Consolidated Financial Statements for the Financial Year from 1 January to 31 December 2018 Page

Consolidated Financial Statements

for the Financial Year from 1 January to 31 December 2018

gamigo AG Behringstrasse 16b 22765 Hamburg/Germany Report to the Shareholders

Dear shareholders, bondholders, partners and employees,

In the 2018 financial year, gamigo AG consistently pursued its growth strategy and, as in previous years, continued to develop positively. Further important milestones were achieved with the placement of the gamigo bond on NASDAQ Stockholm and the acquisition of the Trion World´s assets. The gamigo Group continues to focus strategically on growth through acquisitions of mostly deficient companies and assets and their successful integration into the gamigo Group. In combination with organic growth, for which the Open Beta of our new game Ironsight, was an important event, we are well positioned to continue growing faster than the market.

The gamigo group has now reached a critical mass with revenues of over Euro 45 million, which, in addition to organic growth through game launches and increased economies of scale, lead to a substantial increase in profitability. At the same time, however, we continue to invest in the growth of the group. In 2018, the focus was on organic growth by optimizing the existing games portfolio and securing new game licenses. The launch of new games is becoming increasingly important for the company, and the first results already showed a positive contribution to revenue and earnings growth in 2018.

In the B2C game publishing sector, our games portfolio was expanded following the acquisition of the Trion Worlds assets, includingwell-known and successful game titles such as ArcheAge, Trove, Rift and Defiance 2050. This acquisition has strengthened our position, especially in the American but also in the European market. The acquisition also provided us with significant insights into working with MMO console games. With currently more than 50 employees, we also significantly expanded our presence in the USA..

In the B2B sector, structural changes were made in the media and advertising companies of the group. Under a new managing director for the division, the division could be positioned much more clearly and future-oriented. Sales in particular, were professionalized, competence centers established, and costs optimized. The first resulting successes can be seen in the profitability of the B2B segment in 2018. However, despite positive contributions to the group’s operating result, the B2B segment is still not achieving the profitability we are striving for. Due to the new, better and more efficient positioning, however, the media and advertising companies are well positioned to achieve further revenue and earnings growth in 2019.

In addition to growth, the focus in 2018 was also on optimizing the organization and IT infrastructure. By consistently migrating games to the cloud, it was again possible to significantly reduce the number of data centers, and thus IT costs. Significant progress was also made in consolidating the technical backends. In addition, a new consolidation, reporting and controlling tool, LucaNet Software, was integrated into the finance department. This automated many processes, increased the transparency of the individual segments and companies and achieved considerable increases in efficiency through shortened decision paths. We assume that the implementation of the software and increased transparency will enable us to increase the profitability of the entire Group sustainably.

In addition to the successes of the individual divisions, the placement of the gamigo bond in the regulated capital market on Nasdaq Stockholm represented a further milestone in the company's history. As part of a short book building process, 32 million euros were placed within a total volume of 50 million euros. In April 2019, an additional EUR 10 million was placed at 100.50% above par due to strong investor demand. The bond issue provides the gamigo group with additional flexibility and efficient access to capital in order to continue its profitable growth course in the coming years. Group revenues rose to 45 million euros in 2018, EBITDA to 11 million euros and consolidated net income to 1.6 million euros. Further sales and earnings growth are also planned for the coming years as part of the platform strategy. This includes a combination of organic and M&A growth. Due to the ongoing market consolidation, we expect that there will also be many opportunities for interesting acquisitions in the coming years. Thanks to its rich experience as an integration and restructuring specialist in combination with its good capital resources, the gamigo group is now one of the first points of contact in the areas of M&A and licensing.

In April 2019, we successfully acquired the assets of WildTangent Inc, a North American publisher and platform operator with a portfolio of over 4,000 casual games. By structuring the acquisition as an asset deal, it will contribute to the group's operating result from day one.

First of all, I would like to thank our team very much. In 2018, managers and employees again showed extraordinary and strong commitment, which is not always easy in such a rapidly growing market within a fast changing company. I would also like to thank our loyal players, fans and customers; we do our best to improve the games, develop them further and also launch new games. Thanks also to our customers, partners and influencers in advertising and B2B. We do our best to deliver even better services and productions and to improve the measurability of success. Thanks are also due to our shareholders, bond investors and business partners for their support, good cooperation and trust.

Hamburg, May 2019

The Executive Board Report of the Supervisory Board

In the 2018 financial year, the Supervisory Board of gamigo AG regularly advised the Executive Board on the management and strategic orientation of the group and continuously monitored its management. In doing so, we, the Supervisory Board, carefully performed the duties incumbent upon us under the law and the Articles of Association and convinced ourselves of the legality and expediency of the work of the Executive Board. We were involved in all decisions of material importance to the company and the group.

In the 2018 financial year, the Supervisory Board was informed in detail by the Executive Board about the situation and development of the company as well as important business transactions in a total of 9 meetings. The reporting obligations of Section 90 of the German Stock Corporation Act (AktG) were complied with. The meetings were held on 18 January 2018, 23 February 2018, 2 May 2018, 17 August 2018, 9 October 2018, 16 October 2018, 18 October 2018, 21 October 2018 and 19 December 2018.

There was also a regular exchange of information between the Executive Board and the Supervisory Board apart from the Supervisory Board meetings. The Executive Board complied with its information obligations under the law and the rules of procedure and informed the Supervisory Board regularly, comprehensively and promptly in written and verbal form about all measures and events relevant to the company. The Supervisory Board was thus always informed about the business situation and business development, the intended corporate policy, short- and long-term corporate planning, including investment, financial and personnel planning, as well as the profitability of the company, organizational measures, acquisition activities, legal matters and the situation of the group as a whole. This also included the reporting on subsidiaries. In addition, there was a regular flow of information on the risk situation and risk management.

All transactions and measures requiring the approval of the Supervisory Board were discussed in detail based on the reports of the Supervisory Board and Executive Board. After weighing all relevant information and after detailed examination, the Supervisory Board approved the resolutions proposed

by the Executive Board.

Composition of the Supervisory Board

The Supervisory Board consists of six members and was composed as follows in the 2018 financial year: Axel Sartingen (chairman), graduate economist, Köln

• Florian Hörtlehner (vice chairman), Investor, Vienna (Austria) • Dr Anton Steyrer, Portfolio Manager, London • Alexander von Voß, Chief Legal Officer, Munich • Oliver Strutynski, Chief Financial Officer, Berlin • Martin Otten, Auditor, Cologne - from 22.02.2018

• Christoph Vilanek, Manager, Hamburg – until 21.02.2018 Composition of the Executive Board

There were no changes to the composition of the Executive Board of gamigo AG in the 2018 financial year.

The composition in compliance with the schedule of responsibilities is as follows:

• Remco Westermann (Chairman), responsible for Finance, Legal, Product, Business Development, M&A, External Relations, Marketing, IT and Support Audit of the annual and consolidated financial statements 2018

The consolidated financial statements prepared by the Executive Board, including the management report and consolidated group figures for gamigo AG as well as the separate financial statements of gamigo AG for fiscal year 2018, were audited by the auditors Mr Thomas Sauer and Mr Christian Schwarz of Deloitte Wirtschaftsprüfungsgesellschaft, Seemannstraße 8, 04317 Leipzig, Germany, and issued with an unqualified auditors' opinion. The annual financial statements and the group figures have been discussed with the Supervisory Board and questions have been clarified.

The Supervisory Board thoroughly examined the consolidated financial statements of gamigo AG and the individual financial statements of gamigo AG for the 2018 financial year, including the auditor's reports sent to the members of the Supervisory Board prior to the meeting.

At the Supervisory Board meeting on 10 April 2019, we discussed the individual and consolidated financial statements, the management reports of gamigo AG and the Management Board's proposal for the use of the group's net profit in detail. The auditor, Mr Thomas Sauer, was present. He explained the main audit results and was available to answer questions. The documents relating to the financial statements were discussed in detail with the Executive Board and the auditor's representative. Following the final review by the Supervisory Board, the Supervisory Board raised no objections to the annual and consolidated financial statements and approved the results of the audit.

At its meeting on 10 April 2019, the Supervisory Board accordingly approved the financial statements of the AG and the group prepared by the Executive Board as well as the Executive Board's proposal for the use of the gamigo group's net profit. The annual financial statements of gamigo AG are thus adopted.

