Separate Financial Statements at June 30th, 2021

Digital Bros S.p.A.

Separate financial statements

at June 30th, 2021

Digital Bros S.p.A.

Via Tortona, 37 - 20144 Milan, Italy

VAT Number and Tax Number 09554160151

Share capital: Euro 6,024,334.80 of which Euro 5,704,334,80 subscribed

Milan Companies House No. 290680-Vol. 7394 Chamber of Commerce 1302132

This report is available in the Investors section of the Company's website at www.digitalbros.com

Please note that this is an Italian to English translation and that the Italian version shall always prevail

in case of any discrepancy or inconsistency.

FULL YEAR REPORT

Digital Bros S.p.A. distributes in Italy, video games acquired from international publishers under the Halifax brand. The games are marketed through a direct sales network of key accounts and through an indirect sales network of sales agents. The Company also distributes Yu-Gi-Oh! trading cards in Italy.

The Company also performs management and coordination activities in its capacity as Parent Company of the Digital Bros Group.

Analysis of revenue by geographical area can be found in the Notes to the Separate Financial Statements.

1. VIDEOGAMES MARKET

The video games market is one of the most important segments of the entertainment industry. Movies, books and magazines, video games and toys are part of the industry and present the same characteristics, brands, features and intellectual properties.

The market is constantly evolving and growing, driven by the continuous technological upgrades. Gaming is no longer limited to personal computers and traditional consoles (Sony, Microsoft and Nintendo), but has expanded to mobile phones and tablet devices. Low-cost fiber connectivity availability, fiber optic networks and technologically advanced mobile phones have made video games increasingly diversified, sophisticated and interactive and have expanded the gaming population to adults and women.

The video games market follows the continuous technological evolution of consoles. At the launch of the console, the prices of the hardware and its related video games are high and relatively low quantities are sold. Across their lifecycle, console and video game prices gradually decline, while the quantities sold and the video games quality increase.

Video games are sold through digital marketplaces, but high-quality video games with high popularity are also distributed through the traditional sales channel. In this case, the value chain is as follows:

The COVID-19 pandemic further accelerated the decline of the physical distribution of video games that was already being replaced by digital distribution.

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Developers

Developers are the creators and the programmers of games usually based on an original idea, a successful brand, a movie, sports simulations etc.. Even if developers sometimes retain the intellectual property they often assign the rights to an international video game publisher.

Publishers

The publisher is responsible of the launch of the videogame, determines its global pricing and commercial and marketing policy, designs the packaging and accepts all of the risks related. Publishers usually finance the video game development process and often acquire the game rights on a permanent basis.

Console manufacturers

The console manufacturer designs and manufactures the hardware or the platform on which the game is played. Sony produces the Sony PlayStation, Microsoft the Microsoft Xbox and Nintendo the Nintendo Switch. The console manufacturer also operates as a video game publisher.

Distributors

The role of distributors is different from market to market. The more a market is fragmented e.g. the Italian market, the more the distributor and the publisher roles are integrated, while on certain markets, such as the UK and the U.S., publishers usually have a direct presence due to a higher concentration of retailers. The increasing digitalization of the market has enabled newly established video games publishers to remain digital only and appoint the retail distribution services to a competitor publisher.

Retailers

The retailer is the shop where the consumer buys the video game. Retailers may be international retail chains specialized in the sale of video games, specialized independent shops or web sites that sell directly to the public.

Console manufacturers have realized marketplaces where video games can be directly purchased in a digital format without involving a distributor or retailer. In this case, as for smartphone and tablet games, the value chain is shorter, as illustrated below:

The main marketplaces on which console video games are sold are Sony's PlayStation Store, Microsoft's Xbox Live and Nintendo's eShop. Steam is the global leader in the digital distribution of games for personal computers. During the previous fiscal year, the US company Epic launched Epic Games Store, a new marketplace for PC games, after the success of the Fortnite video game (owned by the same Epic).

