structure at 31 December 2017 is shown below:

GROUP STRUCTURE AT 31 DECEMBER 2017

Digital Bros Group Half Year Management Report for the period ended 31 December 2017

During the period, the Group operated from the following locations:

Company	Address	Function
Digital Bros S.p.A.	Via Tortona, 37 Milan	Offices
Digital Bros S.p.A.	Via Boccaccio 95, Trezzano sul Naviglio (MI)	Logistics
133 W Broadway, Inc.	133 W. Broadway, Suite 200, Eugene, Oregon, U.S.A.	Offices
Digital Bros China (Shenzhen) Ltd.	Wang Hai Road, Nanshan district, Shenzhen 518062, China	Offices
Digital Bros Game Academy S.r.l.	Via Labus, 15 Milan	Offices
Digital Bros Holdings Ltd. (1)	402 Silbury Court, Silbury Boulevard, Milton Keynes, U.K.	Offices
DR Studios Ltd.	4 Linford Forum, Rockingham Drive, Milton Keynes, U.K.	Offices
Game Entertainment S.r.l.	Via Tortona, 37 Milan	Offices
505 Games S.p.A.	Via Tortona, 37 Milan	Offices
505 Games France S.a.s.	2,Chemin de la Chauderaie, Francheville, France	Offices
505 Games Spain Slu	Calle Cabo Rufino Lazaro 15, Las Rozas de Madrid, Spain	Offices
505 Games Ltd.	402 Silbury Court, Silbury Boulevard, Milton Keynes, U.K.	Offices
505 Games (US) Inc.	5145 Douglas Fir Road, Calabasas, California, U.S.A.	Offices
505 Games GmbH	Brunnfeld 2-6, Burglengenfeld, Germany	Offices
505 Games Interactive (US) Inc.	5145 Douglas Fir Road, Calabasas, California, U.S.A.	Offices
Game Network S.r.l.	Via Tortona, 37 Milan	Offices
Game Service S.r.l.	Via Tortona, 37 Milan	Offices
Hawken Entertainment Inc.	1526 Brookhollow Drive, Santa Ana, California, U.S.A.	Offices
Kunos Simulazioni S.r.l.	Via degli Olmetti 39, Formello (Rome)	Offices
Pipeworks Inc. (2)	133 W. Broadway, Suite 200, Eugene, Oregon, U.S.A.	Offices
505 Mobile S.r.l.	Via Tortona, 37 Milan	Offices
505 Mobile (US) Inc.	5145 Douglas Fir Road, Calabasas, California, U.S.A.	Offices

(1) Inactive in the period

(2) Discontinued operations

As at 31 December 2017 the Group had equity investments in the associates listed below. The carrying amount of the investments is stated in thousands of Euro:

			Carrying
Name	Location	Holding	amount
Delta DNA Ltd.	Edinburgh, UK	1,04%	60
Ebooks&Kids S.r.l.	Milan	16%	52
Ovosonico S.r.l.	Varese	49%	720
Seekhana Ltd.	Milton Keynes, UK	34%	528
Total equity investments			1.360

Digital Bros Group Half Year Management Report for the period ended 31 December 2017

2. THE VIDEO GAMES MARKET

The market is in constant flux and its growth rate is driven by non-stop technological advances. Gaming is no longer limited to traditional consoles, such as the various versions Sony Playstation and Microsoft Xbox, but has now expanded to include mobile phones, tablet devices and hybrid consoles such as Nintendo Switch. Widespread connectivity at increasingly lower costs and the availability of fibre optic networks and high speed mobile phones are making video games increasingly diversified, sophisticated and interactive. Widespread use of smartphones by people of all ages and in all walks of life has led to the expression of creativity in a completely innovative manner while also generating forms of entertainment dedicated to the adult public and the female public.

As is the case for almost all technological markets, the video games market for the Sony Playstation and Microsoft Xbox is cyclical as it is linked to the stage of development of the consoles for which the video games are developed. When a given console is first rolled out, prices of the hardware and the video games designed for it are high and relatively small quantities are sold. Over their lifespan, console and game prices gradually fall, as they progress from new releases to maturity and the quantities sold increase while video game quality also increases.

As well as being marketed on the digital market place, high quality video games with strong sales potential are also produced physically and distributed through traditional sales networks. In this case, the value chain is as follows:

Developers

Developers are those who create and program a game, which is usually based on an original idea, a successful brand, a film or sports simulations, etc. The developers retain the intellectual property rights, but they transfer the exploitation rights for a limited amount of time, as agreed by contract, to international video game publishers, which are therefore key players when it comes to completing the game, raising its awareness, enhancing its reputation and distributing it internationally.

Publishers

Publishers usually finance the development phases of a video game. The publisher decides on a game's release schedule, its global pricing and sales policy and studies its product positioning and package design, while taking on all of the risks and, jointly with the developer, benefiting from all the opportunities that the video game may generate if it is a success.

Console Manufacturers

The console manufacturer is the company that designs, engineers, produces and markets the hardware or platform on which consumers play the game. Sony is the Sony Playstation 4 console manufacturer, Microsoft is the Microsoft Xbox One console manufacturer and Nintendo is the Nintendo Switch console manufacturer. The console manufacturer stamps the game on behalf of publishers in facilities dedicated to the reproduction of software on the various physical storage devices used. The console manufacturer and the video game publisher are often one and the same.

Distributors

The role of the distributor varies from country to country. The more a market is fragmented, such as the Italian market, the more the distributor's role is integrated with that of the publisher, with the implementation of specific communication policies for the local market and the undertaking of public relations. In certain markets, such as the UK and the U.S., due to a high concentration of retailers, publishers usually have a direct commercial presence. Consumers are moving more towards purchases of games on digital platforms and, accordingly, brand new videogames publishers do not establish an international distribution network directly to the end consumer but they exploit the existent retail networks of other publishers on different markets.

Retailers

The retailer is the outlet where the end consumer purchases a game. Retailers may be international chains specialized in the sale of video games, mass retail stores, specialized independent shops, or even online shopping web sites that sell directly to the public.

Console manufacturers have developed marketplaces whereby video games can be sold directly to the end consumer without the need for a distributor or retailer. The value chain is less complex for games distributed in digital format in the marketplaces and for those designed for smartphones and tablets, as indicated below:

The main marketplaces on which video games for consoles are sold to end consumers are: Sony's PlayStation Store, Microsoft's Xbox Live and Nintendo's eShop. Steam marketplace is the global leader in the digital distribution of games for personal computers.

The gradual growth of online gaming has established a new trend: Microsoft, with Microsoft XboX Live Pass; and Sony, with Sony PlayStation Now have created digital platforms where, rather than making single purchases, end consumers can subscribe a service to access a batch of games for a limited amount of time. Revenues to the publisher are calculated based on end consumers' usage of the video games.

Free to Play video games are offered to the public in digital format only. The marketplaces used are the App Store for iPhone and iPad video games and the Play Store for Android video games for Western markets, while a huge number of different marketplaces are used for Eastern markets. Free to Play video games are also available on Sony and Microsoft's marketplaces for consoles and on Steam for personal computers.

Digital distribution has made it possible to extend the lifespan of a game. In fact, a video game remains on the marketplace once it has been released whereas it would be unlikely to remain on the shelf in the case of physical distribution. This makes it possible to generate an ongoing sales curve that is significantly affected by temporary promotional pricing policies.

The increased weighting of sales via digital marketplaces has made it possible for publishers to extend product lifespan by distributing of additional game episodes (so-called DLC, or downloadable content).

3. MARKET SEASONALITY

Seasonality is influenced by the launch of successful products. Quarter-on-quarter results can vary depending on whether or not a popular new game is released. In fact, sales of these products are concentrated in the first few days following their release.

The publication and distribution of video games in the digital marketplace partially reduces variation in a publisher's results from one quarter to the next. In fact, in the event of digital distribution, revenue is recognized when the end consumer purchases a game from the marketplace. This process occurs more gradually over time and is not so concentrated in the days immediately after the launch, unlike traditional distribution for which revenue is recognized upon shipment of the finished product to the distributor/dealer, regardless of whether it has been purchased by the end consumer.

The fact that it is possible to offer product promotions on the main marketplaces in a fairly rapid and effective manner tends to concentrate revenue during such periods. Clearly, publishers try to plan their promotional campaigns for the most favourable phases of the market, such as the Christmas season for European markets or Black Friday for the American market.

The Free to Play video games revenue is trend less influenced by seasonality than Premium video games-Indeed, until now, successful Free to Play video games have achieved revenue growth over time without any particular peaks in the launch period except in a few cases of highly anticipated Free to Play video games and with well-known brands. Promotions have a significant impact on revenue trends is significant, but, unlike the Premium video games market, promotions are frequently repeated after and do not greatly distort the monthly revenue trend for each video game.

The financial position is also closely linked to the revenue trend. The physical distribution of a product in a quarter leads to concentration of net working capital investment. This is temporarily reflected by the level of net cash/debt until such time as the related sales revenue is collected. This factor is accentuated by the launch of Premium products which also require net working capital investment for the physical production of a game.

4. SIGNIFICANT EVENTS DURING THE PERIOD

The most significant events during the period were as follows:

On 25 July 2017, the Italian Tax Authorities ("Guardia di Finance Milan Tax Police Unit") completed their inspection of subsidiary 505 Games S.p.A. which had commenced on 19 October 2016; they also issued their tax inspection report. The inspection regarded IRES and IRAP for the 2011, 2012, 2013 and 2014 tax periods and withholding taxes for the 2012, 2013, 2014 and 2015 tax periods. The tax inspection report raised findings in relation to transfer pricing and the failure to apply withholding taxes. These findings involved significant amounts and the risks were assessed by the Directors when making allocations totalling Euro 854 thousand to the provision for risks and charges in the consolidated financial statements at 30 June 2017. In December 2017, the Italian Tax Authorities issued tax demands relating to the 2012 tax period. Based on the advice of their professional advisors, the Directors have concluded that the provision already made at 30 June 2017 was sufficient;
On 27 October 2017, a General Meeting of the shareholders of Digital Bros S.p.A. approved the consolidated financial statements of the Group at 30 June 2017 and the separate financial statements of Digital Bros S.p.A. at 30 June 2017. It also approved the Remuneration Report in terms of Article 123-ter of Legislative Decree no 58 of 24 February 1998. The General Meeting also appointed the new members of the Board of Directors and the Board of Statutory Auditors who will remain in office until approval of the financial statements for the period ending 30 June 2020. The same General Meeting also resolved to distribute a dividend of Euro 0.15 per share. The dividends was duly paid on 13 December 2017;
On 21 December 2017, the Board of Directors of Digital Bros S.p.A. approved the sale of a 12% interest in US subsidiary Pipeworks Inc. to a group of investors headed by US private equity firm Northern Pacific Group for a consideration of USD 2.5 million. At the same time, the Group granted the buyer a call option to acquire the remaining 87.5% of the shares for USD 17.5 million; the option must be exercised by 30 June 2018. The option provides that if it pays a further USD 5 million by the option expiry date, the buyer will come into full possession of 100% of the company. If the option is exercised, the remaining balance of USD 12.5 million will be paid in three instalments as follows:
USD 2.5 million by 30 June 2018;
USD 5 million by 31 March 2021;
USD 5 million by 31 March 2022.

5. GUIDELINES

In line with its strategic objective of focusing investments on the acquisition of intellectual property rights, the Group decided to carry out initial preparatory work for the sale of the holding in US subsidiary Pipeworks Inc. That company is a third-party games developer with no intellectual property assets and was acquired to enable a smoother migration process for videogames held by the Group on various gaming platforms. Over the past three years, the competitive environment has changed and the company's activities have been focused on the creation of videogame software applications on behalf of industrial and/or commercial companies. This means it has lost the strategic value it had at the time of acquisition. The applications conversion process generated a significant improvement in the company's operating profitability resulting in a highly profitable disposal price.

Following the above, the Group restated its financial statements in accordance with IFRS 5.

IFRS 5 provides that the financial statements of Pipeworks Inc. at 31 December 2017 will not be considered for the 1st half-year financial statements but reported separately in a specific dedicated line item called "Discontinued operations". The same standard applies to assets and liabilities which are not involved in the Group's continuing operations and are, for this reason, are reported separately in the financial statements. IFRS 5 requires that that the financial statements are re-issued showing continuing and discontinued operations separately with comparatives for the previous reporting period. However, it is not necessary to re-issue the comparative figures for the consolidated financial statements at 30 June 2017.

In a specific section, we present a detailed presentation of discontinued operations as they are reported in the "Consolidated income statement" and "Consolidated statement of financial position".

6.	ANALYSIS OF RESULTS FOR THE PERIOD ENDED	31 DECEMBER 2017

	Euro thousands	31 Dec. 2017		31 Dec. 2016		Change

1	Gross revenue	44.062	108,3%	62.280	105,8%	(18.218)	-29,3%
2	Revenue adjustments	(3.364)	-8,3%	(3.454)	-5,8%	90	-2,6%
3	Net revenue	40.698	100,0%	58.826	100,0%	(18.128)	-30,8%

4	Purchase of products for resale	(11.076)	-27,2%	(15.687)	-26,7%	4.611	-29,4%
5	Purchase of services for resale	(3.190)	-7,8%	(4.884)	-8,3%	1.694	-34,7%
6	Royalties	(9.517)	-23,4%	(17.913)	-30,5%	8.396	-46,9%
	Changes in inventories of finished
7	products	564	1,4%	1.148	2,0%	(584)	-50,8%
8	Total cost of sales	(23.219)	-57,1%	(37.336)	-63,5%	14.117	-37,8%

9	Gross profit (3+8)	17.479	42,9%	21.490	36,5%	(4.011)	-18,7%
10		1.091	2,7%	608	1,0%	483	79,4%
	Other income
11	Cost of services	(4.637)	-11,4%	(6.035)	-10,3%	1.398	-23,2%
12	Lease and rental charges	(719)	-1,8%	(728)	-1,2%	9	-1,3%
13	Personnel costs	(8.991)	-22,1%	(7.475)	-12,7%	(1.516)	20,3%
14	Other operating costs	(563)	-1,4%	(1.141)	-1,9%	578	-50,6%
15	Total operating costs	(14.910)	-36,6%	(15.379)	-26,1%	469	-3,0%

16	Gross operating margin/EBITDA (9+10+15)	3.660	9,0%	6.719	11,4%	(3.059)	-45,5%

17	Depreciation and amortisation	(3.721)	-9,1%	(2.898)	-5,2%	(823)	28,4%
18	Allocations to provisions	0	0,0%	0	0,0%	0	0,0%
19	Impairment losses recognised on assets	(80)	-0,2%	(405)	-0,7%	325	-80,1%
	Reversal of impairment losses and nonmonetary
20	income	0	0,0%	0	0,0%	0	0,0%
21	Total non-monetary income and operating costs	(3.801)	-9,3%	(3.303)	-5,9%	(498)	15,1%

22	Operating margin/EBIT (16+21)	(141)	-0,3%	3.416	5,5%	(3.557)	n.s.

23	Interest and finance income	763	1,9%	8.725	14,8%	(7.962)	-91,3%
24	Interest expense and finance costs	(535)	-1,3%	(1.963)	-3,3%	1.428	-72,7%
25	Net finance income	228	0,6%	6.762	11,5%	(6.534)	-96,6%

26	Profit before tax (22+25)	87	0,2%	10.178	17,0%	(10.091)	-99,1%

27	Current tax	(430)	-1,1%	(3.090)	-5,3%	2.660	-86,1%
28	Deferred tax	195	0,5%	72	0,2%	123	n.s.
29	Total income tax expense	(235)	-0,6%	(3.018)	-5,0%	2.783	-92,2%

30	Profit for the period (26+29)	(148)	-0,4%	7.160	11,9%	(7.308)	n.s.

31	Net profit from discontinued operations	166	0,4%	236	0,4%	(70)	-29,6%

32	Net profit	18	0,0%	7.396	12,6%	(7.378)	-99,8%

	Earnings per share (Euro):	31 Dec. 2017	31 Dec. 2016		Change
33	Basic earnings for continuing operations per share	(0,0103)	0,5102	(0,5205)	n.s.
33	Basic earnings for discontinued operations per share	0,0116	0,0168	(0,0052)	-31,0%
33	Basic earnings per share	0,0013	0,5270	(0,5257)	-99,8%

34	Diluted earnings for continuing operations per share	(0,0103)	0,5102	(0,5205)	n.s.
34	Diluted earnings for discontinued operations per share	0,0116	0,0168	(0,0052)	-31,0%
34	Diluted earnings per share	0,0013	0,5270	(0,5257)	-99,8%

Earnings per share at 31 December 2017

There were no significant new video game launches on international markets during the period ended 31 December 2017. This is in contrast to the period ended 31 December 2016 which benefited from the launch of console versions of the game Assetto Corsa and from sales of the Rocket League video game. Consequently, the Group's gross revenue for the six months ended 31 December 2017 amounted to Euro 44,062 thousand, a 29.3% decrease compared to the figure of Euro 62,280 thousand reported for the corresponding period in prior year. Net revenue amounted to Euro 40,698 thousand, down by 30.8% on the Euro 58,826 thousand reported for the six months ended 31 December 2016.