Audit of the Dependence Report 2018

The report prepared by the Executive Board regarding the relationships with affiliated companies for the fiscal year from January 1, 2018, to December 31, 2018, was audited by the auditors Mr Thomas Sauer and Mr Christian Schwarz of Deloitte Wirtschaftsprüfungsgesellschaft, Seemannstraße 8, 04317 Leipzig. The auditors have determined the accuracy of all disclosures and that the audit did not reveal any indication that the services provided by the Company would not appear reasonable in the light of prudent business judgment. The auditor's report states the following:

„Based on our audit and assessment performed in accordance with professional standards, we confirm that

1. the factual information in the report is correct,

2. the consideration paid by the company for the legal transactions listed in the report was not unreasonably high. “

Following its own audit, the Supervisory Board also approved the result of the auditors' audit regarding the dependence report of the Executive Board in accordance with section 313 of the AktG at its meeting on 10 April 2019. After the final result of the examination by the Supervisory Board, there are no objections to be raised against the final declaration of the Executive Board contained in the dependency report prepared by the Executive Board pursuant to Section 312 AktG.

Acknowledgement

The Supervisory Board would like to thank the acting Executive Board for its open and constructive cooperation in the past financial year. Thanks and recognition also go to all employees of the gamigo group for their decisive contribution to the positive development of the company in 2018. The Supervisory Board wishes the Management Board and all employees every success for the further development of the company in the new financial year.

On behalf of the Supervisory Board

Axel Sartingen, Chairman

Hamburg, 20.05.2019 Content

Consolidated Financial Statements for the Financial Year from 1 January to 31 December 2018 Page

Consolidated management report of gamigo AG for the Financial Year from 1 January to 31 December 2018 1-39

Consolidated Statement of Financial Position as at 31 December 2018 40-41

Consolidated Statement of Profit and Loss and Comprehensive Income for the Financial Year from 1 January to 31 December 2018 42

Consolidated Statement of Changes in Equity from 1 January to 31 December 2018 43

Consolidated Statement of Cash Flows from 1 January to 31 December 2018 44

Notes to the Consolidated Financial Statements of gamigo AG for the Financial Year from 1 January to 31 December 2018 45-126

Independent Auditor’s Report gamigo group Consolidated management report 2018

Consolidated management report of the gamigo group for the year ended 31 December 2018

I. Fundamentals of the gamigo group ...... 2 A. Business operations and corporate structure ...... 2

B. Business activities and organisation ...... 3

C. Objectives and strategies ...... 7

D. Management system ...... 7

E. Internal control system ...... 8

F. Research and development ...... 9

II. Economic report ...... 9 A. Macroeconomic environment ...... 9

B. Industry-related environment ...... 10

C. Business development ...... 14

D. Profit, net worth and financial situation ...... 15

III. Forecast, opportunities and risk report ...... 19 A. Forecast report ...... 19

B. Underlying assumptions ...... 19

C. Opportunities report ...... 20

D. Risk report...... 21

1 gamigo group Consolidated management report 2018

I. Fundamentals of the gamigo group

A. Business operations and corporate structure

The gamigo group is one of the leading gaming companies in Europe and North America. gamigo is also a consolidator in the booming but competitive gaming market. With over 20 M&A transactions, as well as consistent integration and a focus on exploiting synergies, the group has grown rapidly in the last few years, both in revenue and in earnings. In addition to growth through M&A, gamigo is increasingly relying on organic growth by launching games and improving games that are already in the portfolio. Because of certain risk-related considerations, gamigo does not develop new games itself, but instead concentrates in its M&A transactions on acquiring games that are already live, or on licensed games ready to be launched. gamigo was one of the first companies to discover the booming market segment of online games, and in 2000 published the first localised massively multiplayer online game (MMOG) entirely in Germany. Its roughly 350 employees in Hamburg (HQ), Berlin, Cologne, Münster and Darmstadt/Germany; War- saw/Poland; Istanbul/Turkey; Chicago, Redwood City and Austin/USA; and Seoul/South Korea are focused on the B2C business sector of games publishing and the B2B business sector of media and platform services.

The games publishing sector focuses primarily on a wide portfolio of online and console games, as well as some mobile games, most of them free-to-play MMOGs. The games are licensed exclusively for certain regional territories (mostly Europe and North America). Furthermore, gamigo procures new game licences by acquiring game companies with games that are already established in the market and obtains worldwide rights for new games that are ready to bring to market. Some of the games with higher revenue are then further developed in-house. Through this combination, the gamigo group has built up a broad games portfolio which is being consistently expanded, meaning the group has a long-standing, loyal customer base with several millions of registered user accounts. The core portfolio of the entity includes successful games such as Aura Kingdom, Desert Operations, Die Ratten, Dragon’s Prophet, Fiesta Online, Goal One, Grand Fantasia, Last Chaos, Shaiya, Ironsight and Twin Saga. During 2018, the exclusive rights to further successful titles – such as RIFT, ArcheAge, Trove and Defiance – were acquired for Europe and America, among other regions. The entire gamigo portfolio has over 30 multiplayer games and over 500 casual games.

The area of B2B services concentrates on media services, especially online advertising and marketing, with a strong focus on influencer, social and product marketing. The most important activities in this field are affiliated to adspree media GmbH and the Mediakraft Group. While adspree media GmbH is focused on lead generation and advertising for game providers and operating portals such as MMORPG.de, MMOGames.com and Browsergames.de, the Mediakraft Group is a specialist agency for video and influencer marketing that offers a full product range in this field, with advice, design, production, media purchasing and performance measurement. The expansion of software as a service (SaaS) offerings, which also falls within this area, has been deferred because of the focus on improving the entity’s own technology for the field of B2C.

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gamigo AG (“gamigo” for short), with its headquarters in Hamburg/Germany, is the parent company of the group. In this role, it handles its own operational business as well as the central management and control functions for the group entities. Through centralisation, the gamigo group is able to exploit synergies within the entities it holds and structure all business processes efficiently.

B. Business activities and organisation

The range of services of the gamigo group, which are divided into the business divisions B2C/Game Publishing and B2B/Platform Services, includes the operation and the further development of online and mobile games (publishing) in the B2C division and all B2B media services for marketing games and other products and services, as well as other B2B platform services, in the B2B division. Efforts are being made to bring the B2C and B2B activities together on one platform to the greatest extent possible in order to achieve a strong focus and maximum economies of scale and efficiency. Besides the interdivisional operating and organic development of the business segments, a policy of a consequent acquisition strategy by purchasing favourable companies and assets is also pursued.

B2C/Game Publishing business division

In the Game Publishing business division, online and mobile games are supplied, supported, operated and sometimes even developed further within the entity for end customers. In 2018, the gamigo group earned about 65 % of its revenue in this business segment. It has a broad portfolio of online and console games, including casual games, role-playing games and strategy games. It markets its products and services to gamers in Europe, North America and South America, as well as Australia, with the focus being on Europe and North America. In most cases, the games are licensed exclusively, either worldwide or for certain regional territories. In Asia, gamigo does not market its games directly, but instead works with licence partners.

The free-to-play MMOGs in the portfolio of the gamigo group account for the significant share of revenue. Free-to-play means that consumers fundamentally play free of charge but for a fee can acquire goods (known as “items”) that increase the enjoyment of the game and/or facilitate faster success, in particular through new equipment or new functions for game characters. Thanks to this business model, revenue has the potential to scale better, as customers usually do not just pay once but, thanks to various incentives in the games, are motivated to invest money in the games on a continuous basis and over a longer period of time. MMOG means that often several thousand players meet and interact with one another in an arena or server environment. Due to the large number of co-players who play the game at different times and are frequently linked to one another through fixed games communities (known as “guilds” or “clans”), most users play a game over several months or even years. With regard to MMOGs, there is a technical difference between browser games (games are played in the browser online), client games (games are first downloaded, and the client is saved on the PC; during the game, players must be online in order to be able to communicate with the server) and console games (games are played online on consoles such as Xbox and PlayStation). The entity also provides a wide range of casual games, most of them single-player, often on a subscription basis on platforms such as Deutsch- land-spielt.de. In addition, the portfolio includes games that can be played on Facebook and/or on mobile end devices (iOS and Android). In these types of games, advertisements and advertising videos are also shown, along with items that are available for purchase.

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The gamigo group has various MMOGs, especially anime, fantasy role-playing, strategy and shooter games. The casual games that are also marketed by the gamigo group are typically simpler games which are not as intensive and are mostly played only for a short period of time (particularly puzzles, quizzes and skill games). Even in this area, the gamigo group has a wide portfolio.

Currently, the gamigo group offers over 30 MMOGs and over 500 casual games, including various MMOGs, such as Fiesta Online and Shaiya, that have been on the market for many years now. The revenue attributable to these games, provided they are well maintained and marketed, usually shows only slight churn. With optimised marketing and improved game content, revenue can be stabilised or returned to growth.