The gradual digitalization of the market has led both Microsoft (with Microsoft Xbox Game Pass and Microsoft Xbox Games with Gold) and Sony (with Sony PlayStation Now) to create digital platforms on

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which gamers can access to the full library of games by paying a subscription fee. Revenues are recognized to publishers based on the utilization of their video games. More recently, Google and Amazon have set up similar structures, the Stadia and Luna platforms respectively, while Apple has launched Apple Arcade, a platform dedicated to mobile video games.

Free to Play video games are available to the public in digital format only. The marketplaces used are the App Store for iPhone and iPad, the PlayStore for Android for Western markets and a large number of different marketplaces for Eastern markets. Some Free to Play video games are also available on

PlayStation Store, Microsoft's Xbox Live and Steam.

Digital distribution has significantly extended the lifecycle of individual games. The availability of a game is no longer limited to its launch period as happens in the retail channel. The product remains available on the different marketplaces for a longer period of time, generating a continuous flow of sales significantly influenced by the promotional campaigns implemented. A video game life cycle can also be extended through the release of additional episodes and functions (the so-called DLC, or Downloadable Contents).

2. SEASONALITY EFFECTS

Market seasonality is influenced by the launch of highly anticipated and popular products. The launch of a successful game in a certain period can lead to significant revenue increases between quarters. In fact, the launch of these products concentrates the sales in the first few days from the release.

The financial position is closely related to the revenue trend. The physical distribution of a product in a quarter increases net working capital investment. This is temporarily reflected by the level of net cash/debt until the time the related sales revenue will be collected. The significant reduction in physical distribution revenues as a percentage of total consolidated revenues resulted in lower volatility of the financial position.

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3. SIGNIFICANT EVENTS OF THE REPORTING PERIOD

The significant events occurred during the reporting were the following:

• On October 28th, 2020, the Shareholders' Meeting of Digital Bros approved the Financial
  Statements for the fiscal year 2019-2020, a dividend distribution of Euro 0.15 per share and appointed the new Board of Directors and the new Board of Statutory Auditors for the 2021-2023three-year period (until the approval of the Financial Statements for the fiscal year ending June 30th, 2023).
• On January 7th, 2021, the Group acquired 100% of Infinite Interactive Pty. and Infinity Plus Two Pty., the Australian companies that own the intellectual property of the Puzzle Quest and Gems of War video games and support their development. The transaction was carried out through the subsidiary 505 Games Australia Pty., created by the Group for that scope. The total fixed consideration amounted to USD 4.5 million, inclusive of a profit scheme for the key employees. In addition to the fixed consideration, an earn-out scheme has been agreed: the earn-out may range between 0% and 9% of the revenues generated by the products developed by subsidiaries over the next 48 months;
• On February 11th, 2021 the Group announced the forthcoming worldwide publication of the video game Eiyuden Chronicle - Hundred Heroes on both personal computers and consoles. The release of the video game is scheduled for the fiscal year ending June 30th, 2023 and the Group expects lifetime revenues in excess of Euro 30 million;
• On June 15th, 2021 Digital Bros Shareholders Meeting approved the Remuneration policy pursuant to art. 123-ter, co 3-bis of the T.U.F. and the adoption of the 2021-2027Medium-Long Term Monetary Incentives Plan based on non-financial instruments, in favor of the executive directors and the management of Digital Bros Group. The plan shall be in force from FY2021 to FY2027;
• On June 29th, 2021 the Group announced the agreement between the subsidiary 505 Games S.p.A. and the Finnish Remedy Entertainment Plc for the co-publishing and development of a new videogame that will be available on PC, PlayStation 5 and Xbox Series X|S. The new videogame codenamed "Condor" is a multiplayer cooperative experience built on Remedy's proprietary
  Northlight® technology. Condor is a spin-off of the critically acclaimed and award-winning
  Control. Condor's initial development investment amounts to Euro 25 million and, as for the current agreement in place for Control, Condor's development costs, marketing expenses and future revenues will be equally split between Digital Bros Group and Remedy Entertainment. Alongside Condor, Digital Bros and Remedy Entertainment have planned to further expand the Control-franchisewith another, bigger-budget Control-game,to be agreed in more details in the future.

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