Revenue breakdown by videogame title at December 31st 2017 compared with the same period of the last fiscal year is as follows:

Figures in EUR/000	Gross revenues					Net revenues
	2017	2016	Change		2017	2016		Change
Premium Games	30,584	47,535	(16,951)	-35.7%	28,293	45,201	(16,908)	-37.4%
Italian Distribution	10,375	10,475	(100)	-1.0%	9,403	9,580	(177)	-1.8%
Free to Play	2,699	3,866	(1,167)	-30.2%	2,699	3,866	(1,167)	-30.2%
Other activities	404	404	0	0.0%	303	179	124	69.3%
Total Revenue	44,062	62,280	(18,218)	-29.3%	40,698	58,826	(18,128)	-30.8%

The Premium Games operating segment generated revenue of Euro 30,584 thousand for the six months ended 31 December 2017. This was down by Euro 16,951 thousand on the corresponding period in prior eyar which benefited from revenue totalling more than Euro 23 million generated by the Rocket League video game and by console versions of Assetto Corsa. A detailed breakdown of revenue by video game is provided below:

Euro thousands	31 December 2017	31 December 2016	Change
PAYDAY 2	3,833	7,519	(3,686)
Terraria	3,793	7,448	(3,655)
Assetto Corsa	3,456	9,119	(5,663)
Portal Knights	2,039	855	1,184
Sniper Elite V3	1,397	2,916	(1,519)
Abzu	568	2,865	(2,297)
Retail products	12,981	13,927	(946)
Other products	2,517	2,886	(369)
Premium Games revenue	30,584	47,535	(16,951)

International distribution in the retail only channel of products of international publishers without a dedicated distribution network generated revenue of Euro 12,981 thousand i.e. around 42% of the total revenue of the operating segment. This helped mitigate the effects of a six-month period in which no new products were launched. The new products distributed in the retail only channel during the period were: Pillars of Eternity, Redout and Inside/Limbo. Meanwhile, revenue from the Rocket League video game ceased after rights to that video game ended with effect from 30 June 2017.

Given the lack of any new product launches, the two best-selling video games during the six-month period were Terraria and PAYDAY2 and the various versions of the two generated revenue of around Euro 7.6 million. This is despite the fact that these products were launched on the market years ago, no new episodes of particular episodes were released during the period and no significant promotions were run on digital marketplaces.

Italian Distribution revenue was in line with that for the first half of prior year.

The revenue of the Free to Play operating segment decreased by Euro 1,167 thousand. This was due to the lower revenue generated by the Hawken video game – a second version of which is under development – while the revenue of the Gems of War video game increased slightly.

Revenue from the Other activities operating segment have remained stable at Euro 404 thousand and represent the sales made by Daily Fantasy Sport Fantasfida and the revenue generated by specialist courses organised by Digital Bros Game Academy S.r.l..

The fall in gross profit was kept down to 18.7% (-Euro 4,011 thousand) as cost of sales for the six-month period was contained by more than the reduction in revenue.

Investments on intellectual property in progress meant that other revenue increased from Euro 608 thousand to Euro 1,091 thousand; this relates to the capitalisation of internal costs incurred for the development of future versions of Hawken and Assetto Corsa.

Costs for services and other operating costs decreased by 23.2% and 50.6%, respectively, as a result of the revenue trend. The 20.3% increase in personnel costs is completely out of sync with the fall in revenue and reflects the investment the Group has made to ensure that major video games under development can be released next year. Consequently, operating costs have decreased by just 3% while EBITDA has fallen by 45.5%.

Non-monetary operating costs – net of non-monetary operating income – has increased by Euro 498 thousand mainly because of a Euro 823 thousand increase in amortisation of intellectual property owned by the Group, as offset by a Euro 325 thousand decrease in asset writedowns. As a result, EBIT has decreased by Euro 3,557 thousand to a negative figure of Euro 141 thousand compared to the positive figure of Euro 3,416 thousand for the six months ended 31 December 2016.

Net finance income totalled Euro 228 thousand against Euro 6,762 thousand for the six months ended 31 December 2016 – the comparative period benefited from the gain of Euro 7,598 thousand on the sale of shares in Starbreeze.

Profit before taxation for the period ended 31 December 2017 amounted to Euro 87 thousand compared to Euro 10,178 thousand for the period ended 31 December 2016. The net loss of Euro 148 thousand from continuing operations represents a Euro 7,308 thousand decrease on the net profit of Euro 7,160 thousand for the period ended 31 December 2016.

Meanwhile, net profit from assets destined for sale amounted to Euro 166 thousand against a net profit of Euro 236 thousand for the period ended 31 December 2016.

Consolidated net profit amounts to Euro 18 thousand, a Euro 7,378 thousand decrease compared to the net profit of Euro 7,396 thousand for the period ended 31 December 2016.

Basic earnings per share and diluted earnings per share amount to Euro 0.001 compared to Euro 0.53 for the corresponding period in prior year.

Statement of Profit or Loss for assets destined for sale

		31 December	31 December
	Euro thousands	2017	2016	Change

1	Gross revenue	4,475	4,016	459	11.4%
2	Revenue adjustments	0	0	0	0.0%
3	Net revenue	4,475	4,016	459	11.4%

4	Purchase of products for resale	0	0	0	0.0%
5	Purchase of services for resale	(1,064)	(313)	(751)	n.s.
6	Royalties	0	0	0	0.0%
7	Changes in inventories of finished products	0	0	0	0.0%
8	Total cost of sales	(1,064)	(313)	(751)	n.s.

9	Gross profit (3+8)	3,411	3,703	(292)	-7.9%

10	Other income	579	351	228	65.0%

11	Cost of services	(250)	(191)	(59)	30.8%
12	Lease and rental charges	(71)	(75)	4	-4.9%
13	Personnel costs	(2,999)	(2,928)	(71)	2.4%
14	Other operating costs	(82)	(68)	(14)	20.5%
15	Total operating costs	(3,402)	(3,262)	(140)	4.3%

16	Gross operating margin (EBITDA) (9+10+15)	588	792	(204)	-25.7%

17	Depreciation and amortisation	(148)	(296)	148	-50.0%
18	Allocations to provisions	0	0	0	0.0%
19	Impairment losses recognised on assets	0	0	0	0.0%
	Reversal of impairment losses and non-monetary
20	income	0	0	0	0.0%
21	Total non-monetary income and operating costs	(148)	(296)	148	-49.9%

22	Operating margin (EBIT) (16+21)	440	496	(56)	-11.4%

23	Interest and finance income	0	0	0	0.0%
24	Interest expense and finance costs	0	0	0	0.0%
25	Net finance income (costs)	0	0	0	0.0%

26	Profit before tax (22+25)	440	496	(56)	-11.4%

27	Current tax	(329)	(340)	11	-3.3%
28	Deferred tax	55	80	(25)	-31.4%
29	Total income tax expense	(274)	(260)	(14)	5.3%

30	Profit for the period (26+29)	166	236	(70)	-29.7%

The Statement of Profit or Loss for assets destined for sale for the period ended 31 December 2017 with comparative figures for the previous period is set out below:

7. ANALYSIS OF THE STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2017

	Euro Thousands	31 December 2017	30 June 2017	Change
	Non-current assets
1	Property, plant and equipment	6,092	6,619	(527)	-8.0%
2	Investment property	0	0	0	0.0%
3	Intangible assets	16,817	18,867	(2,050)	-10.9%
4	Equity investments	1,360	1,345	15	0.0%
5	Non-current receivables and other assets	1,045	1,052	(7)	-0.7%
6	Deferred tax assets	2,766	2,807	(41)	-1.5%
	Total non-current assets	28,080	30,690	(2,610)	-8.5%
	Non-current liabilities
7	Employee benefits	(554)	(545)	(9)	1.8%
8	Non-current provisions	(79)	(79)	0	0.9%
9	Other non-current payables and liabilities	0	0	0	n.s.
	Total non-current liabilities	(633)	(624)	(9)	1.4%
	Net working capital
10	Inventories	13,379	12,815	564	4.4%
11	Trade receivables	31,440	36,763	(5,323)	-14.5%
12	Current tax assets	2,660	2,064	596	28.8%
13	Other current assets	3,346	3,263	83	2.5%
14	Trade payables	(16,876)	(27,680)	10,804	-39.0%
15	Current tax liabilities	(1,927)	(5,736)	3,809	-66.4%
16	Current provisions	(854)	(854)	0	0.0%
17	Other current liabilities	(3,146)	(3,954)	808	-20.4%
	Total net working capital	28,022	16,681	11,341	68.0%
	Assets destined for sale	1,218	0	1,218	n.s.
	Liabilities destined for sale	(1,134)	0	(1,134)	n.s.
	Total liabilities (net) destined for sale	84	0	84	n.s.

	Capital and reserves
18	Share capital	(5,704)	(5,704)	0	0.0%
19	Reserves	(19,759)	(19,805)	46	-0.2%
20	Treasury shares	0	0	0	0.0%
21	Retained earnings (accumulated losses)	(32,428)	(33,265)	837	-2.5%
	Total equity	(57,891)	(58,774)	883	-1.5%
	Total net assets	(2,338)	(12,027)	9,689	-80.6%
22	Cash and cash equivalents	5,716	12,136	(6,420)	-52.9%
23	Current bank borrowing	(4,413)	(1,942)	(2,471)	n.s.
24	Other current financial assets and liabilities	(251)	950	(1,201)	n.s.
	Current net cash/debt	1,052	11,144	(10,092)	-90.6%
25	Non-current financial assets	1,275	1,306	(31)	-2.4%
26	Non-current bank borrowing	(1,465)	(383)	(1,082)	n.s.
27	Other non-current financial liabilities	(32)	(40)	8	-19.1%
	Non-current net financial position	(222)	883	(1,105)	n.s.
	NFP of continuing operations	830	12,027	(11,197)	-93.1%
	NFP of assets destined for sale	1,508	0	1,508	n.s.

	Total net financial position	2,338	12,027	(9,689)	-80.6%

Non-current assets have decreased by Euro 2,610 thousand compared to 30 June 2017, mainly because of a Euro 2,050 thousand reduction in intangible assets.

Net working capital has increased by Euro 11,341 thousand compared to 30 June 2017. The following table contains a breakdown of net working capital with comparative figures at 30 June 2017:

Euro Thousands	31 December 2017	30 June 2017	Change
Inventories	13,379	12,815	564	4.4%
Trade receivables	31,440	36,763	(5,323)	-14.5%
Tax receivables	2,660	2,064	596	28.8%
Other current assets	3,346	3,263	83	2.5%
Trade payables	(16,876)	(27,680)	10,804	-39.0%
Tax payables	(1,927)	(5,736)	3,809	-66.4%
Current provisions	(854)	(854)	0	0.0%
Other current liabilities	(3,146)	(3,954)	808	-20.4%
Total net working capital	28,022	16,681	11,341	68.0%

The net financial position is positive with net cash of Euro 2,338 thousand, a Euro 9,689 thousand decrease compared to the figure of Euro 12,017 thousand at 30 June 2017.

The following table contains a breakdown of the net financial position with comparative figures at 30 June 2017:

Euro Thousands	31 December 2017	30 June 2017		Change
Cash and cash equivalents	5.716	12.136	(6.420)	-52.9%
Current bank borrowing	(4,413)	(1,942)	(2,471)	n.s.
Other current financial assets and liabilities	(251)	950	(1,201)	n.s.
Current net financial position	1,052	11,144	(10,092)	-90.6%
Non-current financial assets	1,275	1,306	(31)	-2.4%
Non-current bank borrowing	(1,465)	(383)	(1,082)	n.s.
Non-current other financial liabilities	(32)	(40)	8	-19.1%
Non-current net financial position	(222)	883	(1,105)	n.s.
NFP of continuing operations	830	12,027	(11,197)	-93.1%
NFP of assets destined for sale	1,508	0	1,508	n.s.
Total net financial position	2,338	12,027	(9,689)	-80.6%

8. PERFORMANCE BY OPERATING SEGMENT

Premium Games

Reclassified income statement highlights

	Consolidated figures in thousands of
	Euro		Premium Games
		31 December 2017		31 December 2016		Change
1	Gross revenue	30,584	108.1%	47,535	105.2%	(16,951)	-35.7%
2	Revenue adjustments	(2,291)	-8.1%	(2,335)	-5.2%	44	-1.9%
3	Net revenue	28,293	100.0%	45,200	100.0%	(16,907)	-37.4%

4	Purchase of products for resale	(4,396)	-15.5%	(9,067)	-20.1%	4,671	-51.5%
5	Purchase of services for resale	(1,212)	-4.3%	(2,276)	-5.0%	1,064	-46.7%
6	Royalties	(9,371)	-33.1%	(17,667)	-39.1%	8,296	-47.0%
	Changes in inventories of finished
7	products	(173)	-0.6%	647	1.4%	(820)	n.s.
8	Total cost of sales	(15,152)	-53.6%	(28,363)	-62.8%	13,211	-46.6%

9	Gross profit (3+8)	13,141	46.4%	16,837	37.2%	(3,696)	-22.0%

10	Other income	294	1.0%	14	0.0%	280	n.s.

11	Cost of services	(2,507)	-8.9%	(3,356)	-7.4%	849	-25.3%
12	Lease and rental charges	(279)	-1.0%	(293)	-0.6%	14	-4.8%
13	Personnel costs	(4,360)	-15.4%	(3,486)	-7.7%	(874)	25.1%
14	Other operating costs	(199)	-0.7%	(247)	-0.5%	48	-19.2%
15	Total operating costs	(7,345)	-26.0%	(7,382)	-16.3%	37	-0.5%

	Gross operating margin (EBITDA)
16	(9+10+15)	6,090	21.5%	9,469	20.9%	(3,379)	-35.7%

17	Depreciation and amortisation	(2,164)	-7.6%	(1,214)	-2.7%	(950)	78.2%
18	Allocations to provisions	0	0.0%	0	0.0%	0	0.0%
19	Impairment losses recognised on assets	(7)	0.0%	0	0.0%	(7)	n.s.
	Reversal of impairment losses and non
20	monetary income	0	0.0%	0	0.0%	0	0.0%
	Total non-monetary income and	(2,171)	-7.7%	(1,214)	-2.7%	(957)	78.8%
21	operating costs
22	Operating margin (EBIT) (16+21)	3,919	13.9%	8,255	18.3%	(4,336)	-52.5%

The revenue reported by this operating segment for the six-month period was affected by the lack of any significant new video game launches. Meanwhile, the corresponding period of prior year had benefited from the launch of console versions of Assetto Corsa and sales of Rocket League the contract for which came to an end in June 2017. Gross revenue of the operating segment for the six months ended 31 December 2017 amounted to Euro 30,584 thousand, down by 35.7% on the Euro 47,535 thousand reported for the corresponding period in prior year. Net revenue amounted to Euro 28,293 thousand, a decrease of 37.4% compared to Euro 45,200 thousand for the period ended 31 December 2016.