The launching of new games on the market fundamentally constitutes a big risk, as there are already many games with long-term, loyal players, and because many games are launched every month. In order to reduce the risk of the games offered on the market not being accepted, the gamigo group prefers to acquire game licences by taking over entities that supply games which are already established on the market and which have a solid customer and revenue basis. In addition, the gamigo group also acquires new game licences, in which case an effort is made to keep the level of risk low. A strict selection process, a minimum of upfront investment in licences and an increase in the marketing budget once certain minimum criteria have been met, such as user numbers and revenue, help to ensure this. As gamigo has grown strongly over the last few years and has a large registered customer base and a good reputation, the group is increasingly being offered more attractive licences. Games that have been launched or acquired but have not met expectations are allowed to expire or are discontinued. Since 2016, gamigo has also invested in intellectual property (IP) and development rights, and has been able to acquire worldwide IP and development rights for five of its ten best-selling games. The development of these games is now being continued in-house. This has the major benefit of greatly increasing the influence on the games’ development and allowing them to be better and more cost- effectively optimised. Apart from free-to-play games, the subsidiary gamigo Portals GmbH also runs subscription-based portals with separate game portfolios (e.g. deutschland-spielt.de).

The gamigo group has significantly advanced its growth in the Game Publishing business division through market consolidation. Since 2014, gamigo has taken over in total more than 20 assets and entities, the majority of which are in the publishing sector. In this area, the following entities and assets, among others, have been acquired: INTENIUM GmbH (entity, now gamigo Portals GmbH), GameSpree GmbH (entity, now gamigo Publishing GmbH), Piraya Mobile GmbH (entity, now gamigo Portals GmbH), the Fiesta Online game licence (first US, later also the worldwide exclusive IPs, each as asset deals), Infernum Games GmbH (entity, merged with gamigo Publishing GmbH), the Last Chaos game licence, Looki Publishing GmbH (entity, merged with gamigo Publishing GmbH), Looki Assembly Studios GmbH (entity, merged with gamigo Publishing GmbH), Aeria Games GmbH, the game licence of Heroes and Puzzles (global exclusive licence, asset deal) and Trion Worlds Inc. (2018, most recent acquisition; asset deal).

4 gamigo group Consolidated management report 2018

New customers for the games offered by the gamigo group are acquired via marketing to the entity’s own customer base (e.g. email, cross-selling) and on own portals (e.g. gamigo.com and aeriagames.com). In addition, the entity’s own games are offered via the B2B advertising entities of the gamigo group (adspree media GmbH and Mediakraft Group) and on their portals (e.g. mmogames.com, browsergames.de), as well as other channels, or through other advertising measures. The gamigo group also works with a large number of third-party customer acquisitions and sales channels (including partner websites, TV broadcasting companies, print media, telecommunications providers and marketing partners) to help it sell its games.

B2B/Media and Platform Services business division

Apart from its B2C/Game Publishing business division, the gamigo group has been working since 2014 to develop the B2B/Media and Platform Services business division, which is aimed at corporate customers. In 2018, the gamigo group earned about 35 % of its revenue in this business segment. In the background, the gamigo group largely uses the same systems and infrastructures for platform services as for game publishing. While the platform modules were primarily used during 2018 for gamigo’s own activities, there are future plans to make the services available on an SaaS basis to other games publishers and developers.

Within the Media and Platform Services business division, the gamigo group focuses on providing marketing and sales services. To a lesser extent, platform as a service products continue to be offered. The gamigo Group’s leveraging of further synergy effects by means of acquisitions made its offering of payment services through the 100% participation in Mobile Business Engine GmbH redundant, allowing it to sell the entity in early 2018. Thanks to the leveraged synergy effects, gamigo is able to offer its customers comparable payment solutions that, in some cases, are even better.

In the field of media marketing and sales, services are concentrated at adspree media GmbH and at Mediakraft Networks GmbH. adspree media GmbH, formerly known under the name SevenGames Network GmbH, is an international 360-degree marketing agency for gaming companies. adspree media GmbH helps to oversee the efficient and performance-oriented acquisition of new users or players using major channels, including search engine optimisation (SEO), search engine advertising (SEA; e.g. Google, Bing), Facebook marketing, programmatic/real-time media buying, influencer marketing, affiliate marketing and TV advertising. In addition, adspree media GmbH has a large number of game portals of its own that are used to approach players, including SEO-oriented content portals (e.g. Browsergames.de and mmogames.com) and SEA-based portals (e.g. Browsergames.org).

Mediakraft Networks GmbH, is a group of entities acquired in mid-2017 that is active in Germany, Poland and Turkey in the fields of online video, social marketing and influencer marketing and has a strong market position in those countries. The Mediakraft Group manages complete YouTube channels for companies, supports YouTube stars and influencers, and designs and implements influencer campaigns. Its own YouTube channels were closed down or handed over to partners at the end of the year due to low or uncertain advertising revenues. Alongside gaming channels and gaming-friendly stars, the Mediakraft Group also owns content in other areas.

5 gamigo group Consolidated management report 2018

On the one hand, synergies are leveraged here on the sales side, such as servicing adspree gaming customers through Mediakraft campaigns or addressing gaming target groups through adspree media GmbH for (in some cases non-gaming) Mediakraft customers. On the other hand, the online video production expertise of the Mediakraft Group is also used for adspree campaigns and to generate video content for gaming portals.

In the B2B business segment, the gamigo group has its own technologies which will be used to consistently develop the gamigo platform in future. These technologies include tracking technologies that evaluate user activities within games and on advertising spaces, enabling improvements in how the group addresses customers and reductions in the cost of customer acquisition.

In the field of B2B media and platform services, M&A is also considered an important part of the growth strategy. Since 2014, various IT and media entities, as well as portals and assets, have been bought. In the field of advertising/portals, POGED GmbH (merged with adspree media GmbH), the asset Gulli.com, SevenGames Networks GmbH (renamed adspree media GmbH) and the portal MMO- games.com, as well as Mediakraft Networks GmbH and its subsidiaries, were acquired. In addition, the HoneyTracks software was acquired in the platform services sector as part of an asset deal.

Organisation of the group

The business activities of the gamigo group are split between the main subsidiaries as follows:

The parent company gamigo AG is the controlling entity of the gamigo group. In this function, it assumes the central management and leadership roles and provides services to gamigo subsidiaries, in addition to managing its own operating business. Furthermore, gamigo AG manages European activities for MMOGs in the field of game publishing. Headquartered in Wilmington/USA, with an office in Chicago/USA, the subsidiary gamigo Inc. is responsible for marketing online and mobile games in North America. gamigo US Inc., a Delaware corporation with offices in Dover, Redwood City and Austin/USA, publishes, sells and supports the group’s games acquired from Trion Worlds by way of an asset deal, among others. gamigo Publishing GmbH combines a majority of the entity’s own game licences in the Game Publishing business division and manages the further development of some of the entity’s own IPs. The subsidiary Aeria Games GmbH, acquired in 2016, publishes MMOGs in Europe and North America. The subsidiary gamigo Advertising GmbH is focused on affiliate marketing. gamigo Portals GmbH focuses on portals and offers downloadable games on its own platforms, such as www.deutschland-spielt.de. adspree media GmbH (a wholly owned subsidiary of Aeria Games GmbH) markets games for third parties and strengthens the portals division with its own game portals (including poged.com) and technologies for evaluating user activities. The Mediakraft Group collaborates closely with adspree and focuses on the marketing of online videos, influencer campaigns and YouTube channels, as well as the development of influencer and online media campaigns for big-name companies.

Progress was again made on the consolidation of the backend structure of gamigo AG during 2018. The measures helped make it possible to significantly reduce the number of back ends and replace data centres with cloud solutions, leading to a clear reduction in maintenance expenses, lower and manageable costs, and better analysis.

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C. Objectives and strategies

The gamigo group has made it its goal to become one of the leading online games publisher in Europe and North America. The most important growth drivers are acquisitions of entities and assets in this segment and launches of licensed games.

For several years now, the gamigo group has been marketing and distributing products and services in various countries on several continents, with the focus on the regions of Europe and North America. Before entering a new market, the gamigo group analyses both the market conditions as well as the legal environment of the respective country. In addition, shifts in customer preferences, changes in market and general conditions, and all other developments in relevant markets are constantly tracked and analysed. As a result of these analyses, the gamigo group has a great deal of experience and sound knowledge about the local and regulatory environment in the areas of game publishing and online marketing, as well as mobile and online payment, in numerous international markets.