Gross revenue by video game is analysed as follows:

Amounts in Euro thousands	31 December 2017	31 December 2016	Change
PAYDAY 2	3,833	7,519	(3,686)
Terraria	3,793	7,448	(3,655)
Assetto Corsa	3,456	9,119	(5,663)
Portal Knights	2,039	855	1,184
Sniper Elite V3	1,397	2,916	(1,519)
Abzu	568	2,865	(2,297)
Retail products	12,981	13,927	(946)
Other products	2,517	2,886	(369)
Total Premium Games gross revenue	30,584	47,535	(16,951)

International distribution in the retail only channel of products of international publishers without a dedicated distribution network generated revenue of Euro 12,981 thousand i.e. around 42% of the total revenue of the operating segment. The new products distributed in the retail only channel during the period were: Pillars of Eternity, Redout and Inside/Limbo. Meanwhile, revenue from the Rocket League video game ceased after rights to that video game ended with effect from 30 June 2017.

The breakdown of gross revenue by distribution channel in the six-month period was more in line with market trends with the retail distribution channel selling slightly more than the digital distribution channel:

Revenue in Euro thousands	31 December 2017	31 December 2016	Change
Retail distribution revenue	15,831	28,672	(12,841)	-44.8%
Digital distribution revenue	14,080	17,260	(3,180)	-18.4%
Sub-licensing revenue	673	1,603	(930)	-58.0%
Total Premium Games revenue	30,584	47,535	(16,951)	-35.7%

Digital distribution revenue for the period ended 31 December 2017 may be broken down by digital marketplace as follows:

Revenue in Euro thousands	31 December 2017	31 December 2016		Change
Sony Playstation Network	4,856	7,108	(2,252)	-31.7%
Microsoft Xbox Live	4,046	4,573	(527)	-11.5%
Steam	3,156	3,295	(139)	-4.2%
I Tunes	718	982	(264)	-26.9%
Google	407	474	(67)	-14.1%
Other Marketplaces	897	828	69	8.3%
Total digital distribution revenue	14,080	17,260	(3,180)	-18.4%

Revenue adjustments have decreased from Euro 2,335 thousand to Euro 2,291 thousand for the period ended 31 December 2017. This line item includes an estimate of credit notes the Group expects it will have to issue to customers in the near future for unsold products. As a percentage of retail distribution revenue, the figure for the period of 14.5% is more in line with normal than in the first half of prior year when it stood at 8.1% of gross retail distribution revenue as a result of the particular success enjoyed by the Rocket League video game.

The net revenue of the operating segment has decreased by 37.4%.

Royalty costs amount to Euro 9,371 thousand against Euro 17,667 thousand for the period ended 31 December 2016. They have decreased by 47% compared to the corresponding period of prior year and stand at 33.1% of net revenue, an improvement compared to 39.1% in said period. Cost of sales has decreased by Euro 13,211 thousand resulting in a gross profit of Euro 13,141 thousand for the operating segment compared to Euro 16,837 thousand for the period ended 31 December 2016.

As described at consolidated level, costs for services and other operating costs have decreased by 25.3% and 19.2%, respectively, in line with the revenue trend. The 25.1% increase in personnel costs is completely inconsistent with the revenue trend and reflects the investment the Group has made to ensure that major video game projects under development can be launched next year. Consequently, operating costs fell by just 0.5% with the result that EBITDA decreased by 35.7%.

Non-monetary operating costs have increased by Euro 957 thousand due to higher amortisation of the intellectual property acquired by the Group.

EBIT amounts to Euro 3,919 thousand compared to Euro 8,255 thousand for the period ended 31 December 2016.

Free to Play

Reclassified income statement highlights

	Consolidated figures in thousands of
	Euro	31 December			Free to Play
		2017			31 December 2016	Change
1	Gross revenue	2,699	100.0%	3,866	100.0%	(1,167)	-30.2%
2	Revenue adjustments	0	0.0%	0	0.0%	0	0.0%
3	Net revenue	2,699	100.0%	3,866	100.0%	(1,167)	-30.2%

4	Purchase of products for resale	0	0.0%	0	0.0%	0	0.0%
5	Purchase of services for resale	(1,283)	-47.6%	(2,264)	-58.6%	981	-43.3%
6	Royalties	(129)	-4.8%	(207)	-5.4%	78	-37.7%
	Changes in inventories of finished
7	products	0	0.0%	0	0.0%	0	0.0%
8	Total cost of sales	(1,412)	-52.3%	(2,471)	-63.9%	1,059	-42.9%

9	Gross profit(3+8)	1,287	47.7%	1,395	36.1%	(108)	-7.7%

10	Other income	718	26.6%	496	12.8%	222	44.7%

11	Cost of services	(264)	-9.8%	(474)	-12.3%	210	-44.3%
12	Lease and rental charges	(45)	-1.7%	(33)	-0.9%	(12)	36.9%
13	Personnel costs	(1,591)	-59.0%	(1,454)	-37.6%	(137)	9.5%
14	Other operating costs	(33) (1,933)	-1.2% -71.6%	(34) (1,995)	-0.9% -51.6%	1 62	-4.1% -3.1%
15	Total operating costs
	Gross operating margin (EBITDA)
16	(9+10+15)	72	2.7%	(104)	-2.7%	176	n.s.

17	Depreciation and amortisation	(1,106)	-41.0%	(1,289)	-33.3%	183	-14.2%
18	Allocations to provisions	0	0.0%	0	0.0%	0	0.0%
19	Impairment losses recognised on assets	0	0.0%	0	0.0%	0	0.0%
	Reversal of impairment losses and non
20	monetary income Total non-monetary income and	0	0.0%	0	0.0%	0	0.0%
21	operating costs	(1,106)	-41.0%	(1,289)	-33.3%	183	-14.2%

22	Operating margin (EBIT) (16+21)	(1,034)	-38.3%	(1,393)	-36.0%	359	-25.7%

As in the Premium Games operating segment, no new products were launched in the Free to Play operating segment during the period. Revenue decreased by 30.2%. Activities during the period mainly regarded the development of the second version of Hawken which is currently being carried out internally with the related costs capitalised and reported under Other income.

The following table provides a detailed breakdown of revenue with comparative figures for the corresponding period in prior year:

Revenue in Euro thousands	31 December 2017	31 December 2016	Change
Gems of War	1,484	1,502	(18)
Battle Islands	783	1,264	(481)
Prominence Poker	345	547	(202)
Hawken	67	497	(430)
Other products	20	56	(36)
Total Free to Play revenue	2,699	3,866	(1,167)

The products that suffered most were Hawken which is to be replaced by a new version and Battle Islands which is now in its fourth year of life. Revenue from Gems of War have remained broadly stable and, as in prior year, said game was the leading source of revenue for the operating segment.

The significant reduction in purchases costs of services for resale outstripped the fall in revenue and reflects both the smaller investment on live support activities – which were necessary in prior year in the immediate aftermath of the launch of Prominence Poker – and the significant saving on game hosting costs. Details are provided below:

Amounts in Euro thousands	31 December 2017	31 December 2016	Change
Live support	771	1,508	(737)
Quality assurance	118	135	(17)
Hosting	288	531	(243)
Other	106	90	16
Total purchases of services for resale	1,283	2,264	(981)

Operating costs mainly comprise advertising costs incurred to attract new players and personnel costs. The former decreased by Euro 210 thousand during the period while the latter increased by Euro 137 thousand compared to the corresponding period of prior year. The increase in personnel costs was in line with the greater number of people working in the operating segment, especially on the development of the second version of Hawken.

Depreciation and amortisation decreased by Euro 183 thousand and are analysed as follows:

Amounts in thousands of Euro		31 December 2017 31 December 2016	Change
Amortisation of Battle Islands	73	218	(145)
Amortisation of intangible assets	1,024	1,055	(31)
Depreciation of property, plant and equipment	9	16	(7)
Total depreciation & amortisation	1,106	1,289	(183)

The decrease in amortisation of Battle Islands is due to the completion of the amortisation period of the goodwill emerging from the acquisition of DR Studios in September 2014. The goodwill resulting from the difference between the equity of the company acquired and the agreed purchase price was allocated to the Battle Islands trademark and amortised over a period of 36 loss.

EBIT for the period is negative by Euro 1,034 thousand compared, an improvement compared to the negative figure of Euro 1,393 thousand for the period ended 31 December 2016.

Italian Distribution

Reclassified income statement highlights

	Consolidated figures in thousands of
	Euro			Italian Distribution
		31 December 2017		31 December 2016		Change
1	Gross revenue	10,375	110.3%	10,475	109.3%	(100)	-1.0%
2	Revenue adjustments	(972)	-10.3%	(895)	-9.3%	(77)	8.6%
3	Net revenue	9,403	100.0%	9,580	100.0%	(177)	-1.8%

4	Purchase of products for resale	(6,680)	-71.0%	(6,620)	-69.1%	(60)	0.9%
5	Purchase of services for resale	(671)	-7.1%	(252)	-2.6%	(419)	n.s.
6	Royalties	0	0.0%	0	0.0%	0	0.0%
	Changes in inventories of finished
7	products	737	7.8%	501	5.2%	236	47.1%
8	Total cost of sales	(6,614)	-70.3%	(6,371)	-66.5%	(243)	3.8%

9	Gross profit (3+8)	2,789	29.7%	3,209	33.5%	(420)	-13.1%

10	Other income	12	0.1%	22	0.2%	(10)	-47.2%

11	Cost of services	(854)	-9.1%	(854)	-8.9%	0	0.0%
12	Lease and rental charges	(21)	-0.2%	(23)	-0.2%	2	-7.3%
13	Personnel costs	(754)	-8.0%	(767)	-8.0%	13	-1.7%
14	Other operating costs	(92)	-1.0%	(92)	-1.0%	0	0.7%
15	Total operating costs	(1,721)	-18.3%	(1,736)	-18.1%	15	-0.9%

	Gross operating margin (EBITDA)
16	(9+10+15)	1,080	11.5%	1,495	15.6%	(415)	-27.7%

17	Depreciation and amortisation	(158)	-1.7%	(102)	-1.1%	(56)	54.7%
18	Allocations to provisions	0	0.0%	0	0.0%	0	0.0%
19	Impairment losses recognised on assets	(53)	-0.6%	(405)	-4.2%	352	-86.9%
	Reversal of impairment losses and
20	non-monetary income Total non-monetary income and	0	0.0%	0	0.0%	0	0.0%
21	operating costs	(211)	-2.2%	(507)	-5.3%	296	-58.3%

22	Operating margin (EBIT) (16+21)	869	9.2%	988	10.3%	(119)	-12.0%

The slight decrease in revenue for the Italian Distribution operating segment is due to a drop in revenue from the retail distribution of video games in Italy while revenue from the distribution of trading cards increased.

Gross revenue is analysed by type of video game distributed as follows:

Euro Thousands	31 December 2017	31 December 2016	Change
Distribution of video games for consoles	6,477	7,564	(1,087)	-14.4%
Distribution of video games for PC	212	573	(361)	-63.0%
Distribution of trading cards	3,421	2,085	1,336	64.1%
Distribution of other products and services	272	267	5	1.7%
Cash discounts	(7)	(14)	7	-49.9%
Total gross Italian Distribution revenue	10,375	10,475	(100)	-1.0%

Revenue in Euro thousands	31 December 2017		31 December 2016		Change
	Units	Revenue	Units	Revenue	Units	Revenue
Sony Playstation 4	143,248	4,616	133,618	5,043	In line	-8.5%
Microsoft Xbox One	25,333	798	24,698	936	2.6%	-14.7%
Sony Playstation 3	22,409	571	33,646	1,045	-33.4%	-45.4%
Microsoft Xbox 360	12,166	266	20,223	472	-39.8%	-43.7%
Nintendo Switch	6,741	211	0	0	n.s.	n.s.
Other consoles	6,858	15	32,526	68	-78.9%	-78.6%
Total console revenues	216,755	6,477	244,711	7,564	-11.4%	-14.4%

Gross revenue from the distribution of video games for consoles is analysed below:

In line with console life cycles, there were smaller decreases in total revenue for the more recent platforms Sony Playstation 4 e Microsoft Xbox One which recorded decreases of 8.5% and 14.7%, respectively. Meanwhile, revenue relating to consoles at a mature stage of their life cycles - Sony Playstation 3 and Microsoft Xbox 360 – decreased by more than 40%.

Sales of Yu-Gi-Oh! Trading cards increased by 64.1% (+Euro 1,336 thousand).

Net revenue amounted to Euro 9,403 thousand, a 1.8% decrease compared to the corresponding period in prior year.

Cost of sales increased by 3.8% resulting in a gross profit of Euro 2,789 thousand for this operating segment compared to Euro 3,209 thousand for the first half of prior year. The increase in purchases of services for resale is due to the higher expense incurred for the packaging of trading cards distributed through the newsstand channel, in line with the related revenue increase.

Operating costs remained broadly unchanged at Euro 1,721 thousand.

Non-monetary operating costs decreased by Euro 296 thousand as a result of a reduction of Euro 352 thousand in the amount allocated to the provision for doubtful debts, as partially countered by a Euro 56 thousand increase in depreciation and amortisation.

The EBIT of the operating segment amounted to Euro 869 thousand, down on Euro 988 thousand for the six months ended 31 December 2016.

Other Activities

Reclassified income statement highlights

	Consolidated figures in thousands of Euro	Other Activities
			31 December 2017		31 December 2016		Change
1	Gross revenue	404	133.1%	404	225.0%	0	0.0%
2	Revenue adjustments	(101)	-33.4%	(224)	-124.4%	123	-54.6%
3	Net revenue	303	100.0%	180	100.0%	123	68.8%

4	Purchase of products for resale	0	0.1%	0	0.2%	0	0.0%
5	Purchase of services for resale	(24)	-7.9%	(92)	-51.3%	68	-74.1%
6	Royalties	(17)	-5.7%	(39)	-21.9%	22	-55.8%
7	Changes in inventories of finished products	0	0.0%	0	0.0%	0	0.0%
8	Total cost of sales	(41)	-13.5%	(131)	-73.0%	90	-68.8%

9	Gross profit (3+8)	262	86.2%	49	27.0%	213	n.s.

10	Other income	0	0.0%	0	0.0%	0	0.0%

11	Cost of services	(256)	-84.3%	(631)	-351.2%	375	-59.5%
12	Lease and rental charges	(6)	-1.9%	(6)	-3.3%	0	0.0%
13	Personnel costs	(460)	-151.7%	(349)	-194.4%	(111)	31.7%
14	Other operating costs	(24)	-7.9%	(22)	-12.5%	(2)	7.3%
15	Total operating costs	(746)	-245.9%	(1,008)	-560.9%	262	-26.0%

16	Gross operating margin (EBITDA) (9+10+15)	(484)	-159.4%	(959)	-533.3%	475	-49.5%

17	Depreciation and amortisation	(192)	-63.4%	(187)	-104.2%	(5)	2.8%
18	Allocations to provisions	0	0.0%	0	0.0%	0	0.0%
19	Impairment losses recognised on assets	0	0.0%	0	0.0%	0	0.0%
20	Reversal of impairment losses and non-monetary income	0	0.0%	0	0.0%	0	0.0%
21	Total non-monetary income and operating costs	(192)	-63.4%	(187)	-104.2%	(5)	2.8%

22	Operating margin (EBIT) (16+21)	(676)	-222.8%	(1,146)	-637.5%	470	-41.0%

The Other activities operating segment reports revenue of Euro 404 thousand which regards sales made by the Daily Fantasy Sport Fantasfida and revenue generated by training courses organised by Digital Bros Game Academy S.r.l.

Revenue adjustments regard the taxes paid on revenue generated by the www.gameplaza.it and www.fantasfida.it web sites and amounts paid as prizes to Fantasfida players. They have decreased significantly compared to the corresponding period in prior year. As a result, net revenue has increased by Euro 123 thousand while gross revenue has remained unchanged

Operating costs have decreased by Euro 262 thousand from Euro 1,008 thousand to Euro 746 thousand as a result of the lower costs incurred for Fantasfida related services.

EBIT was negative by Euro 676 thousand, an improvement of Euro 470 thousand compared to the negative EBIT of Euro 1,146 thousand for the six months ended 31 December 2016.

Holding

Reclassified income statement highlights

	Consolidated figures in thousands of Euro	Holding
			31 December 2017		31 December 2016		Change
1	Gross revenue	0	0.0%	0	0.0%	0	0.0%
2	Revenue adjustments	0	0.0%	0	0.0%	0	0.0%
3	Net revenue	0	0.0%	0	0.0%	0	0.0%

4	Purchase of products for resale	0	0.0%	0	0.0%	0	0.0%
5	Purchase of services for resale	0	0.0%	0	0.0%	0	0.0%
6	Royalties	0	0.0%	0	0.0%	0	0.0%
7	Changes in inventories of finished products	0	0.0%	0	0.0%	0	0.0%
8	Total cost of sales	0	0.0%	0	0.0%	0	0.0%

9	Gross profit (3+8)	0	0.0%	0	0.0%	0	0.0%

10	Other income	67	0.0%	76	0.0%	(9)	-11.8%

11	Cost of services	(756)	0.0%	(720)	0.0%	(36)	5.0%
12	Lease and rental charges	(368)	0.0%	(373)	0.0%	5	-1.3%
13	Personnel costs	(1,826)	0.0%	(1,419)	0.0%	(407)	28.8%
14	Other operating costs	(215)	0.0%	(746)	0.0%	531	-71.2%
15	Total operating costs	(3,165)	0.0%	(3,258)	0.0%	93	-2.9%

16	Gross operating margin (EBITDA) (9+10+15)	(3,098)	0.0%	(3,182)	0.0%	84	-2.6%

17	Depreciation and amortisation	(101)	0.0%	(106)	0.0%	5	-5.1%
18	Allocations to provisions	0	0.0%	0	0.0%	0	0.0%
19	Impairment losses recognised on assets	(20)	0.0%	0	0.0%	(20)	n.s.
20	Reversal of impairment losses and non-monetary income	0	0.0%	0	0.0%	0	0.0%
21	Total non-monetary income and operating costs	(121)	0.0%	(106)	0.0%	(15)	14.0%

22	Operating margin (EBIT) (16+21)	(3,219)	0.0%	(3,288)	0.0%	69	-2.1%

Operating costs amounted to Euro 3,219 thousand, a decrease of Euro 69 thousand compared to the first half of prior year. The decrease is the net result of a Euro 531 thousand reduction in other operating costs and a Euro 407 thousand increase in personnel costs.

In prior year, other operating costs included Euro 424 thousand of fees incurred by 505 Games S.p.A. in relation to the sale and purchase of Starbreeze shares. Meanwhile, the increase in personnel costs for the period includes Euro 398 thousand relating to the stock option plan approved in the second half of prior year.

9. INTERCOMPANY AND RELATED PARTY TRANSACTIONS AND ATYPICAL/UNUSUAL TRANSACTIONS

All intercompany and related party transactions entered into by Group companies are conducted at arm's length.

Intercompany transactions

The main intercompany transactions regard the sale of video games by 505 Games S.p.A. to local distribution companies.

505 Games S.p.A. charges royalties to U.S. subsidiary 505 Games (US) Inc. for products distributed on the American market.

505 Games Ltd. and 505 Games (US) Inc. bill 505 Games S.p.A. for personnel costs and certain general expenses relating to employees involved in production and international marketing for the Premium Games operating segment.

505 Games Interactive Inc. bills 505 Games S.p.A. for personnel costs and general costs relating to employees involved in product management for the Premium Games operating segment.

505 Mobile (US) Inc. bills 505 Mobile S.r.l. for personnel costs and general costs relating to employees involved in production and marketing for the Free to Play operating segment.

Prior to its acquisition, DR Studios Ltd. was already party to development and live support contracts for several video games with 505 Games S.p.A. and 505 Mobile S.r.l.; these contracts have remained unchanged. New development contracts signed after the business combination have been regulated by a framework agreement providing for the chargeback of direct project costs incurred plus a percentage markup.

Prior to its acquisition, Kunos Simulazioni S.r.l. was already party to a contract with subsidiary 505 Games S.p.A. for development of the Assetto Corsa video game; the contract has remained unchanged.

Hawken Entertainment Inc. has carried out development work on the Hawken 2 video game for 505 Games S.p.A..

Pipeworks Inc. is party to several video game development contracts with 505 Games S.p.A. and 505 Mobile S.r.l. that are based on direct project costs incurred plus a percentage mark-up.

Digital Bros S.p.A., 505 Games Ltd., 505 Games France, 505 Games Spain Slu and 505 Games GmbH bill 505 Games S.p.A. an amount equal to 15% of digital revenue generated in their respective countries in recognition of the indirect marketing and public relations services performed by the local companies but not directly attributable to individual products.

Digital Bros S.p.A. bills 505 Games S.p.A. with direct costs directly incurred on its behalf, and, based on a percentage of the holding company's total costs, with indirect costs for the coordination of the acquisition of games and for administrative, financial, legal, logistics and IT services.

Digital Bros S.p.A. charges Digital Bros Game Academy S.r.l. for the cost of administrative, financial, legal and IT services incurred on its behalf and for the cost of leasing the property located in Via Labus, Milan, the subsidiary's operational headquarters.

505 Games S.p.A. charges U.S. company 505 Games US for the cost of coordinating the acquisition of games and the cost of administrative, financial, legal and IT services incurred on its behalf.

133 W. Broadway charges rent to Pipeworks Inc. for the use of the property located in Eugene where the company is based.

Other minor transactions regarding administrative, financial, legal and general services are usually carried out by Digital Bros S.p.A. on behalf of other Group companies. The parent company also operates a cash pooling service, using intercompany current accounts to which positive and negative balances between Group companies are transferred, including through the transfer of receivables. These accounts do not bear interest.

Italian Group companies also transfer tax receivables and payables to the parent company Digital Bros S.p.A. in accordance with domestic tax group arrangements.

Upon preparation of the half-yearly financial report for the six months ended 31 December 2017, the impact of intercompany transactions on the results and financial position has been eliminated except for income statement effects between Pipeworks Inc. and the other Group companies in terms of IFRS 5.

Related party transactions

Related party transactions regard:

Legal advice provided by director Dario Treves;
Property leases by Matov Imm. S.r.l. to the parent company and to subsidiary 505 Games France S.a.s.;
A property lease by Matov LLC to subsidiary 505 Games (US) Inc..

Both Matov Imm. S.r.l. and Matov LLC are owned by Abramo and Raffaele Galante.

The effects of related party transactions are disclosed in paragraph 10 of the Notes.

Atypical transactions

In the reporting period and in the corresponding prior year period, there were no atypical or unusual transactions as defined by Consob Communication DEM 6064293 of 28 July 2006.

10. TREASURY SHARES

Pursuant to Art. 2428(2)(3) of the Italian Civil Code, it is hereby disclosed that, at 31 December 2017, Digital Bros S.p.A. did not hold any treasury shares.

Digital Bros Group Half Year Management Report for the period ended 31 December 2017

11. RECONCILIATION BETWEEN RESULT FOR THE PERIOD AND EQUITY OF THE PARENT COMPANY AND THOSE OF THE GROUP

The following table provides a reconciliation between the result for the period and equity as reported by Digital Bros S.p.A. and those reported by the Group.

		Profit for the period ended	Shareholders' equity
	31 December 2017	31 December 2016	31 December 2017	31 December 2016
Profit (loss) for the period and equity of Digital Bros S.p.A.	7,639	1,350	38,598	27,842

Profit for the period and equity of subsidiaries	5,008	7,435	45,302	50,720

Carrying amount of equity investments	0	0	(29,292)	(25,244)

Consolidation adjustments

Impairment of investments in subsidiaries	0	332	2,388	1,491

Elimination of intercompany profits	32	(197)	(1,427)	(1,693)
Other adjustments	(12,661)	(1,524)	2,322	689

Profit (loss) and equity of the Group	18	7,396	57,891	53,805

Other adjustments for the periods ended 31 December 2017 and 31 December 2016 are detailed as follows:

	Profit for the period ended		Shareholders' equity
	31 December 2017	31 December 2016	31 December 2017	31 December 2016
Impairment of investment held by Digital Bros S.p.A. in Game Network S.r.l.	0	303	1,156	0
Impairment of investment held by Digital Bros S.p.A. in Digital Bros Game Academy S.r.l.	0	29	90	0
Impairment of investment held by Digital Bros S.p.A. in Pipeworks Inc.	0	0	0	1,491
Impairment of investment held by 505 Games S.p.A. in 505 Mobile S.r.l.	0	0	1,142	0
Total impairment adjustments to investments in subsidiaries	0	332	2,388	1,491
Profits in inventory	(37)	(144)	(399)	(352)
DR Studios Ltd. and Pipeworks Inc. margin on intercompany sales	69	(53)	(1,028)	(1,341)
Total elimination of intercompany profits	32	(197)	(1,427)	(1,693)
Dividends from 505 Games Ltd.	(3,402)	(1,108)	0	0
Dividends from Pipeworks Inc.	(1,292)	0	0	0
Dividends from 505 Games S.p.A.	(6,0000)	0	0	0
Dividends from Game Entertainment S.r.l.	(400)	0	0	0
Statutory gain for Digital Bros S.p.A. on disposal of Pipeworks Inc.	(1,287)	0	0	0
Amortisation/allocation of purchase price of DR Studios Ltd., net of the related tax effect	(53)	(158)	0	245
Amortisation/allocation of purchase price of Pipeworks Inc., net of the related tax effect	(53)	(159)	0	210
Amortisation/allocation of purchase price of Kunos S.r.l. net of the related tax effect	(249)	0	2,015	0
Other adjustments	75	(99)	307	234
Total other adjustments	(12,661)	(1,524)	2,322	689

In accordance with the accounting standards applied, the gain on the disposal of a 12.5% interest in subsidiary Pipeworks Inc. has been recorded directly under other equity reserves. The effect of the sale of the remaining 87.5% of said company which took place after the reporting date will be highlighted at the foot of the income statement for the year ended 30 June 2018 under the caption "Net profit from assets destined for sale" inclusive of the amount of Euro 1,287 thousand recorded in Other reserves at 31 December 2017.

Digital Bros Group Half Year Management Report for the period ended 31 December 2017

12. CONTINGENT ASSETS AND LIABILITIES

The sale of PAYDAY2 rights by the Group to Starbreeze in May 2016 gave the Group the chance to earn up to a maximum of USD 40 million to be computed as 33% of the net revenue generated by Starbreeze from sales of PAYDAY3. At the reporting date, the Group treated this contractual item as a contingent asset, as at the end of the previous reporting period.

13. EVENTS AFTER THE REPORTING PERIOD

On 23 February 2018, US private equity company Northern Pacific exercised its call option on the remaining 87.5% of Pipeworks Inc. by paying USD 5 million.

As already described in the Significant Events during the Period section, the balance of USD 12.5 million will be paid in three instalments as follows:

USD 2.5 million by 30 June 2018;
USD 5 million by 31 March 2021;
USD 5 million by 31 March 2022.

14. BUSINESS OUTLOOK

SECOND HALF OF THE FINANCIAL YEAR ENDED 30 JUNE 2018

In the second half of the financial year, the Group will launch the new video game Memories of Mars and, in light of the success of the Nintendo Switch console, it will also launch versions of existing video games for said console. The Group's activities will focus on preparing for the release of major productions already in progress whose launch is scheduled for next year. As a result, the revenue of the Premium Games operating segment is expected to fall temporary in the current reporting period before increasing strongly in the next reporting period.

Slight growth is expected in the second half of the financial year for all other operating segments even without the launch of new products in the Free to Play operating segment which will, however, be able to count on the strong performance of Gems of War. On a consolidated level, this growth will be insufficient to offset the temporary decline in revenue for the Premium Games operating segment.

The profit outlook is identical to the expected revenue trend. The Premium Games segment will be less profitable because of the expected temporary reduction in volume of business although it will still represent the bulk of forecast EBIT. The other operating segments will help reduce the impact of this loss of profitability thanks to the effect of smaller forecast losses for the Free to Play and Other Activities operating segments and the reduction in costs of the Holding operating segment.

The net financial position is expected to deteriorate further during the second half of the financial year as a result of significant capex on new products scheduled for release in future periods. This is despite the impact of the sale of the investment in Pipeworks Inc..

FINANCIAL YEAR ENDED 30 JUNE 2019

Revenue of between Euro 145 million and Euro 190 million is forecast for the next financial year thanks to the simultaneous release of major productions already in progress such as OVERKILL's the Walking Dead (Autumn 2018), the video game which is the result of an agreement with Finnish company Remedy Entertainment and Bloodstained, whose launch has been postponed to the second half of the next financial years in order to guarantee maximum quality. In line with investment on new productions, the net financial position will deteriorate during the first half of the financial year before recovering strongly in line with the trend seen in previous annual reporting periods.

15. OTHER INFORMATION

EMPLOYEES

The following table contains a breakdown of the employee headcount at 31 December 2017 with comparative figures at 31 December 2016:

Category	31 December 2017	31 December 2016	Change
Managers	10	10	0
White collar workers	247	231	16
Blue collar workers and apprentices	4	4	0
Total employees	261	245	16

The following table contains a detailed breakdown of the employee headcount of non-Italian companies at 31 December 2017 with comparative figures at 31 December 2016:

Category	31 December 2017	31 December 2016	Change
Managers	5	5	0
White collar workers	179	167	12
Total employees in other countries	184	172	12

The average headcount for the period, calculated as the average number of employees in service at the end of every month, is shown below with prior year comparative figures:

Category	2017 average	2016 average	Change
Managers	10	10	0
White collar workers	252	227	25
Blue collar workers and apprentices	4	4	0
Total employees	266	241	25

The average headcount at non-Italian companies during the period is as follows:

Category	2017 average	2016 average	Change
Managers	5	5	0
White collar workers	180	168	11
Total employees in other countries	185	173	11

The increased headcount in other countries is due to the growth of the international structure in the Premium Games and Free to Play operating segments and to the incorporation of Hawken Entertainment Inc. Meanwhile, the increased headcount for the Italian companies is due to the acquisition of Kunos Simulazioni S.r.l. in March 2017.

The Group's Italian companies apply the current Confcommercio collective national employment contract for the commercial, distribution and services sector.

ENVIRONMENT

At 31 December 2017, there were no environmental issues and as the Group's activities consist chiefly of packing and shipping video games and affixing labels to packaging, there is no reason any such problems should arise in the future.