To reduce the risk of the market rejecting games, the gamigo group prefers to acquire game licences by taking over entities or significant assets from third parties that already offer games that are established in the market and thus already have a customer and sales base. In addition, gamigo launches new game licences, in most cases exclusively for Europe and/or the US. Here, the financial risk is min- imised by generally making only small investments in the licences in advance and not increasing marketing budgets until the new games have fulfilled certain minimum criteria. No further investments are made in games that do not fulfil these criteria.

D. Management system

The senior management operates the gamigo group based on a number of key performance indicators (KPIs). The management system incorporates both financial KPIs, as well as non-financial KPIs that reflect the entity’s performance and the business activity. Apart from the entity’s internal parameters, external indicators, such as the development of successful games by competitors, market data as to the consumer behaviour and the economic development like the expectation of inclation in target regions, are regularly used for management and planning.

Revenue, EBITDA, liquidity and investments are the most important financial indicators used. The parameters ensure that balanced decisions regarding liquidity, profitability and growth are made throughout the entity.

Established monthly reports contain all the relevant KPIs and budget/actual comparisons, as well as comparisons with prior periods. These reports are basis for decisions and discussion on C-level and management level. In addition, the rolling budget plans for all corporate divisions are regularly up- dated on the basis of current budget/actual comparisons. This serves as an early warning system for any variances and facilitates early correction. To further improve controlling and reporting, the Lucanet software, a tool for consolidation, budgeting, reporting and analysis was rolled out for financial functions in 2018. In addition, backend and BI systems are being standardised worldwide in order to make available consistent KPIs in all subsidiaries.

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As well as purely financial control parameters, gamigo has defined a series of KPIs that cannot be directly measured in financial terms. In particular, the number of registered new users, daily active users and average revenue per user are important control parameters at gamigo. In the platform division, performance indicators relevant to their core business are used for each entity, such as costs per lead, efficiency indicators, number of transactions, leads, earnings per lead, ECPM (adspree media GmbH), subscribers and video views (Mediakraft Group). Other non-financial performance indicators examine the relationships between the entity, its customers and its employees. An important objective is to increase customer satisfaction by supporting and improving games and by expanding in-game offerings, among other things. The personal support of players and guilds by community managers rounds off the services offered by gamigo to that effect. Success is demonstrated by the large number of long- standing customers within the gamigo games. Because the success of the entity is therefore linked to retaining qualified and committed employees in the long term, gamigo offers apprenticeships, among other measures. Furthermore, gamigo promotes further training and education for employees. It also finances supplementary language courses for domestic and foreign employees in order to improve internal communication and employee satisfaction. The gamigo group believes that these aspects are fundamental components of a future-oriented positioning against competitors.

The management systems were once again adapted and extended in 2018 due to the expansion of the affiliated entities. In the publishing division, the newly launched and licensed games were integrated or shown in separate reports.

Control and budgeting are closely interwoven. The budgets are drawn up on the basis of the strategic and operational corporate goals, with the focus of the group-wide budgeting processes being on consolidated revenue, EBITDA and investments, as explained above. The earnings planning incorporates the long-term corporate planning and the operational planning. The individual budgetary processes are systematically coordinated and defined in sequence. This is fundamentally important for the effective control of the defined target figures and for the group-wide inventory of opportunities and risks.

E. Internal control system

Besides the managment system described above, internal control systems are also used in the gamigo group. Therefore, it can be ensured that the group is in compliance with the accounting principles, IT access regulations, and the organisation and control of the bookkeeping of the group.

Within the general business (including the preparation of the financial statements), the accounting and finance divison is divided in several organisational departments, like accounts payable and accounts receivable section, treasury and controlling with multilevel controls like double-signature-principle or electronic changing protocols in IT-application systems. Internal audits for bookkeeping and accounting are carried through by the team leader, and those working results are checked by the head of accounting.

The accounting department has also guidelines for documentation for accounts, bookkeeping, preparation for monthly and annual statements. They are documented and traced back within the improvement of these internal processes.

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Transactions can only be released by a two-person-authorisation (so-called B-signature in combination with an A-signature of team leader level). This guarantees a double-signature-check of the transaction. Moreover, all invoices are additionally authorised before payment by the senior managment (as third control level).

F. Research and development

The gamigo group does not carry out any active research. However, it invests substantially in development. New games are not developed because of the high capital commitment and the high financial risk involved. However, the gamigo group invests in the further development of the games for which it owns the IP and in the development of their platform. The extent of development is reflected in the financial statements under “Own work capitalised”. Further development is carried out on various platform components (e.g. account system, billing systems, reporting) and on portals. The aim here is to improve the customer experience, efficiency and scalability, and also to provide systems for third parties. The customer base would gradually erode without these ongoing development efforts.

The further development of gamigo’s own titles is integrated into the publishing division in order to better exploit the synergy effects and use the human resource capacities across multiple titles.

The gamigo group assumes that technologies such as streaming and blockchain will play an important role in the fields of gaming and advertising in future. The group is already investing in these areas so as to seize opportunities and play a leading role in such fields.

II. Economic report

A. Macroeconomic environment

Global economy

The International Monetary Fund (IMF) expects global economic growth of 3.7% for 2018, 3.5% for 2019 and 3.6% for 2020. The growth forecasts are based on the current tariff conflicts, rising interest rates in the United States of America and the continued increase in sovereign debt. The IMF also warns that countries will have less room for manoeuvre in the event of a significant global downturn than they did before the 2008 financial crisis. Multilateral cooperation will therefore play an important role in boosting growth.1

1 IMF; World Economic Outlook Update, January 2019; URL: https://www.imf.org/en/Publications/WEO/Issues/2019/01/11/weo-update-january-2019

9 gamigo group Consolidated management report 2018

The results of the ECB’s Survey of Professional Forecasters (SPF) for the first quarter of 2019 show average overall inflation expectations for the euro area of 1.5% for 2019, 1.6% for 2020 and 1.7% for 2021, representing a downward revision of 0.2 percentage points and 0.1 percentage points, respectively, for 2019 and 2020 compared with the previous survey, mainly due to oil price developments.2

Germany

In its monthly report for December 2018, the Bundesbank continues to assume that the real and adjusted German gross domestic product (GDP) will grow and that the boom will continue. In 2018, GDP growth (real and calendar-adjusted) amounted to 1.5%. The Bundesbank believes that the responsibility for the most recent dampers at the end of 2018 lies above all with temporary supply-side difficulties in sub-industries. The Handelsblatt Research Institute also sees the slight declines towards the middle and end of 2018 primarily in connection with special effects, such as the very hot summer, which dampened the propensity to buy and led to supply bottlenecks due to low water levels in many important waterways.

The labour market continues to be in good shape and grew to an annual average of around 44.8 million people in 2018. With 44.3 million employees, it reached its all-time high in 2017. Correspondingly, the number of unemployed poeple fell by around 8% in 2018. Due to the high employment rate, it can be assumed that the shortage of skilled workers will continue to worsen, which will have a corresponding impact on gross wages.3 4

For the years 2019 and 2020, the Bundesbank is assuming growth of 1.6% each and is therefore fore- casting a slight increase in growth, primarily due to the continued expansionary fiscal policy. The Deutsche Bundesbank continues to expect a slight improvement in the overall economic situation for the years 2019 to 2021.5 6

B. Industry-related environment

I. Market

The gamigo group has a broad portfolio of online games, especially role-playing games, shooter and strategy games. The group is also characterised by a portfolio of casual games and platform services with a special focus on advertising, media and SaaS services. It markets its products and services worldwide, with an emphasis on Europe and North America. In the online games market, the gamigo group concentrates mainly on free-to-play titles, where the players can play free of charge but spend money in order to progress more quickly or to acquire exclusive or special virtual items.