Condensed consolidated financial statements for the period ended 31 December 2017

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FINANCIAL STATEMENTS

Digital Bros Group

Consolidated statement of financial position as at 31 December 2017

	Euro Thousand	31 December 2017	30 June 2017	Change
	Non-current assets
1	Property, plant and equipment	6,092	6,619	(527)	-8.0%
2	Investment property	0	0	0	0.0%
3	Intangible assets	16,817	18,867	(2,050)	-10.9%
4	Equity investments	1,360	1,345	15	0.0%
5	Non-current receivables and other assets	1,045	1,052	(7)	-0.7%
6	Deferred tax assets	2,766	2,807	(41)	-1.5%
	Total non-current assets	28,080	30,690	(2,610)	-8.5%
	Non-current liabilities
7	Employee benefits	(554)	(545)	(9)	1.8%
8	Non-current provisions	(79)	(79)	0	0.9%
9	Other non-current payables and liabilities	0	0	0	n.s.
	Total non-current liabilities	(633)	(624)	(9)	1.4%

	Net working capital
10	Inventories	13,379	12,815	564	4.4%
11	Trade receivables	31,440	36,763	(5,323)	-14.5%
12	Current tax assets	2,660	2,064	596	28.8%
13	Other current assets	3,346	3,263	83	2.5%
14	Trade payables	(16,876)	(27,680)	10,804	-39.0%
15	Current tax liabilities	(1,927)	(5,736)	3,809	-66.4%
16	Current provisions	(854)	(854)	0	0.0%
17	Other current liabilities	(3,146)	(3,954)	808	-20.4%
	Total net working capital	28,022	16,681	11,341	68.0%
	Assets destined for sale	1,218	0	1,218	n.s.
	Liabilities destined for sale	(1,134)	0	(1,134)	n.s.
	Total liabilities (net) destined for sale	84	0	84	n.s.
	Shareholders' equity
18	Share capital	(5,704)	(5,704)	0	0.0%
19	Reserves	(19,759)	(19,805)	46	-0.2%
20	Treasury shares	0	0	0	0.0%
21	Retained earnings (accumulated losses)	(32,428)	(33,265)	837	-2.5%
	Total equity	(57,891)	(58,774)	883	-1.5%

	Total net assets	(2,338)	(12,027)	9,689	-80.6%
22	Cash and cash equivalents	5,716	12,136	(6,420)	-52.9%
23	Current bank borrowing	(4,413)	(1,942)	(2,471)	n.s.
24	Other current financial assets and liabilities	(251)	950	(1,201)	n.s.
	Current net financial position	1,052	11,144	(10,092)	-90.6%
25	Non-current financial assets	1,275	1,306	(31)	-2.4%
26	Non-current bank borrowing	(1,465)	(383)	(1,082)	n.s.
27	Other non-current financial liabilities	(32)	(40)	8	-19.1%
	Non-current net financial position	(222)	883	(1,105)	n.s.
	NFP of continuing operations	830	12.027	(11.197)	-93.1%

	NFP of assets destined for sale	1,508	0	1,508	n.s.
	Total net financial position	2,338	12,027	(9,689)	-80.6%

Digital Bros Group Half Year Management Report for the period ended 31 December 2017

Consolidated statement of profit or loss for the period ended 31 December 2017

		31 December		31 December
	Euro Thousands	2017		2016		Change

1	Gross revenue	44,062	108.3%	62,280	105.8%	(18,218)	-29.3%
2	Revenue adjustments	(3,364)	-8.3%	(3,454)	-5.8%	90	-2.6%
3	Net revenue	40,698	100.0%	58,826	100.0%	(18,128)	-30.8%

4	Purchase of products for resale	(11,076)	-27.2%	(15,687)	-26.7%	4,611	-29.4%
5	Purchase of services for resale	(3,190)	-7.8%	(4,884)	-8.3%	1,694	-34.7%
6	Royalties	(9,517)	-23.4%	(17,913)	-30.5%	8,396	-46.9%
7	Changes in inventories of finished products	564	1.4%	1,148	2.0%	(584)	-50.8%
8	Total cost of sales	(23,219)	-57.1%	(37,336)	-63.5%	14,117	-37.8%

9	Gross profit (3+8)	17,479	42.9%	21,490	36.5%	(4,011)	-18.7%

10	Other income	1,091	2.7%	608	1.0%	483	79.4%

11	Cost of services	(4,637)	-11.4%	(6,035)	-10.3%	1,398	-23.2%
12	Lease and rental charges	(719)	-1.8%	(728)	-1.2%	9	-1.3%
13	Labour costs	(8,991)	-22.1%	(7,475)	-12.7%	(1,516)	20.3%
14	Other operating costs	(563)	-1.4%	(1,141)	-1.9%	578	-50.6%
15	Total operating costs	(14,910)	-36.6%	(15,379)	-26.1%	469	-3.0%

16	Gross operating margin (EBITDA) (9+10+15)	3,660	9.0%	6,719	11.4%	(3,059)	-45.5%

17	Depreciation and amortisation	(3,721)	-9.1%	(2,898)	-5.2%	(823)	28.4%
18	Allocations to provisions	0	0.0%	0	0.0%	0	0.0%
19	Impairment adjustments to assets Reversal of impairment losses and non-monetary	(80)	-0.2%	(405)	-0.7%	325	-80.2%
20	income	0	0.0%	0	0.0%	0	0.0%
21	Total non-monetary income and operating costs	(3,801)	-9.3%	(3,303)	-5.9%	(498)	15.1%

22	Operating margin (EBIT) (16+21)	(141)	-0.3%	3,416	5.5%	(3,557)	n.s.

23	Interest and finance income	763	1.9%	8,725	14.8%	(7,962)	-91.3%
24	Interest expense and finance costs	(535)	-1.3%	(1,963)	-3.3%	1,428	-72.7%
25	Net finance income (costs)	228	0.6%	6,762	11.5%	(6,534)	-96.6%

26	Profit before tax (22+25)	87	0.2%	10,178	17.0%	(10,091)	-99.1%

27	Current tax	(430)	-1.1%	(3,090)	-5.3%	2,660	-86.1%
28	Deferred tax	195	0.5%	72	0.2%	123	n.s.
29	Total income tax expense	(235)	-0.6%	(3,018)	-5.0%	2,783	-92.2%

30	Profit from continuing operations (26+29)	(148)	-0.4%	7,160	11.9%	(7,308)	n.s.

	Profit from assets destined for sale	166	0.4%	236	0.4%	(70)	-29.6%

	Profit for the period	18	0.0%	7,396	12.6%	(7,378)	-99.8%

Earnings per share at 31 December 2017

	Earnings per share:	31 Decembe r 2017	31 Decembe r 2016		Change
33	Basic earnings per share from continuing operations (in Euro)	(0.0103)	0.5102	(0.5205)	n.s.
33	Basic earnings per share from assets destined for sale (in Euro)	0.0116	0.0168	(0.0052)	-31.0%
33	Total basic earnings per share (in Euro)	0.0013	0.5270	(0.5257)	- 99.8%

34	Diluted earnings per share from continuing operations (in Euro)	(0.0103)	0.5102	(0.5205)	n.s.
34	Diluted earnings per share from assets destined for sale (in Euro)	0.0116	0.0168	(0.0052)	-31.0%
34	Diluted earnings per share (in Euro)	0.0013	0.5270	(0.5257)	- 99.8%

Consolidated statement of comprehensive income for the period ended 31 December 2017

	31 December
Euro Thousand	2017	31 December 2016	Change
Profit (loss) for the period (A)	18	7,396	(7,378)
Items that will not be reclassified
subsequently to profit or loss (B)
Actuarial gain (loss)	(5)	8	(13)
Income tax relating to the actuarial gain (loss)	1	(2)	3
Exchange differences on translation of foreign
operations	(452)	273	(725)
Income tax relating to exchange differences on
translation of foreign operations	0	0	0
Fair value measurement of shares designated as
available for sale	0	(3,075)	3,075
Income tax relating to the fair value
measurement of shares designated as available
for sale	0	845	(845)
Disposal of 12.5% investment in Pipeworks
Inc.	1,164	0	1,164
Income tax relating to disposal of 12.5%
investment in Pipeworks Inc.	136	0	136
Items that may be reclassified subsequently
to profit or loss (C)	844	(1,951)	2,795
Total other comprehensive income D =
(B)+(C)	844	(1,951)	2,795
Total comprehensive income (loss) (A)+(D)	862	5,445	(4,583)
Attributable to:
Parent Company Shareholders	862	5,445	(4,583)

Consolidated statement of cash flows for the period ended 31 December 2017

	Euro Thousands	31 December 2017	31 December 2016

A.	Opening net cash	12,027	3,511
B.	Cash flows from operating activities
	Profit (loss) for the period attributable to the Group	18	7,396
	Depreciation, amortisation and non-monetary costs:
	Provisions and impairment losses	80	0
	Amortisation of intangible assets	3,396	2,817
	Depreciation of property, plant and equipment	325	378
	Net change in other provisions	0	(10)
	Net change in employee benefit provisions	9	15
	Net change in other non-current liabilities	0	(252)
	SUB TOTAL B	3,828	10,344
C.	Change in net working capital
	Inventories	(564)	(1,147)
	Trade receivables	5,263	2,754
	Current tax assets	(596)	(690)
	Other current assets	(83)	603
	Trade payables	(10,804)	2,992
	Current tax liabilities	(3,809)	667
	Current provisions	0	0
	Other current liabilities	(808)	(307)
	SUB TOTAL C.	(11,401)	4,872

D.	Cash flows from investing activities
	Net investment on intangible assets	(1,346)	(9,820)
	Net investment on property, plant and equipment	202	(345)
	Net investment on non-current financial assets	13	(557)
	SUB TOTAL D.	(1,131)	(10,722)
E.	Assets and liabilities destined for sale	(84)	0
	SUB TOTAL E.	(84)	0

F.	Cash flows from financing activities
	Capital increases	0	0
	Increase in share premium reserve	0	0
	SUB TOTAL F.	0	0
G.	Movements on consolidated shareholders' equity
	Dividends paid	(2,139)	(1,834)
	Change in treasury shares held	0	390
	Increases (decreases) in other equity items	1,238	(495)
	SUB TOTAL G.	(901)	(1,939)

H.	Cash flows for the period (B+C+D+E+F+G)	(9,689)	2,555
I.	Closing net financial position (A+H)	2,338	6,066
	of which NFP of continuing operations	830	6,066
	of which NFP of assets destined for sale	1,508	0

Notes to statement of cash flows

Details of cash flows by maturity:

Euro Thousands	31 December 2017	31 December 2016

Increase (decrease) in securities and cash and cash equivalents	(6,419)	3,971
Decrease (increase) in current bank borrowing	(2,471)	22,455
Decrease (increase) in other current financial assets and liabilities	(1,201)	(27,154)

Cash flow for the period pertaining to current net cash/debt	(10,092)	(728)

Cash flow for the period pertaining to non-current net cash/debt	(1,105)	3,283

Cash flows from assets destined for sale	1,508	0

Cash flows for the period	(9,689)	2,555

Consolidated statement of changes in equity

												Consolidated
									Retained	Profit	Total	equity
	Share			IAS	Currency		Total	Treasury	earnings	(loss) for	retained	attributable
	capital	Share	Legal	transition	translation	Other	reserves	shares	(accumulated	the	earnings	to Group
Euro Thousands	(A)	premium	reserve	reserve	reserve	reserves	(B)	(C)	losses)	period	(D)	(A+B+C+D)
As at 1 July 2016	5,644	16,954	1,129	1,367	(813)	2,167	20,804	(390)	5,903	16,387	22,290	48,348

Allocation of profit							0	0	16,387	(16,387)	0	0
Payment of dividends							0	0	(1,834)		(1,834)	(1,834)
Other changes						(56)	(56)	390	1,512		1,512	1,846
Comprehensive income (loss)					273	(2,224)	(1,951)	0		7,396	7,396	5,445

As at 31 December 2016	5,644	16,954	1,129	1,367	(540)	(113)	18,797	0	21,968	7,396	29,364	53,805

Total at 1 July 2017	5,704	18,486	1,129	1,367	(1,447)	270	19,805	0	21,968	11,297	33,265	58,774

Capital increase							0	0			0	0
Allocation of profit			12				12	0	11,285	(11,297)	(12)	0
Payment of dividends							0	0	(2,139)		(2,139)	(2,139)
Other changes						398	398	0	(4)		(4)	394
Comprehensive income (loss)					(452)	(4)	(456)	0	1,300	18	1,318	862

Total at 31 December 2017	5,704	18,486	1,141	1,367	(1,899)	664	19,759	0	32,410	18	32,428	57,891

Notes to the condensed consolidated financial statements for the period ended 31 December 2017

1. INTRODUCTORY NOTE

The half-yearly consolidated financial report includes the condensed half-yearly consolidated financial statements prepared in accordance with IAS 34 and Art. 154 ter of the Consolidated Finance Act, and accordingly, does not include all the disclosures required for annual financial statements and should thus be read together with the Group's consolidated financial statements for the year ended 30 June 2017.

Digital Bros Group's condensed half-yearly consolidated financial statements have been prepared on a going concern basis and by applying the same accounting policies used to prepare the annual financial statements for the year ended 30 June 2017.

For details of form and content and other general information, as well as the use of estimates, reference should be made to the notes to the consolidated financial statements for the year ended 30 June 2017.

2. CONSOLIDATION METHODS

Subsidiaries

Subsidiaries are companies over which the Group exercises control. Control exists when the Group has the power, directly or indirectly, to influence the financial and operating policies of a subsidiary in such a way as to obtain benefits from its operations. The financial statements of subsidiaries are included in the condensed consolidated financial statements for the period ended 31 December 2017 from the date control is obtained until the date control ceases to exist.

The financial statements of subsidiaries used for the consolidation are prepared as of the same reporting date and are adjusted from local GAAP to comply with the accounting policies employed by the Group.

Equity investments in associates are stated at cost as adjusted for any impairment.

Translation of foreign currency financial statements

The Group's reporting currency is the Euro, which is also the functional currency of the parent company. As at the reporting date, the financial statements of foreign companies with a functional currency other than the Euro were translated into the reporting currency as follows:

assets and liabilities were translated using the exchange rate in force at the reporting date;
income statement items were translated using the average exchange rate for the period;
equity items were translated at historical exchange rates.

Exchange differences arising from this process are recognised directly in other comprehensive income and are accumulated in the equity reserve, foreign currency translation reserve.

Transactions eliminated in the consolidation process

In preparing the condensed consolidated financial statements for the period ended 31 December 2017, all intragroup assets, liabilities, income and expenses relating to transactions between Group companies have been eliminated, as well as unrealised profits and losses on intragroup transactions.

Scope of consolidation

The tables below provide details of companies consolidated on a line-by-line basis and using the equity method.

Name	Operational headquarters	Country	Capital	% held directly or indirectly
133 W Broadway	Eugene	USA	\$ 100.000	100%
Digital Bros S.p.A.	Milan	Italy	€ 5.964.334,80	Parent company
Digital Bros China (Shenzhen) Ltd.	Shenzhen	China	€ 100.000	100%
Digital Bros Game Academy S.r.l.	Milan	Italy	€ 50.000	100%
Digital Bros Holdings Ltd.	Milton Keynes	United Kingdom	£ 100.000	100%
DR Studios Ltd.	Milton Keynes	United Kingdom	£ 60.826	100%
Game Entertainment S.r.l.	Milan	Italy	€ 100.000	100%
505 Games S.p.A.	Milan	Italy	€ 100.000	100%
505 Games France S.a.s.	Francheville	France	€ 100.000	100%
505 Games Spain Slu	Las Rozas de MadridSpain		€ 100.000	100%
505 Games Ltd.	Milton Keynes	United Kingdom	£ 100.000	100%
505 Games (US) Inc.	Calabasas (CA)	USA	\$ 100.000	100%
505 Games GmbH	Burglengenfeld	Germany	€ 50.000	100%
505 Games Interactive Inc.	Calabasas (CA)	USA	\$ 100.000	100%
Game Network S.r.l.	Milan	Italy	€ 100.000	100%
Game Service S.r.l.	Milan	Italy	€ 50.000	100%
Hawken Entertainment Inc.	Santa Ana	USA	\$ 100.000	100%
Pipeworks Inc. (1)	Eugene (OR)	USA	\$ 61.929	100%
505 Mobile S.r.l.	Milan	Italy	€ 100.000	100%
505 Mobile (US) Inc.	Calabasas (CA)	USA	\$ 100.000	100%

Line-by-line consolidation method:

(1) The Company has been consolidated 100% for the six-month period despite the sale of 12.5% on 21 December 2017. This approach was followed as the difference was not deemed significant in terms of fairly reporting the performance for the period.

Associated companies carried at cost:

Name	Operational headquarters		% held directly	% held indirectly
Delta DNA Ltd.	Edinburgh, UK	£ 3,005	1.04%	0%
Ebooks&Kids S.r.l.	Milan	€ 26,366	16%	0%
Ovosonico S.r.l.	Milan	€ 100,000	49%	0%
Seekhana Ltd.	Milton Keynes, UK	£ 11,212	36%	0%

3. INVESTMENTS IN ASSOCIATED COMPANIES AND OTHER ENTITIES

The investments held by the Group companies as at 31 December 2017 were as follows:

an equity interest of 1.04% in Delta DNA Ltd., acquired on 3 July 2013 and recognised at cost of Euro 60 thousand (GBP 50 thousand);
an equity interest of 16% in Ebooks&Kids S.r.l., with a carrying amount of Euro 52 thousand. The original purchase cost recognised was Euro 200 thousand. The investment was acquired via a first subscription on 7 July 2013 of Euro 70 thousand, of which Euro 68.7 thousand was paid as a quota premium and a subsequent subscription of a capital increase on 13 February 2014 of Euro 130 thousand, of which Euro 127.1 thousand was paid as a quota premium. As at 30 June 2017, carrying amount was adjusted to bring it into line with the relevant portion of equity per the latest financial statements approved by the company;
a 49% equity interest in Ovosonico S.r.l. with a carrying amount of Euro 720 thousand, of which Euro 49 thousand in the form of capital and Euro 671 thousand as a quota premium;
a 36% equity interest in Seekhana Ltd. with a carrying amount of Euro 528 thousand (GBP 372 thousand) of which Euro 4 thousand in the form of capital and Euro 524 thousand as a share premium.

The liquidation of Cityglance S.r.l. was completed during the period.

4. ANALYSIS OF THE STATEMENT OF FINANCIAL POSITION

The consolidated statement of financial position at 31 December 2017 is set out below together with comparative figures at 30 June 2017:

	Euro Thousands	31 December 2017	30 June 2017	Change
	Non-current assets
1	Property, plant and equipment	6,092	6,619	(527)	-8.0%
2	Investment property	0	0	0	0.0%
3	Intangible assets	16,817	18,867	(2,050)	-10.9%
4	Equity investments	1,360	1,345	15	0.0%
5	Non-current receivables and other assets	1,045	1,052	(7)	-0.7%
6	Deferred tax assets	2,766	2,807	(41)	-1.5%
	Total non-current assets	28,080	30,690	(2,610)	-8.5%

	Non-current liabilities
7	Employee benefits	(554)	(545)	(9)	1.8%
8	Non-current provisions	(79)	(79)	0	0.9%
9	Other non-current payables and liabilities	0	0	0	n.s.
	Total non-current liabilities	(633)	(624)	(9)	1.4%
	Net working capital
10	Inventories	13,379	12,815	564	4.4%
11	Trade receivables	31,440	36,763	(5,323)	-14.5%
12	Current tax assets	2,660	2,064	596	28.8%
13	Other current assets	3,346	3,263	83	2.5%
14	Trade payables	(16,876)	(27,680)	10,804	-39.0%
15	Current tax liabilities	(1,927)	(5,736)	3,809	-66.4%
16	Current provisions	(854)	(854)	0	0.0%
17	Other current liabilities	(3,146)	(3,954)	808	-20.4%
	Total net working capital	28,022	16,681	11,341	68.0%

	Assets destined for sale	1,218	0	1,218	n.s.
	Liabilities destined for sale	(1,134)	0	(1,134)	n.s.
	Total liabilities destined for sale	84	0	84	n.s.
	Shareholders' equity
18	Share capital	(5,704)	(5,704)	0	0.0%
19	Reserves	(19,759)	(19,805)	46	-0.2%
20	Treasury shares	0	0	0	0.0%
21	Retained earnings (accumulated losses)	(32,428)	(33,265)	837	-2.5%
	Total shareholders' equity	(57,891)	(58,774)	883	-1.5%

	Total net assets	(2,338)	(12,027)	9,689	-80.6%
22	Cash and cash equivalents	5,716	12,136	(6,420)	-52.9%
23	Current bank borrowing	(4,413)	(1,942)	(2,471)	n.s.
24	Other current financial assets and liabilities	(251)	950	(1,201)	n.s.
	Current net financial position	1,052	11,144	(10,092)	-90.6%

25	Non-current financial assets	1,275	1,306	(31)	-2.4%
26	Non-current bank debt	(1,465)	(383)	(1,082)	n.s.
27	Other non-current financial liabilities	(32)	(40)	8	-19.1%
	Non-current net financial position	(222)	883	(1,105)	n.s.
	NFP of continuing operations	830	12,027	(11,197)	-93.1%
	NFP of assets destined for sale	1,508	0	1,508	n.s.

	Total net financial position	2,338	12,027	(9,689)	-80.6%

NON-CURRENT ASSETS

1. Property, plant and equipment

This caption has decreased from Euro 6,619 thousand to Euro 6,092 thousand. Movements during the period were as follows:

Euro Thousands	1 July 2017	Additions	Disposals	Translation differences	Deprec'n	Use of accum. dep'n	Reclass, of Pipeworks assets	31 December 2017
Industrial buildings	4,358	0	0	(132)	(79)	0	0	4,147
Land	600	0	0	0	0	0	0	600
Industrial and commercial equipment	927	117	(7)	0	(134)	7	(165)	745
Other assets	734	19	0	0	(112)	0	(41)	600
Total	6,619	136	(7)	(132)	(325)	7	(206)	6,092

Property, plant and equipment, with the exception of land, are depreciated over their individual useful lives.

Industrial buildings includes the Trezzano sul Naviglio warehouse, the freehold building used as office and laboratory premises in Via Labus, Milan (the headquarters of Digital Bros Game Academy S.r.l.) and the property in Eugene, Oregon which is owned by 133 W. Broadway and used by Pipeworks Inc. as its operational headquarters.

Land includes the land on which the warehouse in Trezzano sul Naviglio stands; it is valued at Euro 600 thousand.

Total additions for the period amount to Euro 136 thousand and mainly comprise office automation equipment.

"Reclassification of Pipeworks assets" reflects the property, plant and equipment of Pipeworks Inc. which have been reclassified to Assets destined for sale.

3. Intangible assets

All of the intangible assets recognised by the Group have finite useful lives.

The following table shows movements during the six months ended 31 December 2017:

Euro Thousands	1 July 2017	Additions	Disposals	Translation differences	Amort'n	Reclass. of Pipeworks assets	31 December 2017
Concessions and
licences	12,600	1,864	(411)	(29)	(3,282)	(26)	10,716
Trademarks and
similar rights	3,259	2	0	0	(112)	(73)	3,076
Other assets	89	0	0	0	(2)	0	87
Assets in progress	2,919	1,810	(1,791)	0	0	0	2,938
Total	18,867	3,676	(2,202)	(29)	(3,396)	(99)	16,817

Assets in progress includes costs incurred by the Group to purchase intellectual property and the costs incurred by DR Studios Ltd., Pipeworks Inc. and Hawken Entertainment Inc. in relation to contracts for the development of video games for other Group companies which had not yet been completed at the reporting date.

Capex on intangible assets during the period was as follows:

Euro Thousands	31 December 2017

Premium Games rights of usage	1,500
Free to Play rights of usage	299
Investment on development of management systems	48
Other rights of usage	17
Total increases in concessions and licences	1,864
Total increases in trademarks and similar rights	2
Internal development contracts in progress	1,360
Premium Games assets in progress	450
Total increases in assets in progress	1,810
Total increases in intangible assets	3,676

"Reclassification of Pipeworks assets" reflects the intangible assets of Pipeworks Inc. which have been reclassified to Assets destined for sale.

When preparing this half-yearly report, the Directors did not identify any indicators of impairment to noncurrent assets, also based on sales forecast and estimated in the approved strategic plan.

4. Investments

Euro Thousands	31 December 2017	30 June 2017	Change
Delta Dna Ltd.	60	60	0
Ebooks&Kids S.r.l.	52	52	0
Cityglance S.r.l. in liquidation	0	2	(2)
Ovosonico S.r.l.	720	720	0
Seekhana Ltd.	528	511	17

The investments held by the Group at 31 December 2017 and 30 June 2017 are as follows:

Movements during the period on investments in associated companies are described in Note 3 "Investments in associated companies and other entities".

Total investments 1,360 1,345 15

5. Non-current receivables and other assets

At 31 December 2017, non-current receivables and other assets amounted to Euro 1,045 thousand.

Non-current receivables and other assets consist of guarantee deposits in relation to contractual obligations and are analysed as follows:

Euro Thousands	31 December 2017	30 June 2017	Change
Guarantee deposits for office rental by Italian companies	635	635	0
Guarantee deposits for office rental by non-Italian companies	187	194	(7)
Guarantee deposits for utilities	3	3	0
Guarantee deposits for the AAMS and Bingo concessions	220	220	0
Total non-current receivables and other assets	1,045	1,052	(7)

6. Deferred tax assets

Deferred tax assets are calculated on tax loss carryforwards and temporary differences between the carrying amount of an asset or liability in the statement of financial position and its tax basis. They are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates/laws that have been enacted or substantively enacted by the end of the reporting period.

At 31 December 2017, the balance stood at Euro 2,766 thousand, a decrease of Euro 41 thousand compared to 30 June 2017.

The following table provides a breakdown of the Group's deferred tax assets between Italian companies, foreign companies and consolidation adjustments:

Euro Thousands	31 December 2017	30 June 2017	Change
Italian companies	510	508	2
Foreign companies	2,408	2,625	(217)
Consolidation adjustments	(152)	(326)	174
Total deferred tax assets	2,766	2,807	(41)

NON-CURRENT LIABILITIES

7. Employee benefits

"Employee benefits" reflects the actuarial value of the Group's effective liability towards employees, as calculated by an independent actuary in accordance with IAS 19. It has increased by Euro 9 thousand compared to 30 June 2017.

The IAS 19 actuarial valuation at 31 December 2017 was performed using a discount rate based on the Iboxx Corporate A 10y+ index, consistent with the rate used at 30 June 2017. Use of a discount rate based on the Iboxx Corporate AA index would not have made a significant difference.

The calculation method can be summarised as follows:

for each employee on the payroll, projection of the termination indemnity already provided for at 31 December 2006 and revalued as of the measurement date;
calculation for each employee of the probable termination indemnity that the Company will have to pay in the event of the employee's departure due to dismissal, resignation, disability, death or retirement and in the event of requests for advances;
discounting of each probable payment to present value.

The estimate is based on a period end headcount at the Italian companies of 79 employees.

The economic and financial parameters used in the actuarial calculation are as follows:

annual interest rate: 1.61%;
annual rise in real pay: 1%;
annual inflation rate of 1.50%.

The following table shows movements in the provision for employee termination indemnities in the period ended 31 December 2017 and in the corresponding prior year period:

Euro Thousands	31 December 2017	30 June 2017
Provision for employee termination indemnities at 1 July	545	529
Benefits paid on termination of service	(24)	(4)
Allocations to provision in the year	113	208
Measurement of supplementary pension schemes	(86)	(163)
Actuarial measurement	6	(25)
Provision for employee termination indemnities at 31 December 2017	554	545

The Group is not party to any supplementary pension plans.

8. Non-current provisions

This item consists entirely of the agents' leaving indemnity provision. The balance of Euro 79 thousand at 31 December 2017 is unchanged compared to 30 June 2017.

9. Non-current other payables and liabilities

At 31 December 2017, as at 30 June 2017, there were no Non-current other payables and liabilities.

NET WORKING CAPITAL

10. Inventories

Inventories consist of finished products for resale. The table below provides details of inventories by distribution channel:

Euro Thousands	31 December 2017	30 June 2017	Change
Italian Distribution inventories	6,056	5,319	737
Premium Games inventories	7,323	7,496	(173)
Total Inventories (A+B)	13,379	12,815	564

Inventories have increased by Euro 564 thousand from Euro 12,815 thousand at 30 June 2017 to Euro 13,379 thousand at 31 December 2017.

11. Trade receivables

Changes during the period in receivables from customers and receivables for video game licences are as follows:

Euro Thousand	31 December 2017	30 June 2017	Change
Receivables from customers - Italy	4,787	3,825	962
Receivables from customers – Other EU	1,238	3,629	(2,391)
Receivables from customers - Rest of the world	4,681	11,647	(6,966)
Provision for doubtful debts	(688)	(644)	(44)
Total receivables from customers	10,018	18,457	(8,439)
Receivables for video game licences	21,422	18,306	3,116
Total trade receivables	31,440	36,763	(5,323)

At 31 December 2017, total receivables from customers amounted to Euro 10,018 thousand, a decrease of Euro 8,439 thousand compared to the figure of Euro 18,457 thousand at 30 June 2017; this decrease is in line with the reduction in revenue. The increase in receivables from customers in Italy is due to seasonal market factors.

Receivables from customers are stated net of the estimated credit notes the Group may have to issue for price repositioning or returns.

The provision for doubtful debts has increased by Euro 44 thousand from Euro 644 thousand at 30 June 2017 to Euro 688 thousand at 31 December 2018. The bad debt provision is estimated following a detailed analysis of each balance in order to assess customers' ability to pay. The change is the result of the allocation of Euro 46 thousand to take account of potential losses arising from the bankruptcy of several customers and utilisation of Euro 2 thousand to cover specific balances.

Receivables for video game user licenses consist of advances paid towards the purchase of video game licences whose utilisation had not begun or had not been completed at the reporting date. The increased by Euro 3,116 thousand during the period to stand at Euro 21,422 thousand. Details are provided as follows:

Amounts in Euro	31 December 2017	30 June 2017	Change
Advances to developers for licences not yet used	17,150	14,360	2,790
Advances to developers for licences partially used	4,272	3,946	326
Total receivables for video game user licenses	21,422	18,306	3,116

The increase compared to 30 June 2017 is mainly due to Euro 2,790 thousand of investments made by the Group on video games to be published in future.

12. Current tax assets

Details of current tax assets are provided below:

Euro Thousands	31 December 2017	30 June 2017	Change
Receivable under domestic tax group arrangements	486	1	485
VAT receivable	757	627	130
Tax credit for foreign income tax withholdings	928	986	(58)
IRES refund for IRAP deductibility	119	119	0
Other receivables	370	331	39
Total current tax assets	2,660	2,064	596

Current tax assets increased by Euro 596 thousand from Euro 2,064 thousand at 30 June 2017 to Euro 2,660 thousand at 31 December 2017.

The increase in the Receivable under domestic tax group arrangements is due to the lower taxable income of the Italian companies.

13. Other current assets

Other current assets consist of advances paid to suppliers, employees and agents. They increased from Euro 3,263 thousand at 30 June 2017 to Euro 3,356 thousand at 31 December 2017. Details of the balance are provided below:

Euro Thousands	31 December 2017	30 June 2017	Change
Advances to suppliers	3,153	3,033	120
Advances to employees	109	115	(6)
Advances to agents	6	7	(1)
Other receivables	78	108	(30)
Total other current assets	3,346	3,263	83

Advances to suppliers consist of costs incurred in advance, particularly for localisation and programming of video games and other operating costs, as well as amounts advanced for game production, the rental of equipment and office space. Details are provided below:

Euro Thousands	31 December 2017	30 June 2017	Change
Advertising	46	75	(29)
Insurance	63	100	(37)
Rent	209	209	(0)
Programming	215	278	(63)
Other operating costs	2,131	2,278	(147)
Other prepaid expenses	99	93	6
Production advances	390	0	390
Total other current assets	3,153	3,033	120

14. Trade payables

Trade payables amounted to Euro 16,876 thousand at 31 December 2017 and decreased by Euro 10,804 thousand compared to 30 June 2017. They were mostly due to publishers for the purchase of finished products and to developers. Details are provided below:

Euro Thousands	31 December 2017	30 June 2017	Change
Trade payables - Italy	(2,144)	(2,484)	340
Trade payables - EU	(8,345)	(11,644)	3,299
Trade payables - rest of the world	(6,387)	(13,552)	7,167
Total trade payables	(16,876)	(27,680)	10,806

The decrease, especially regarding trade payables to EU suppliers and suppliers in the rest of the world, is due to lower royalties payable and lower payables for the physical production of video games of 505 Games S.p.A. in line with the reduction in sales in the Premium Games operating segment in the entire six-month period.

15. Current tax liabilities

Current tax liabilities decreased by Euro 3,809 thousand from Euro 5,736 thousand at 30 June 2017 to Euro 1,927 thousand at 31 December 2017. Details are provided below:

Euro Thousands	31 December 2017	30 June 2017	Change
Income tax	(924)	(4,127)	3,203
VAT payable	(163)	(789)	626
Other tax liabilities	(840)	(820)	(20)
Total current tax liabilities	(1,927)	(5,736)	3,809

The decrease in this caption is mainly due to the lower income tax liability in line with results for the period.

16. Current provisions

This caption amounts to Euro 854 thousand and is unchanged compared to 30 June 2017. It represents the Directors' estimate – also considering the opinion of their tax advisors – of the liabilities emerging from the tax inspection report issued to subsidiary 505 Games S.p.A. in July 2017 and contained in the tax demand received in December 2017. The Directors assessed the contingent liabilities resulting from the tax inspection process and concluded that, on the whole, they could not make a reliable estimate, except in relation to certain findings regarding royalties received by software developers. The Directors concluded that there was a probable risk in that case and created a provision for risks and charges of Euro 854 thousand. The Company has not made any provision in respect of the other findings although there is a risk of future liabilities as is typical in such processes.