2 European Central Bank; Economic Bulletin – Issue 1 / 2019; URL: https://www.bundesbank.de/resource/blob/776220/ 25876ec99cb42aee9f82cbf4fe449d9b/mL/2019-01-ezb-wb-data.pdf 3 Deutsche Bundesbank; Outlook for the German economy – macroeconomic projections for 2019 and 2020 and an outlook for 2021, December 2018; URL: https://www.bundesbank.de/resource/blob/770328/dde0bab8cd47eeb3459180edfe16fcd6/mL/2018-12-prognose-data.pdf 4 Federal Ministry for Economic Affairs and Energy; The economic situation in Germany last year: solid growth in 2018 – now is time to strengthen forces for growth for 2019; URL: https://www.bmwi.de/Redaktion/DE/Pressemitteilungen/Wirtschaftliche-Lage/2019/20190115-wirtschaftliche-lage-in-deutschland- des-letzten-jahres.html 5 Statistisches Bundesamt; Zahl der Erwerbstätigen im Jahr 2017 um 1,5 Prozent gestiegen; URL: https://www.destatis.de/DE/Presse/Pressemitteilun- gen/2018/01/PD18_001_13321.html 6 Statistisches Bundesamt; 2018: continued increase in employment; URL: https://www.destatis.de/DE/Presse/Pressemitteilungen/2019/01/ PD19_001_13321.html 10 gamigo group Consolidated management report 2018

The market for digital games has been a growth market for years and is expected to remain so. Ac- cording to Newzoo (the leading provider of market analyses in the gaming sector), the market volume was bnUSD 121.7 in 2017 and bnUSD 137.9 in 2018. This corresponds to growth of around 13.3% and is thus well above global economic growth. Newzoo also expects similar growth for 2019 and expects a market volume in the region of bnUSD 151.9.7 8

The business model with the highest revenues in the digital gaming sector in 2018 was the free-to-play model. Approximately 80 % of global revenue was generated by this business model. 9

The games industry is characterised by a large diversity of products. The most common genres include action games, simulations and arcade games, followed by puzzles, adventures, casual games and strategy games. Due to the strong competitive pressure, the games market is hit-oriented: many games on the market are discontinued after a short period of time; only a few have a long lifetime and generate substantial revenue. In the experience of the gamigo group, games with a proven reputation can continue in the market for 10 years or longer. This is shown not only by gamigo-owned titles, such as Fiesta Online (2006) or Grand Fantasia (2009), but also by competing products such as Eve Online (2003) or World of Warcraft (2004). Globally, the providers generate revenue and profit via various business models, including the sale of games or game apps, the sale of virtual objects (known as “items”), the sale of games subscriptions and the placement of advertisements in the games. The bulk of revenue within the game market is generated by selling virtual items and from premium cash (micro-transactions). The game portfolio of the gamigo group consists mainly of games based on this business model, also known as the free-to-play model.

The German market for computer and video games is growing and will continue to grow continuously. According to information provided by BIU, the German Games Industry Association, computer games, video games and mobile games are generally popular across all social classes. Players transcend all age and income boundaries.

In particular, the market for online games is still growing, as described above. The mobile gaming sector is most heavily represented here, with 2018 seeing a marked fall in publishing figures despite growth in revenue. For example, only 21,000 games were published for iOS in 2018 compared to 42,000 the prior year. At Google, the Play Store visibly emptied, and by the third quarter of 2018 the range of game apps on offer had fallen by more than half. There is a clear trend toward consolidation now discernible in the market and a shift by customers towards quality over quantity.

7 Newzoo - Wijman, Tom; published on 30 April 2018 at the URL: https://newzoo.com/insights/articles/global-games-market-reaches-137-9-billion-in-2018- mobile-games-take-half/ 8 Newzoo – Kooistra, Jelle; published on 3 January 2019 at the URL: https://newzoo.com/insights/articles/newzoos-trends-to-watch-in-2019/ 9 Handrahan, Matthew - gamesindustry.biz; Fortnite tops SuperData's 2018 chart with $2.4 billion digital revenue; https://www.gamesindustry.biz/articles/2019-01-16-fortnite-tops-2018-superdata-chart-with-usd2-4b-digital-revenue

11 gamigo group Consolidated management report 2018

With the growth in the digital games market, customer acquisition is taking on an ever more significant role. Given the rising costs of classic affiliate marketing, alternative channels are also becoming ever more important. In particular, influencer marketing, i.e. the publishing of product presentations by known streamers and YouTubers, has assumed ever greater importance in influencing youngsters when choosing which games to play. For adults and youngsters, banner and video ads on social media pages are still a very effective method of customer acquisition, as targeting makes it possible for the advertisements to reach the appropriate target group. Product placement in games is also a very effective method of customer acquisition, because it makes it possible to address the appropriate target group directly and, ideally, to prevent the impending loss of a gamer to another product on offer from the company’s own portfolio or generate final revenue for referring the player to a competing product.10

In addition, the importance of analytical and technological skills is becoming increasingly significant across the board in marketing in order to support performance-oriented campaigns. Particularly fraud tracking and fraud prevention, as well as the attribution of leads to influencer or TV campaigns, deserve mention here, as they permit optimisation.

The market for influencer marketing is still growing. The JOM agency group, Hamburg/Germany, anticipates an increase to bnEUR 24 billion in its forecast for the net advertising market in 2019. Influ- encer marketing is expected to be one of the largest drivers of growth in the advertising sector, with German companies are expected to spend half a billion euros on influencer marketing in 2019. Accord- ing to a survey by the German Association for the Digital Economy (BVDW), 61% of German social media and influencer marketing managers are planning increased budgets for influencer marketing in 2019. The trend is clearly moving towards niche influencers. Of the companies surveyed, 63% tend to rely on influencers with a smaller reach and a higher engagement rate. In a 2018 study, Goldmedia forecast growth in the influencer market in the DACH region to bnEUR 1 by 2020.11 12 13

II. Competition

Online games publishing: In the online games sector, there are numerous competitors at national and international level, with some competitors focusing more on casual games or being active in different markets to the gamigo group. The intensity of competition is also increasing steadily. In Europe and the Americas, there are several billion-dollar companies in the games market; Electronic Arts, TakeTwo, Ubisoft or Activision Blizzard are just a few examples. Many of the Asian billion-dollar companies are also active in Europe and the Americas, such as Nexon, Tencent, Nintendo or Bandai Namco. Specialised online game vendors are usually smaller in Europe and the Americas. The larger ones include Zynga, Bigpoint (now owned by Yoozoo), Gameforge, Travian, Stillfront, THQ-Nordic, Wooga (a majority stake recently acquired by Playtika), Daybreak Game Studios, Innogames (part of the Modern Times Group) and War- gaming.

10 game – Verband der deutschen Games-Branche; published on 27 August 2018: https://www.game.de/marktdaten/deutscher-games-markt-2018/ 11 Newzoo – Wijman, Tom; published on 30 April 2018 at: https://newzoo.com/insights/articles/global-games-market-reaches-137-9-billion-in-2018-mobile- games-take-half/ 12 Newzoo – Kooistra, Jelle; published on 3 January 2019 at: https://newzoo.com/insights/articles/newzoos-trends-to-watch-in-2019/ 13 Handrahan, Matthew – gamesindustry.biz; Fortnite tops SuperData’s 2018 chart with $2.4 billion digital revenue; https://www.gamesindustry.biz/articles/2019-01-16-fortnite-tops-2018-superdata-chart-with-usd2-4b-digital-revenue 12 gamigo group Consolidated management report 2018

Most game publishers of online games have just a few games; their revenue is highly dependent on the success of these games, and they suffer once these games are past their peak.

The gamigo group is now one of the larger names among the smaller online games publishers, but is characterised by a broad games portfolio with well-distributed revenue and a broad marketing base (own portals, own marketing companies), as well as its growth strategy which is heavily based on M&A. Owing to competitive pressure, many smaller providers are under pressure and are also often for sale, which offers the gamigo group an opportunity to acquire such entities and/or assets at a low purchase price with the aim of continuing to operate them profitably as part of its own platform strategy.

Mobile games publishing: In recent years, the mobile games segment has experienced rapid growth thanks to smartphones and the associated app stores, and this trend is expected to continue. A small number of companies are making a lot of money all over the world with mobile games and are defending their positions with substantial marketing expenditures (e.g. Supercell (now a part of Tencent), Elex, King (now a part of Activision Blizzard), Niantic, Machine Zone, Playrix and Com2us). Due to the enormous number of newly launched games, the strong competition to acquire new players, the established positions of some older games and the limited marketing opportunities with two of the most important gatekeep- ers, Apple and Google, launching new mobile games is expensive and risky. gamigo has few games in this area and, for the reasons mentioned, launches new games very conservatively. On account of the predominantly relatively high asking price levels for purchasing companies in this segment, the M&A market is still in its infancy.

Advertising for games: In the experience of the gamigo group, increasing competition for good advertising opportunities is also discernible on the advertising market. Games companies and companies from other sectors are increasingly booking online and mobile advertising. Consumers can be found on a growing number of platforms and social networks (Facebook, Twitter, Instagram, YouTube, etc.). In addition, fraud is an increasingly important topic in this market, with fees increasingly common for advertisements that have not even been seen by consumers. Technical upgrades and new, efficient channels, such as influencer marketing, are therefore important. The most important competitors in gaming advertising in Germany include ad2games, ad4games and welovex. In addition, large, traditional media agencies and spin-offs that focus on individual new channels (e.g. Divimove or Nevaly in influencer marketing) also play a role. When it comes to marketing and sales services, the main differences between adspree media GmbH and its competitors, in its own assessment, are its own game assets (such as www.browsergames.de), a 100% focus on the gaming sector and performance-oriented marketing, a marketing collaboration with ProSiebenSat.1 for TV campaigns and the option of offering a full channel mix for customer acquisition campaigns. The Mediakraft Group, acquired in 2017, specialises in the growing field of influencer marketing and online videos, and has clear competitive advantages thanks to in-house production and years of experience in designing and launching campaigns and YouTube channels. The main competitors of Mediakraft are Divimove, Tube1, Studio71, various specialised agencies and the major media agencies.