17. Other current liabilities

Other current liabilities amount to Euro 3,146 thousand, a decrease of Euro 808 thousand compared to 30 June 2017. Details are provided below:

Euro Thousands	31 December 2017	30 June 2017	Change
Amounts due to social security institutions	(409)	(450)	41
Amounts due to employees	(746)	(1,038)	292
Amounts due to contract staff	(49)	(43)	(6)
Other payables	(1,942)	(2,423)	481
Total other current liabilities	(3,146)	(3,954)	808

Amounts due to employees include accrued holiday pay and leave of absence not taken by the end of the period as well as accruals for future payment of the 14th monthly salary and for variable remuneration pertaining to the half-year that is expected to be paid in September 2018.

The decrease in other payables is mainly due to the lower balance relating to training course registration already received by Digital Bros Game Academy S.r.l., but which are not attributable to the period due to the timing of the training courses.

SHAREHOLDERS' EQUITY

Euro Thousands	Share capital (A)	Share premium reserve	Legal reserve	IAS transition reserve	Translation reserve	Other reserves	Total reserves (B)	Treasury shares (C)	Retained earnings (Accumulated losses)	Profit (Loss) for the period	Total retained earnings (D)	Consolidated equity attributable to Group (A+B+C+D)
Total at 1 July 2017	5,704	18,486	1,129	1,367	(1,447)	270	19,805	0	21,968	11,297	33,265	58,774

Allocation of profit			12			0	12	0	11,285	(11,297)	(12)	0
Payment of dividends						0	0	0	(2,139)		(2,139)	(2,139)
Other changes						398	398	0	(4)		(4)	394
Comprehensive income (loss)					(452)	(4)	(456)	0	1,300	18	1,318	862

Total at 31 December 2017	5,704	18,486	1,141	1,367	(1,899)	664	19,759	0	32,410	18	32,428	57,891

Details of changes in shareholders' equity are provided in the consolidated statement of changes in equity. They may be summarised as follows:

As at 31 December 2017, share capital has not changed since 30 June 2017 and consists of 14,260,837 ordinary shares with a par value of Euro 0.4 each, amounting to Euro 5,704,334.80. No other types of shares are outstanding. There are no rights, liens or restrictions associated with the ordinary shares.

No specific uses or objectives have been designated for individual equity reserves, other than those laid down by law.

During the period movements on other reserves were as follows:

Euro Thousands	30 June 2017	Movements	31 December 2017
IAS 19 Reserve	(101)	(4)	(105)
Stock option reserve	371	398	769
Total	270	394	664

Comprehensive income includes Euro 1,300 thousand representing the consolidated profit and loss effect of the disposal of 12.5% of Pipeworks Inc. as previously described. This amount will be included in the profit for the period ended 31 March 2018 as the acquisition was completed on 23 February 2018.

NET FINANCIAL POSITION

The following table contains details of the Group's Net Financial Position at 31 December 2017 together with comparative figures at 30 June 2017:

	Euro Thousands	31 December 2017	30 June 2017	Change
22	Cash and cash equivalents	5,716	12,136	(6,420)
23	Current bank borrowing	(4,413)	(1,942)	(2,471)
24	Other current financial assets and liabilities	(251)	950	(1,201)
	Current net financial position	1,052	11,144	(10,092)
25	Non-current financial assets	1,275	1,306	(31)
26	Non-current bank borrowing	(1,465)	(383)	(1,082)
27	Other non-current financial liabilities	(32)	(40)	8
	Non-current net financial position	(222)	883	(1,105)
	NFP of continuing operations	830	12,027	(11,197)
	NFP of assets destined for sale	1,508	0	1,508
	Total net financial position	2,338	12,027	(9,689)

The total net financial position shows net cash of Euro 2,338 thousand, a decrease of Euro 9,689 thousand compared to 30 June 2017 when there was net cash of Euro 12,027 thousand. It includes Euro 830 thousand representing the net financial position of continuing operations and Euro 1,508 thousand representing the net financial position of assets destined for sale. The net financial position of assets destined for sale consists entirely of current account sight deposits.

The net financial position of continuing operations has decreased by Euro 11,197 thousand, mainly because of a Euro 6,420 thousand reduction in cash and cash equivalents (including Euro 1,508 thousand reclassified to assets destined for sale), Euro 2,471 thousand increase in current bank borrowing, a Euro 1,201 thousand increase in other current financial liabilities and a Euro 1,082 thousand increase in noncurrent bank borrowing.

The only financial liability due after more than five years regards Euro 488 thousand forming part of an unsecured loan granted to 133 W Broadway, Inc. by Intesa San Paolo S.p.A. New York Branch, as described in more detail below.

Current net financial position

The current net financial position includes the following:

	Euro Thousands	31 December 2017	30 June 2017	Change
22	Cash and cash equivalents	5,716	12,136	(6,420)
23	Current bank borrowing	(4,413)	(1,942)	(2,471)
24	Other current financial assets and liabilities	(251)	950	(1,201)
	Current net financial position	1,052	11,144	(10,092)

22. Cash and cash equivalents

At 31 December 2017, cash and cash equivalents were entirely unrestricted, amounted to Euro 5,716 thousand – Euro 6,420 thousand less than at 30 June 2017 - consisted solely of current account sight deposits.

23. Current bank borrowing

Current bank borrowing consists of bank overdrafts and the current portion of loans repayable in instalments. The Euro 2,471 thousand increase in current bank borrowing compared to 30 June 2017 is attributable to a Euro 2,420 thousand increase in in advances on invoices and subject to collection and to a Euro 51 thousand increase in loan repayments due within a year.

Details are provided below:

Euro Thousands	31 December 2017	30 June 2017	Change
Advances on invoices and subject to collection	(2,420)	0	(2,420)
Loan instalments due within a year	(1,993)	(1,942)	(51)
Total current bank borrowing	(4,413)	(1,942)	(2,471)

At 31 December 2017, loan instalments due within a year included:

Euro 237 thousand representing the entire outstanding amount of a loan from Unicredit S.p.A. to Digital Bros S.p.A. which matures in January 2018;
Euro 1,512 thousand representing the entire outstanding amount of a medium/long-term loan Unicredit S.p.A. to 505 Games S.p.A.;
Euro 244 thousand representing the current portion of an unsecured loan granted to 133 W Broadway, Inc. by Intesa San Paolo S.p.A. New York Branch.

The loan from Unicredit S.p.A. to Digital Bros S.p.A. was disbursed on 1 April 2015 in the amount of Euro 2.5 million. The loan agreement provides for payment of interest and repayment of principal in quarterly instalments in arrears from 31 July 2015. The loan is subject to a variable rate of interest determined on the Euribor 3 month rate plus a margin of 3.50 percentage points.

The loan granted by Unicredit S.p.A. to 505 Games S.p.A. provides for one or more partial disbursements up to a maximum of Euro 3,900,000 in order to provide partial funding of the capex relating to the development cost of the software Bloodstained. The loan will be available until 30 September 2018 and 505 Games S.p.A. undertakes to repay the loan within six months of 1 March 2018 in due quarterly instalments in arrears, as due on 1 June 2018 and 1 September 2018. 505 Games S.p.A. will make quarterly interest payments on each loan disbursement as calculated based on a variable quarterly rate equal to the Euribor 3 month rate, rounded up to the next 0.05 and increased by a margin of 3 percentage points. If the Euribor Management Committee fails to indicate the Euribor rate, the Libor Euro rate on the London market will be used; in periods when the Euribor rate or the substitute rate are negative, the interest rate shall be equal to the aforementioned margin.

The unsecured loan granted by Intesa Sanpaolo S.p.A. New York Branch to 133 W. Broadway Inc. was disbursed on 30 October 2017 in the amount of USD 2,050 thousand. The loan provides for repayment in 28 quarterly instalments – the first instalment is due on 31 January 2018 and the last on 31 October 2024. There is a variable interest rate determined based on the 12 month Libor USD rate plus a margin of 2 pp.

24. Other current financial assets and liabilities

Euro Thousands	31 December 2017	30 June 2017	Change
Starbreeze B shares	0	2,972	(2,972)
Advances against trade receivables under non
recourse factoring arrangements	(236)	(218)	(18)
Current lease obligations	(15)	(15)	0
Loan for purchase of property at 133 W Broadway	0	(1,789)	1,789
Total other current financial assets and liabilities	(251)	950	(1,201)

Other current financial assets and liabilities are detailed as follows:

The Starbreeze B shares held by Digital Bros at 30 June 2017 were all sold during the period, generating a net gain of Euro 88 thousand.

Advances against trade receivables under non-recourse factoring arrangements amounted to Euro 236 thousand and increased by Euro 18 thousand compared to 30 June 2017.

Current lease obligations of Euro 15 thousand relate to two lease agreements entered into in the prior financial year with Unicredit Leasing.

The loan for the purchase of a property at 133 W Broadway, Inc., amounting to Euro 1,789 thousand, was fully extinguished during the period following the arrangement of an unsecured loan from Intesa Sanpaolo S.p.A. New York Branch to finance the purchase of the property in Eugene, Oregon, the site of Pipeworks Inc.'s headquarters.

Non-current net financial position

The non-current net financial position is analysed as follows:

	Euro Thousands	31 December 2017	30 June 2017	Change
25	Non-current financial assets	1,275	1,306	(31)
26	Non-current bank borrowing	(1,465)	(383)	(1,082)
27	Non-current other financial liabilities	(32)	(40)	8
	Non-current net financial position	(222)	883	(1,105)

25. Non-current financial assets

The balance consists entirely of a loan of JPY 150,000,000 granted by 505 Games S.p.A. to Shinshuppatsu Junbi Co. Ltd.. The loan bears interest at an annual rate of 7 percent and is repayable on demand. However, the Group expects that the counterparty will utilise the loan for at least two more years. The loan was granted to the company as part of a broader commercial agreement concerning the development of a number of video games. The change compared to 30 June 2017 is attributable to the recognition of interest and to the restatement of the loan at the reporting date exchange rate.

26. Non-current bank borrowing

Non-current bank borrowing includes the non-current portion of the unsecured loan granted to 133 W Broadway, Inc. by Intesa Sanpaolo S.p.A. New York Branch and described under Current bank borrowing.

27. Other non-current financial liabilities

The residual amount of Euro 32 thousand consists entirely of lease instalments due after more than a year in relation to two finance lease agreements with Unicredit Leasing.

COMMITMENTS AND RISKS

The Group's commitments almost entirely consist of commitments made in contracts it has signed:

Euro Thousands	31 December 2017	30 June 2017	Change
Commitments under contracts signed	(18,721)	(26,875)	(8,154)
Commitments to subscribe Seekhana Ltd share capital	(1,151)	(1,227)	(76)
Total commitments	(19,872)	(28,102)	(8,230)

Commitments under contracts signed relate to future outlays the Group will make in relation to licenses and user rights to video games not yet completed or which had not yet entered production at the reporting date.

The commitments to subscribe Seekhana Ltd.'s share capital relates to an agreement signed on 18 January 2016 for the subscription of a total of USD 2,000,000; USD 620 thousand of this amount had already been paid at 31 December 2017.

5. ANALYSIS OF STATEMENT OF PROFIT OR LOSS

3. Net revenue

Details are provided below of revenue by operating segment, except for the Holding segment, which does not generate revenue:

	Euro Thousands	Free to Play	Premium Games	Italian Distribution	Other Activities	Total
1	Gross revenue	2,699	30,584	10,375	404	44,062
2	Revenue adjustments	0	(2,291)	(972)	(101)	(3,364)
3	Total net revenue	2,699	28,293	9,403	303	40,698

At 31 December 2016, the breakdown was as follows:

	Euro Thousands	Free to Play	Premium Games	Italian Distribution	Other Activities	Total
1	Gross revenue	3,866	47,536	10,474	404	62,280
2	Revenue adjustments	0	(2,335)	(895)	(224)	(3,454)
3	Total net revenue	3,866	45,201	9,579	180	58,826

There were no significant new video game launches on international markets during the period. This is in contrast to prior year which benefited from the launch of console versions of the game Assetto Corsa and from sales of the Rocket League video game. Consequently, the Group's gross revenue for the six months ended 31 December 2017 amounted to Euro 44,062 thousand, a 29.3% decrease compared to the figure of Euro 62,280 thousand reported for the corresponding period in prior year. Net revenue amounted to Euro 40,698 thousand, down by 30.8% on the Euro 58,826 thousand reported for the six months ended 31 December 2016.

The following table contains a breakdown of revenue by operating segment at 31 December 2017 with comparatives for the corresponding period of prior year:

Euro Thousands		Gross revenue				Net revenue
	2017	2016	Change		2017	2016	Change
Premium Games	30,584	47,535	(16,951)	-35.7%	28,293	45,201	(16,908)	-37.4%
Italian Distribution	10,375	10,475	(100)	-1.0%	9,403	9,580	(177)	-1.8%
Free to Play	2,699	3,866	(1,167)	-30.2%	2,699	3,866	(1,167)	-30.2%
Other Activities	404	404	0	0.0%	303	179	124	69.3%
Total gross
revenue	44,062	62,280	(18,218)	-29.3%	40,698	58,826	(18,128)	-30.8%

Amounts in Euro Thousands	31 December 2017	31 December 2016	Change
PAYDAY 2	3,833	7,519	(3,686)
Terraria	3,793	7,448	(3,655)
Assetto Corsa	3,456	9,119	(5,663)
Portal Knights	2,039	855	1,184
Sniper Elite V3	1,397	2,916	(1,519)
Abzu	568	2,865	(2,297)
Retail products	12,981	13,927	(946)
Other products	2,517	2,886	(369)
Total gross revenue- Premium Games	30,584	47,535	(16,951)

Italian Distribution revenue was in line with that for the first half of prior year.

25. Net finance income (expense)

This caption is analysed as follows:

	Euro Thousands	31 December 2017	31 December 2016	Change	%
23	Interest and finance income	763	8,725	(7,962)	-91.3%
24	Interest and finance expenses	(535)	(1,963)	1,428	-72.7%
25	Net finance income (expense)	228	6,762	(6,534)	-96.6%

Net finance income totalled Euro 228 thousand against Euro 6,762 thousand for the six months ended 31 December 2016.

Interest and finance income is analysed as follows:

Euro Thousands	31 December 2017	31 December 2016	Change	%
Exchange gains	643	1,045	(402)	-38.4%
Finance income	88	7,598	(7,510)	-98.8%
Other	31	82	(51)	-61.7%
Total interest and finance income	763	8,725	(7,962)	-91.3%

Interest and finance income has decreased by Euro 7,962 thousand compared to the corresponding period in prior year as the period ended 31 December 2016 included the gain of Euro 7,598 thousand on the sale of Starbreeze shares.

Interest and finance expenses for the period amounted to Euro 535 thousand, a decrease of Euro 1,428 thousand compared to the same period in prior year. The caption mainly includes exchange losses of Euro 421 thousand (down by Euro 377 thousand compared to the period ended 31 December 2016). Interest expenses amounted to Euro 114 thousand, a decrease of 73.4% compared to the total of Euro 429 thousand recorded in the same period in prior year.

Details of interest and finance expenses are provided below:

	31	31
Euro Thousands	December 2017	December 2016	Change	%
Interest expense on current accounts and trading activities	(35)	(310)	275	-88.6%
Interest expense on loans and leases	(73)	(115)	42	-36.8%
Interest on factoring	(6)	(4)	(2)	46.2%
Total interest expenses on sources of finance	(114)	(429)	315	-73.4%
Exchange losses	(421)	(798)	377	-47.3%
Finance expenses	0	(736)	736	n.s.
Total interest and finance expenses	(535)	(1,963)	1,428	-72.7%

29. Taxation

Details of current and deferred taxes for the period ended 31 December 2017 are provided below:

Euro Thousands	31 December 2017	31 December 2016	Change	%
Current tax	(430)	(3,090)	2,660	-86.1%
Deferred tax	195	72	123	n.s.
Total income tax expense	(235)	(3,018)	2,783	-92.2%

The decrease in the income tax expense compared to 31 December 2016 is in line with the Group's income and profit trends for the period ended 31 December 2017.