13 gamigo group Consolidated management report 2018

Platform services: The market for platform services is not yet very well developed in the games market. While there are now good, standard solutions for game developers, such as Unity, Unreal and Amazon Lumberyard (based on the CryEngine from Crytek), there are still no good and completely standardised solutions as yet for game publishers. There are various providers of games software, most of which offer only a part of the required software solutions or are only specialised in mobile games. These include GameSparks (acquired by Amazon), Photon, Braincloud, Gamuna, Playfab, ChiliConnect, Kii and hero- iclabs. The Steam platform also overlaps this area, but is in fact just a marketing and billing solution with a focus on premium games, for which the player usually has to pay just once, otherwise ruling out continuous revenue. Good Old Games (gog.com), the e-commerce platform from the Witcher developers CD project for the digital marketing and sale of premium games, has also established itself as a competitor. Epic games has also announced that it wishes to establish a platform similar to Steam. gamigo sees a real opportunity to offer its publishing platform with a full portfolio of services on an SaaS basis, including hosting, registration, advertising, metrics, billing and consulting. These modules can be chosen freely by customers, and they ensure a customer-oriented setup of the publishing platform. While the SaaS segment is on hold for the moment because of other internal technology priori- ties, the positioning in sales and marketing for third parties is actively being pursued.

C. Business development

Group revenue rose by 8% from kEUR 42,082 in the period ended 31 December 2017 to kEUR 45,289 in 2018. The payment processing company MBE was sold in March 2018. On 22 October 2018, the assets of Trion Worlds Inc. in the US were taken over. Group EBIT increased year on year from kEUR 7,034 (2017) to kEUR 11,051 (2018), which corresponds to growth of kEUR 4,017, or 57%. As in the prior year the EBITDA contains a Bargain Purchase (lucky buy).

In the B2C segment, the subsidiaries’ existing game portfolios developed as expected. The platform strategy pursued by gamigo for several years now, combined with the purchase of games companies or games assets, has proved to be successful. Gross profit has been increased significantly within the gamigo group through the purchase, redevelopment and consolidation of games companies or games assets with significant revenues. Although games are subject to natural churn, the gamigo group is increasingly managing to demonstrate acquisition-driven growth, growth based on the existing portfolio and lower churn through active game management and regular updates, as well as the launch of sequels and new games.

The takeover of the assets of Trion Worlds on 22 October 2018 expanded the portfolio to include a further four strong games. While the results for most corporate takeovers turn negative in the short term due to the restructuring costs, the takeover of Trion Worlds’ assets was a special case. The assets were acquired by way of an assignment for the benefit of the creditors (ABC). Therefore, gamigo took over only those assets, contracts and employees that were necessary for continued operation within the gamigo group. Accordingly, only minor restructuring costs were involved, and the games were able to contribute positively to group earnings immediately, even after considering contractual and financing costs.

14 gamigo group Consolidated management report 2018

In the financing area, a corporate bond totalling mEUR 32 was issued in early October 2018. The bond pays a coupon of 7.75%, the effective interest rates amounts to 8.9%. Additional issuances up to an amount of mEUR 50 are possible. The bond was used to resolve the bank loan borrowed in 2017 and to pay outstanding acquisition commitments. In addition, a part of the bond was used for the purchase of Trion World’s assets. The bond has a maturity of four years. The listing was accepted in Germany on the open market (quotation board) on 9 October 2018 and in Sweden on the regulated capital market on 10 December 2018.

Within the gamigo group, the following companies were renamed during the period ended 31 Decem- ber 2018:

• Elbspree media Holding GmbH became Aeria Games GmbH, • Produktkraft Vermarktung GmbH became Aeria Interactive GmbH and • Golden Gate Games Inc. became gamigo US Inc.

Furthermore, the following mergers were approved and implemented with effect from 1 January 2018:

• Aeria Games GmbH into Elbspree media Holding GmbH.

One new entity was formed during the period ended 31 December 2018:

• gamigo US Inc. (formerly Golden Gate Games Inc.).

D. Profit, net worth and financial situation

Profit situation

The operating result increased significantly compared to the prior year. This is due to the completed restructuring of the Mediakraft group in 2018 and the acquisition of Trion Worlds` assets and the realted bargain purchase. The B2B segment did not again lead to a burden for the operating results. The revenue increased (45,289 kEUR) compared to the prior year (2017: 42,082 kEUR), this was primarily driven by a revenue growth of the existing business. The EBITDA increased due to revenue growth, a Bargain Purchase as well as realized synergy effects from kEUR 7,034 in 2017 to kEUR 11,051 in 2018. As the M&A business model is part of the Group’s operating activities earnings resulting from Bargain Purchases (Lucky Buys) occur regularly. Besides restructuring activities, a stringent cost management contributed to the positive operating result.

In the area of the licensed game titles as well as the internal further developed game titles the focus in the business year was on the enhancements of the games. Based on the increasing internal development and realted investments in the improvements of the gamigo-systems and -platforms (like dat- acenter to cloud) the own work capitalized increased in 2018 to 4,168 kEUR (2017: 3,585 kEUR).

The other operating income amounted to 6,667 kEUR und increased compared to 2017 by 4.293 kEUR (2017: 2,374 kEUR).

15 gamigo group Consolidated management report 2018

The other operating income caused primarily from the M&A business and includes a bargain purchase of 5.065 kEUR. Such effects from the M&A business will probably contribute to the earnings in the following years based on the business model of the group.

Purchased services remain unchanged in relation to the revenue (appr. 39%).

Personnel expenses of the gamigo group increased in the reporting period by 818 kEUR (14,730 kEUR in 2018 versus 13,912 kEUR in 2017). The increase is mainly due to the adoption of about 50 Trion Worlds employees in October 2018 by gamigo US Inc. In other group companies the number of employees was mostly reduced.

Depreciation, amortisation and write-downs decreased in 2018 (8,464 kEUR) by 19% compared to 2017 (10,392 kEUR). Excluding the impairment expense which amounted to 951 kEUR in 2017, the amount of depreciation and amortisation on intangible assets and property, plant and equipment was on an almost comparable level in the years 2018 and 2017. Amortisation on intangible assets amounted to 6,966 kEUR (2017: 8,353 kEUR) in 2018, on property, plant and equipment 1,499 kEUR (2017: 728 kEUR) and on financial assets 0 kEUR (2017: 1,311 kEUR).

Other operating expenses increased from 10,865 kEUR in 2017 by 1,840 kEUR to 12,705 kEUR in 2018 due to the M&A activities and additional investments in marketing. Cost drivers within the other operating expenses were marketing, IT services and legal and consulting costs.

The financial result of the group slightly increased in comparison to the prior year from -2,308 kEUR in 2017 to -2,096 kEUR in 2018. Interest expenses mainly consist of interest expense on the loans from banks in the first three quarters 2018 and interest expenses on the bond in the fourth quarter of 2018.

The capitalisation of deferred tax assets on tax loss carryforwards which exceed the deferred tax liabilities, led to the recognition of deferred tax income in the amount of 1,229 kEUR (2017: 685 kEUR).

Based on the effects described above, the consolidated profit improved and amounted to 1,617 kEUR in 2018 (2017: -4,991 kEUR).

Net worth situation

The non-current assets amounted to 81,709 kEUR at 31 December 2018 (2017: 56,769 kEUR) taking into considerations the additions, disposals, as well as deprecation, amortisation, and write-downs. The significant increase is due to the acquistion of the assets of Trion Worlds and the first-time application of IFRS 16 and the related capitalization of Right-of-Use (RoU) assets (i.e. rights from the underlying contracts).

Goodwill (31 December 2018: 27,909 kEUR) resulted from business combinations in prior years and changed to the 31 December 2017 (28,916 kEUR) due to the sale of 100% of the shares in Mobile Business Engine GmbH in 2018.

16 gamigo group Consolidated management report 2018

At 31 December 2018 gamigo Group recognized deferred tax assets of 8,127 kEUR (2017: 7.141 kEUR) resulting from tax losses carried forward and temporary differences between IFRS balance and tax balances. The temporary differences result mainly from the first-time application of IFRS 16 and the valuation of internally-generated intangible assets and the purchase price allocation.

The current assets of the gamigo group (31 December 2018: 12,083 kEUR) increased compared to the prior year (10,025 kEUR) by 2,058 kEUR, mainly caused by the increase of trade receivables and cash and cash equivalents.

The total equity of the gamigo group increased at 31 December 2018 to 28,526 kEUR (2017: 26,728 kEUR) based on the consolidated profit for the year. The total equity mainly consist of the unchanged share capital (2,311 kEUR), the unchanged capital reserves (48,153 kEUR) and the accumulated retained earnings (31 December 2018: -21,972 kEUR; 31 December 2017: -23,589 kEUR).

At 31 December 2018, the non-current liabilities increased to 41.818 TEUR (31 December 2017: 14.918 TEUR) due to the realisation of the long-term financing strategy. The partly short-term credit financing concluded mid 2017 was replaced in 2018 by a bond. The non-current liabilities composes of liabilities to related parties (31 December 2018: 837 kEUR, 31 December 2017: 832 kEUR), bond in the amount of 24,877 kEUR (31 December 2017: 0 kEUR), other non-current financial liabilities of 14,330 kEUR (31 December 2017: 13,895 kEUR) and deferred tax liabilities of 1,774 kEUR (31 Decem- ber 2017: 191 kEUR).

Current liabilities (31 December 2018: 23,448 kEUR; 31 December 2017: 25,149 kEUR) compose of current provisions (31 December 2018: 6,451 kEUR;31 December 2017: 3,011 kEUR), liabilities to banks (31 December 2018: 0 kEUR; 31 December 2017: 6,957 kEUR), trade payables (31 December 2018: 8,736 kEUR; 31 December 2017: 7,219 kEUR), other current financial liabilities (31 December 2018: 3,556 kEUR, 31 December 2017: 5,421 TEUR) and other current non-financial liabilities (31 De- cember 2018: 4,705 kEUR; 31 December 2017: 2,541 kEUR).

There were no transactions related to the shareholder equity during the reporting period 2018.

Financial situation

The gamigo group generated in the reporting period 2018 a significant operating cashflow of 10,481 kEUR (2017: 3,801 kEUR), which is shown in the consolidated statement of cash flows. The increase compared to the prior year is mainly due to increased revenues (3.207 TEUR) and the increase in current provisions (3,440 kEUR).

This cashflow will be mainly used for the financing of further growth and the redemption of liabilities.

The investments in intangible assets and property, plant and equipment of gamigo group amounts in the business year 2018 to 3,674 kEUR (2017: 7,304 kEUR). In addition, for the acquisition of business operations an amount of 3,519 kEUR was used in 2018 (2,171 kEUR in 2017), thereof 3,473 kEUR for Trion Worlds and 46 kEUR for acquisition from prior years.

17 gamigo group Consolidated management report 2018

The relation of non-current liabilities to shareholder equity (debt-to-equity ration) is 1.47 at 31 De- cember 2018 and increased compared to the prior year-end (0.56). This is maily the result of the issuance of the bond.

The financial management follows the strategic growth objectives of gamigo group. Altogether an op- timal balance between investments, EBITDA and liquidity shall be achieved in order to gurantee a long- term sustainable development. Additionally, gamigo-Konzern controls the liquidity of gamigo group via the working capital.

In 2018, no derivative financial instruments were used. The bond was issued in EUR, related interest payments are also quoted in EUR until the redemption of the bond in October 2022. Therefore, there are no significant foreign currency exchange risks in the financing area.

The level of interest expenses will increase in the following years based on the higher nominal interest rate of the bond (7.75%) compared with the prior bank loans. On the other side, a mid-term financing without any maintenance covenants is secured. The prior bank loans with lower interest rates were refinanced by the bond in October 2018.

Liquidity and cash flow

The cash flow from operating acitvities increased in the business year 2018 by 6,680 kEUR to 10,481 kEUR. The additional sales revenue generated by the acquired Trion Worlds business in 2018 is directly reflected in the higher cashflow from operating acitivites.

The outflow of cash from investing activities amounted to 6,345 kEUR compared to the cash outlfows of 8,728 kEUR in the prior year. The investments mainly related to intangible assets (game licences and rights) and the acquisition of business operations.

The cash flow from financing activities at an amount of 3,777 kEUR (2017: -868 kEUR) reflects the refunding by the issuance of the bond (25,800 kEUR) and the repayments of loans and borrowings (-20,569 kEUR). The first-time application of IFRS 16 leads to a permanent shifting of cash flows. The cash flow from operating activites increases and the cash flow from financing activites decreases. This effect amounted to appr. 1,342 kEUR in 2018.

The gamigo group holds cash funds at 31 December 2018 of 4,158 kEUR which increased by 8.094 kEUR compared to the cash funds at 31 December 2017 (-3,936 kEUR).

Summary on profit-, net worth and financial situation

In 2018, the gamigo group has again substantially invested in the transformation and the build-up of the business acitvities of the group. By the issuance of the bond, the level of debt burden strongly increased, however, this was the basis for the sustainable financing of the business growth. The M&A strategy of gamigo Group had a direct positive impact on the financial and profit situation of the Group with the acquisition of Trions Worlds business which led immediately to additional revenues and resulted in a bargain purchase from positive valuation. This fact confirms the path chosen by the Group..

18 gamigo group Consolidated management report 2018

Since the introduction of the platform-focused strategy and related M&A transactions gamigo group developed since 2013 steadily positive. Started as a low-margin business the company has built up the business with good EBITDA margins via scaling effects and improved efficiency. Since 2017 gamigo group focuses again on organic growth and published first games in 2017 and 2018. The organic growth strategy will be intensified in 2019 and the following years besides further M&A activities.

III. Forecast, opportunities and risk report

A. Forecast report

For the period ending 31 December 2019, the gamigo group expects moderate revenue growth in the low double-digit percentage range and a further improvement in earning capacity and profitability, especially through the progressive integration of the Trion assets acquired in 2018 and the further leveraging of efficiency and synergies based on the standardisation and improvement of internal systems. In addition to the organic growth generated in particular by launching new games, the gamigo group also plans to seize further consolidation opportunities on the market and to acquire entities in the publishing and B2B fields.

Since the willingness of customers to spend money on luxury goods such as virtual items depends greatly on the consumer confidence index, and thus on the general expectations for the economy, events that weaken the economy pose a risk, even if they do not materialise until later. GfK reported stable consumer sentiment in late 2018 and early 2019. However, financial markets were nervous, and there was plenty of speculation about a possible economic and consumer crisis.14

The actual figures from 2018 were slightly worse than expected in terms of revenue. EBITDA developed positively mainly due to the acquisition of Trion assets. Although the Mediakraft Group retained less revenue than originally expected and some games showed a higher level of churn due to a very hot summer and delayed game updates in some cases, the platform-based M&A model has shown itself to work. Due to the acquisition of mainly loss-making entities, it is difficult to predict in advance what revenue can actually be retained, whereas the costs and duration of restructuring can be estimated quite accurately.

B. Underlying assumptions

The expectations result from the assumptions that the positive economic development in the core markets will continue in 2019, the competitive situation will not change decisively and the gamigo group will continue to realise attractive acquisitions. Current economic data for the relevant markets confirm those assumptions.

14 https://www.gfk.com/de/insights/press-release/konsumklima-startet-stabil-ins-neue-jahr/Chancenbericht 19 gamigo group Consolidated management report 2018

The forecasts for revenue and EBITDA are based on internal planning which takes into account the key performance indicators for the gamigo group. In the budget, it is assumed in the Publishing division that the numbers of new customers will grow and that the percentages for the KPIs First Log-in and Customer Activity will not worsen. It is also assumed that newly acquired game licences – such as Ar- cheAge, Trove, RIFT and Defiance – and launches of new games will also contribute to revenue growth. Positive development is also expected with regard to further internal developments of own licences such as Last Chaos, Fiesta Online or Shaiya.

In the area of platform services, growth is planned at the subsidiary Mediakraft Networks GmbH by focusing on sales and the marketing business. At adspree media GmbH, an expansion of the core business is expected by increasing sales activities, as well as through a technology upgrade of internal systems and a resulting positive development.

The gamigo group expects M&A transactions to continue in 2019 and succeeded in completing a further acquisition in April 2019 by purchasing the Wild Tangent assets. Although the acquisition pipeline remains well filled, it is not yet possible to predict which transactions could realistically be expected to materialise.

C. Opportunities report

The gamigo group participates in a games market that is growing overall. Along with the opening up of new countries and markets through the localisation of current titles thanks to new language versions in combination with the expansion of the B2B services, the improvement in revenue and profitability as a result of the successful implementation of the platform strategy and the associated organic and inorganic growth constitute the strategic focus for the years ahead, as they have done in prior years.