6. NON-RECURRING INCOME AND EXPENSES

As required by Consob Resolution 15519 of 27 July 2006, non-recurring income and expenses are shown separately in the statement of profit or loss. These are generated by transactions or events that by nature do not occur on a regular basis in the ordinary course of business.

The Group did not recognise any non-recurring income and expenses in the period.

7. INFORMATION BY OPERATING SEGMENT

As a result of the decision to sell a 12.5% interest in Pipeworks Inc. while granting the purchaser a call option on the remaining shares, the revenue and costs of said subsidiary have been disclosed separately at the foot of the consolidated statement of profit or loss and separated from the profit and loss items of the other companies consolidated line-by-line. As the Development operating segment consisted entirely of the activities of said subsidiary, it has been omitted and no prior year comparative information for it has been provided. The Group is organised into six operating segments:

Premium Games;
Free to Play;
Italian Distribution;
Other Activities;
Development
Holding.

The Directors monitor the results of each operating segment separately in order to decide how to allocate resources and verify results. Finance income and expenses (including loan interest and charges) and income tax are managed at Group level and are not allocated to the operating segments.

The results by operating segment for the periods ended 31 December 2017 and 2016 are set out below. In order to ensure a proper comparison, the results at 31 December 2016 have been restated based on the new classification described above.

Gruppo Digital Bros Bilancio consolidato e bilancio separato al 30 June 2017

			Premium		Other
	Consolidated figures in Euro Thousands	Free to Play	Games	Italian Distribution	Activities	Holding	Total

1	Revenue	2,699	30,584	10,375	404	0	44,062
2	Revenue adjustments	0	(2,291)	(972)	(101)	0	(3,364)
3	Total revenue	2,699	28,293	9,403	303	0	40,698

4	Purchase of products for resale	0	(4,396)	(6,680)	0	0	(11,076)
5	Purchase of services for resale	(1,283)	(1,212)	(671)	(24)	0	(3,190)
6	Royalties	(129)	(9,371)	0	(17)	0	(9,517)
7	Changes in inventories of finished products	0	(173)	737	0	0	564
8	Total cost of sales	(1,412)	(15,152)	(6,614)	(41)	0	(23,219)

9	Gross profit (3+8)	1,287	13,141	2,789	262	0	17,479

10	Other income	718	294	12	0	67	1,091

11	Costs for services	(264)	(2,507)	(854)	(256)	(756)	(4,637)
12	Lease and rental charges	(45)	(279)	(21)	(6)	(368)	(719)
13	Personnel costs	(1,591)	(4,360)	(754)	(460)	(1,826)	(8,991)
14	Other operating costs	(33)	(199)	(92)	(24)	(215)	(563)
15	Total operating costs	(1,933)	(7,345)	(1,721)	(746)	(3,165)	(14,910)

16	Gross operating margin (EBITDA) (9+10+15)	72	6,090	1,080	(484)	(3,098)	3,660

17	Depreciation and amortisation	(1,106)	(2,164)	(158)	(192)	(101)	(3,721)
18	Allocations to provisions	0	0	0	0	0	0
19	Impairment adjustments to assets	0	(7)	(53)	0	(20)	(80)
20	Reversal of impairment adjustments and non-monetary income	0	0	0	0	0	(0)
21	Total non-monetary income and operating costs	(1,106)	(2,171)	(211)	(192)	(121)	(3,801)

22	Operating margin (EBIT) (16+21)	(1,034)	3,919	869	(676)	(3,219)	(141)

Consolidated statement of profit or loss by operating segment for the period ended 31 December 2017

Gruppo Digital Bros Relazione finanziaria semestrale al 31 dicembre 2015

Consolidated statement of profit or loss by operating segment for the period ended 31 December 2016

			Premium		Other
	Consolidated figures in Euro Thousands	Free to Play	Games	Italian Distribution	Activities	Holding	Total
1	Revenue	3,866	47,535	10,475	404	(0)	62,280
2	Revenue adjustments	0	(2,335)	(895)	(224)	0	(3,454)
3	Total revenue	3,866	45,200	9,580	180	(0)	58,826

4	Purchase of products for resale	(0)	(9,067)	(6,620)	0	0	(15,687)
5	Purchase of services for resale	(2,264)	(2,276)	(252)	(92)	0	(4,884)
6	Royalties	(207)	(17,667)	0	(39)	0	(17,913)
7	Changes in inventories of finished products	0	647	501	0	0	1,148
8	Total cost of sales	(2,471)	(28,363)	(6,371)	(131)	0	(37,336)

9	Gross profit (3+8)	1,395	16,837	3,209	49	(0)	21,490

10	Other income	496	14	22	0	76	608

11	Costs for services	(474)	(3,356)	(854)	(631)	(720)	(6,035)
12	Lease and rental charges	(33)	(293)	(23)	(6)	(373)	(728)
13	Personnel costs	(1,454)	(3,486)	(767)	(349)	(1,419)	(7,475)
14	Other operating costs	(34)	(247)	(92)	(22)	(746)	(1,141)
15	Total operating costs	(1,995)	(7,382)	(1,736)	(1,008)	(3,258)	(15,379)

16	Gross operating margin (EBITDA) (9+10+15)	(104)	9,469	1,495	(959)	(3,182)	6,719

17	Depreciation and amortisation	(1,289)	(1,214)	(102)	(187)	(106)	(2,898)
18	Allocations to provisions	0	0	0	0	0	0
19	Impairment adjustments to assets	0	0	(405)	0	0	(405)
20	Reversal of impairment adjustments and non-monetary income	0	0	0	0	0	0
21	Total non-monetary income and operating costs	(1,289)	(1,214)	(507)	(187)	(106)	(3,303)

22	Operating margin (EBIT) (16+21)	(1,393)	8,255	988	(1,146)	(3,288)	3,416

Gruppo Digital Bros Relazione finanziaria semestrale al 31 dicembre 2015

On 15 March 2017, the Group acquired the Italian company Kunos Simulazioni S.r.l., developer and publisher of the video game Assetto Corsa.

The Group operates globally in this segment under the 505 Games Mobile brand.

Italian Distribution: this consists of the distribution in Italy of video games purchased from international publishers.

Business operations are conducted by the parent, Digital Bros S.p.A., under the Halifax brand and by the subsidiary Game Entertainment S.r.l. through the newsstand distribution channel.

The Group also distributes the Yu-Gi-Oh! trading card game in Italy.

Development: the Development operating segment designs and develops video games and similar applications. Its operations are conducted through a dedicated organisational structure. The operating segment undertakes development projects on behalf of Group companies and external customers. This work is performed exclusively by Pipeworks Inc.

Holding: this includes all the coordinating functions carried out directly by Digital Bros S.p.A.. The Holding operating segment also handles administration, management control and business development. The parent company has also been supported by Digital Bros China Ltd. which operates as business developer for Asian markets and by 133 W Broadway Inc., owner of the Group's leased property in Eugene, Oregon, USA. Digital Bros Holdings Ltd. was inactive during the period.

Information by geographical area

Gross revenue is analysed by geographical area as follows:

Euro Thousands		31 December 2017 31 December 2016		Change
Europe	8,591	19%	19,382	31%	(10,791)	-56%
The Americas	22,615	51%	28,593	46%	(5,978)	-21%
Rest of the world	2,077	5%	3,426	6%	(1,349)	-39%
Total foreign revenue	33,283	75%	51,401	83%	(18,118)	-35%
Italy	10,779	25%	10,879	17%	(100)	-1%
Total gross consolidated revenue	44,062	100%	62,280	100%	(18,218)	-29%

Foreign revenue accounted for 76% of gross consolidated revenue compared to 83% in the corresponding period of prior year; it has decreased by 35% compared to the period ended 31 December 2016.

Rest of the world revenue relates to sales made by the subsidiary 505 Games Ltd., mainly in Australia, the Middle East and South Africa.

The most significant portion of foreign revenue is generated by the Premium Games operating segment - it generated foreign revenue of Euro 30,584 thousand, accounting for 92% of total foreign revenue. Details of gross foreign revenue by operating segment are provided below:

Euro Thousands	31 December 2017 31 December 2016			Change
Free to Play	2,699	8%	3,866	15%	(1,167)	-30.2%
Premium Games	30,584	92%	47,535	83%	(16,951)	-35.7%
Total foreign gross revenue	33,283	100%	51,401	100%	(18,118)	-35.2%

8. RELATED PARTY TRANSACTIONS

In accordance with Consob Resolution 17221 of 12 March 2010, it is hereby disclosed that all commercial and financial transactions between Digital Bros Group companies and between those companies and other non-subsidiary related parties have been conducted at arm's length and cannot be classed as atypical or unusual transactions.

Intercompany transactions

Intercompany transactions have been described in section 8 of the Directors' Report on intercompany and related party transactions and atypical/unusual transactions.

Other related parties

Related party transactions regard:

legal advice provided by director Dario Treves;
Property leases by Matov Imm. S.r.l. to the parent company and to subsidiary 505 Games France S.a.s.;
A property lease by Matov LLC to subsidiary 505 Games (US) Inc.

Both Matov Imm. S.r.l. and Matov LLC are owned by Abramo and Raffaele Galante.

Related party balances at 31 December 2017 are summarised below:

Euro Thousands		Receivables	Payables		Revenue	Costs
	Trade	Financial	Trade	Financial
Dario Treves	0	0	(7)	0	0	(138)
Matov Imm. S.r.l.	0	635	0	0	0	(368)
Matov LLC	0	124	0	0	0	(197)
Total	0	759	(7)	0	0	(703)

At 31 December 2016, they were as follows:

Euro Thousands	Receivables		Payables		Revenue	Costs
	Financial	Trade	Financial		Financial	Trade
Dario Treves	0	0	(22)	0	0	(131)
Matov Imm. S.r.l.	0	635	0	0	0	(376)
Matov LLC	0	140	0	0	0	(206)
Total	0	775	(22)	0	0	(713)

Digital Bros S.p.A.'s financial receivable from Matov Imm. S.r.l. relates to a guarantee deposit paid for the rental of office premises at Via Tortona 37, Milan.

505 Games (US) Inc.'s financial receivable from Matov LLC relates to a guarantee deposit paid for the rental of office premises in Calabasas, California, where several US subsidiaries are based.

During the period, Digital Bros S.p.A. paid Matov Imm S.r.l. rent totalling Euro 345 thousand.

The rent paid by 505 Games France S.as. for the offices in Francheville during the period amounted to Euro 23 thousand.

In November 2013, a lease agreement was entered into between the subsidiary 505 Games (US) Inc. and Matov LLC, a related party owned by the Galante family. The transaction was governed by the "Procedure for related party transactions" adopted by Digital Bros S.p.A. pursuant to Consob Regulation 17221 of 12 March 2010 and envisages an annual lease charge of USD 408 thousand.

Tax consolidation

Since the introduction of the tax consolidation regime into Italian tax law, in its capacity as parent/consolidating company, Digital Bros S.p.A. has opted for tax consolidation for the period 2015- 2017, with the companies 505 Games Mobile S.r.l., Game Entertainment S.r.l., Game Service S.r.l., 505 Games S.p.A., Digital Bros Game Academy S.r.l. and Game Network S.r.l. Participation in a domestic tax group has made it necessary to prepare an implementing regulation to govern intercompany transactions to ensure there are no grounds for prejudice against individual participants in the system.

9. ATYPICAL OR UNUSUAL TRANSACTIONS

There were no atypical or unusual transactions in the period just ended or in the corresponding prior year period, as defined by Consob Communication DEM 6064293 of 28 July 2006.

STATEMENT PURSUANT TO ART. 154- BIS (5) OF THE CONSOLIDATED FINANCE ACT

The undersigned Abramo Galante - chairman of the Board of Directors - and Stefano Salbe - as financial reporting manager of Digital Bros Group - hereby declare, also in accordance with Art. 154-bis (3) and (4) of Legislative Decree 58 of 24 February 1998:

appropriateness in relation to the characteristics of the business and
the effective application of the administrative and accounting procedures for the preparation of the half-yearly financial report for the six months ended 31 December 2017. No issues have been identified.

We also confirm that:

1. Digital Bros Group's half-yearly financial report for the six months ended 31 December 2017:
a) has been prepared in accordance with the applicable international accounting standards endorsed by the European Union pursuant to Regulation 1606/2002/EC of the European Parliament and the Council of 19 July 2002;
b) reflects the contents of the accounting books and records;
c) gives a true and fair view of the results and financial position of the issuer and of the entities included in the consolidation;
1. the Directors' Report contains a reliable analysis of the operating performance and results, as well as of Digital Bros S.p.A. and the other consolidated entities, together with a description of the main risks and uncertainties to which they are exposed.

Milan, 28 February 2018

Signed

The Chairman of the Board of Directors The Manager responsible for

Abramo Galante Stefano Salbe

financial reporting

AI Terminal

Digital Bros

4287_rns_2018-03-22_a7663ef1-3e3f-466a-8f16-2d5d6472d0e5.pdf

Half-yearly financial report for the six months ended 31 December 2017

(1st half of financial year 2017/2018)

BOARD OF DIRECTORS AND SUPERVISORY BODIES

Board of Directors

Internal control and risk committee

Board of statutory auditors

External auditors

Other information

DIRECTORS' REPORT

1. GROUP STRUCTURE

GROUP STRUCTURE AT 31 DECEMBER 2017

2. THE VIDEO GAMES MARKET

Developers

Publishers

Console Manufacturers

Distributors

Retailers

3. MARKET SEASONALITY

4. SIGNIFICANT EVENTS DURING THE PERIOD

5. GUIDELINES

Earnings per share at 31 December 2017

7. ANALYSIS OF THE STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2017

8. PERFORMANCE BY OPERATING SEGMENT

Premium Games

Free to Play

Italian Distribution

Other Activities

Holding

Reclassified income statement highlights

9. INTERCOMPANY AND RELATED PARTY TRANSACTIONS AND ATYPICAL/UNUSUAL TRANSACTIONS

Intercompany transactions

Related party transactions

Atypical transactions

10. TREASURY SHARES

11. RECONCILIATION BETWEEN RESULT FOR THE PERIOD AND EQUITY OF THE PARENT COMPANY AND THOSE OF THE GROUP

12. CONTINGENT ASSETS AND LIABILITIES

13. EVENTS AFTER THE REPORTING PERIOD

14. BUSINESS OUTLOOK

SECOND HALF OF THE FINANCIAL YEAR ENDED 30 JUNE 2018

FINANCIAL YEAR ENDED 30 JUNE 2019

15. OTHER INFORMATION

EMPLOYEES

ENVIRONMENT

Condensed consolidated financial statements for the period ended 31 December 2017

FINANCIAL STATEMENTS

Consolidated statement of financial position as at 31 December 2017

Consolidated statement of profit or loss for the period ended 31 December 2017

Earnings per share at 31 December 2017

Consolidated statement of comprehensive income for the period ended 31 December 2017

Consolidated statement of cash flows for the period ended 31 December 2017

Notes to statement of cash flows

Details of cash flows by maturity:

Consolidated statement of changes in equity

Notes to the condensed consolidated financial statements for the period ended 31 December 2017

1. INTRODUCTORY NOTE

2. CONSOLIDATION METHODS

Subsidiaries

Translation of foreign currency financial statements

Transactions eliminated in the consolidation process

Scope of consolidation

Line-by-line consolidation method:

3. INVESTMENTS IN ASSOCIATED COMPANIES AND OTHER ENTITIES

4. ANALYSIS OF THE STATEMENT OF FINANCIAL POSITION

NON-CURRENT ASSETS

1. Property, plant and equipment

3. Intangible assets

4. Investments

5. Non-current receivables and other assets

6. Deferred tax assets

NON-CURRENT LIABILITIES

7. Employee benefits

8. Non-current provisions

9. Non-current other payables and liabilities

NET WORKING CAPITAL

10. Inventories

11. Trade receivables

12. Current tax assets