For the future, an extension of the existing product range through various service components, more active game management, a stable and secure technical environment, good games quality and corresponding community services, the expansion of the games portfolio and the expansion of the mobile games division are planned in order to increase added value for players and to differentiate gamigo from the competition. Particular focus is to be placed on games that are subject to internal further development; development here is being expanded and professionalised, which will have a positive effect on the quality and development of games. Launching new games is also important. After choosing not to focus on new launches for many years in order to build up a critical mass in the areas of technology, marketing and the portfolio, the entity returned to launching licensed games in 2017. This strategy is to be continued during 2019.

In future, another success factor will be the marketing of advertising opportunities in the games. The existing in-depth customer database makes it possible for gamigo to carry out a detailed quantitative analysis of player behaviour. This analysis serves as a basis for effective marketing measures while also providing the foundation for targeted optimisation within the games and therefore an increase in gamigo’s income.

In future, the gamigo group’s marketing activities will continue to focus primarily on the European, North American and South American market.

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gamigo has a stable and easily scalable platform. Providing it to third parties as well has major benefits for other market participants (lower costs, higher quality) as well as for gamigo (more volume on the platform results in increased efficiency). gamigo sees an additional opportunity in strengthening its equity and debt capital, so that the many consolidation opportunities on the market can be exploited.

D. Risk report

Risks relating to the market and competition

The gamigo group is active in a highly competitive market environment

The gamigo group sells and markets online and mobile games, which places it in a highly competitive market environment. Given the expected growth rates of other vendors who have so far been active solely in other (potentially adjacent) markets, and who in some cases dispose over considerably larger technical and financial resources, the entity cannot rule out their deciding to move into this sub-market on account of the growing acceptance of online and mobile games. They could therefore negatively impact the gamigo group’s market share. Various existing competitors have also built up a comparatively long track record or are relatively better known to the public, have a broader customer base and/or clearly dispose over greater financial and technical resources. In addition, the process of market concentration has accelerated over the past few years due to takeovers by providers of various sizes. The existing price and competitive pressure will continue to increase if this process continues. What is more, the barriers to entry for new competitors in the area of online and mobile games are low, and there is the possibility that alliances may be created between competitors who could rapidly gain significant market share. Growing competition may also lead to price increases for the acquisition of game licences. If any of the competitive risks described were to become reality, it could have a significantly negative impact on the business activity and acquisition opportunities of the gamigo group, which could result in an impact on its net assets, financial position and results of operations.

Consumer behaviour

The group’s product sales depend on consumers’ purchasing power, buying behaviour and user behaviour. Changes in customer strategies or buying behaviours can negatively affect the group’s net revenue. The willingness of consumers to buy the group’s products and to make use of its services can fall due to external factors, such as a general economic downturn that impacts consumers’ purchasing power or buying behaviour. A reduction in consumers’ willingness to purchase the group’s products would have a negative impact on the net assets, financial position and results of operations of the group.

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The gamigo group is subject to the risk of rapidly changing technologies and customer demands

The market for online and mobile games, in which the gamigo group is active, is a rapidly changing sector. Its characteristics are fast-changing technologies and frequent launches of improved or new games, as well as constantly changing and new customer demands. The success of the gamigo group therefore depends critically on predicting new trends and developments in good time, continuously improving existing games and extending their lifetimes, adding new games to the product range in good time, adapting to meet fast-moving customer demands and, in particular, attracting and retaining a large number of paying players. The gamigo group must, above all, be in a position to spot changes in what customers want or demand early enough, change the games on offer quickly enough and continuously improve, extend and update them with new features in such a way as to make sure that paying players find them attractive. The gamigo group is also dependent on the availability of software developers and development partners, as well as their willingness and ability to continue improving the games in the long term.

The competitive position and the growth opportunities of the gamigo group could suffer a serious negative impact if it is not able to successfully market new games in the market or to continue improving the games already on offer and publishing successful updates to them. In addition, customer target groups in the gamigo group’s various markets will not necessarily want the same things. Taking regional differences and languages into account is an additional challenge in relation to determining and implementing trends that requires technical, staff and financial resources to be deployed. Each delay or hurdle to the introduction of improved or new games to the product range, or any lack of or delay in acceptance, can have a serious negative effect on the net assets, financial position and results of operations.

There is a risk of legal infringements and of stricter legal conditions in relation to the gamigo group’s business activities

The gamigo group faces a multiplicity of frequently changing and steadily increasing legal requirements relating to the business activities of the gamigo group. This applies particularly in relation to data protection, consumer protection, protection of minors and gambling.

Many provisions relate to the collection of, the processing of and the responsibility for the content and protection of data, especially personal data. Faced with the requirements for special protection of personal data on the Internet, legal risks may arise, especially in connection with the many ways to collect, store and combine personal data with other data about usage and evaluate it to create full customer and user profiles. Because the legal provisions and court decisions are less than clear, it is not always possible to draw a dividing line between personal data and other data. In particular, the general data protection regulation in place since 25 May 2018 under Sec. 99 of the General Data Pro- tection Regulation (GDPR) represents a challenge, and therefore a risk, for gamigo and all others involved in this market.

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In addition, there are risks in relation to compliance with or the tightening of legal provisions for consumer protection on the Internet. The new EU Consumer Rights Directive (2011/83/EU), which has been partially implemented in German law, including Sec. 312g of the German Civil Code (BGB), came into force on 12 December 2011.

The online and mobile games sold by the gamigo group are subject to specific provisions relating to the protection of minors in the various countries in which it operates. For example, the computer games trade associations carry out voluntary testing of computer and video games intended for publication in Germany, which they oversee themselves. The procedure for testing computer and video games is based on the principles of the German Entertainment Software Self-Regulation Body (USK). Said principles were issued by the USK’s Advisory Council and have applied since 1 February 2011. They are supplemented by the Guidance Criteria for the evaluation of computer and video games as issued by the USK’s Advisory Council and in force since June 2011. The Central State Agencies for Media Pro- tection of Young Persons are responsible under Sec. 14 of the Protection of Young Persons Act (JuSchG) for approvals and ratings.

A further risk are the current discussions about loot boxes in PC- and video games according to which loot boxes might fulfil the definitions of gambling. Loot boxes are often fee-based packages with ran- dom contents for videogames.

The responsible state-level agencies in Germany have yet to issue any official statements on the per- missibility of loot boxes or any corresponding bans. By contrast, the gaming authorities in Belgium and the Netherlands have classified loot boxes in some games as illegal gambling and have threatened publishers with legal action. Moreover, 16 gaming regulation bodies agreed in the autumn of 2018 to subject loot boxes and other financing models in video games to closer scrutiny. The joint declaration is a predominantly European initiative. Of the 16 regulatory agencies signing the declaration, 15 come from Europe, with only the Washington State Gambling Commission based in the United States. The signatories include Austria, Poland, the United Kingdom, the Netherlands, Portugal, Spain, Norway, France and the Czech Republic. However, Germany has not signed the declaration.

The gamigo group’s failure to comply with the legal requirements in its sales markets, especially in the aforementioned areas, and/or the tightening of the regulatory environment could have a negative effect on the gamigo group’s business activities and therefore also have a detrimental impact on the net assets, financial position and results of operations.

The management of gamigo AG rates the likelihood of the risks related to the market and competition occurring as low.

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Other forms of entertainment

In particular in the area of game publishing, the group and its range of products and services face competition not only from other vendors of online, console and mobile phone games, but also from other vendors in the entertainment industry, such as social media providers as well as traditional, non- computer-based forms of games (offline), TV entertainment, films and TV. Although the market for online, console and mobile games has grown in recent years, there is a risk that consumers will once again prefer other forms of entertainment over online and mobile games. An increasing shift in a broader customer base to other forms of entertainment would have a negative impact on the business activities and the net assets and/or financial position of the group.

Risks relating to the business activities of the gamigo group in the B2C sector

The gamigo group is dependent on the development of successful new games

As the gamigo group currently develops new online and mobile games itself only to a very minor extent, the supply of new games depends above all on the availability and quality of external developers. A decisive role is played here by whether an external development partner has adequate resources and experience in the area of online, console and mobile games. Especially in the early development phases of new games, there is a risk that game designs could turn out to be impossible to implement or to market. Delays at the start of a new game and the associated cost increases can have a negative impact on business development. There is also the risk that new game projects will need to be aban- doned. Any of the above risks can have a negative effect on the net assets, financial position and results of operations of gamigo group.

The gamigo group depends on having a high ratio of paying players

The majority of the online and mobile games provided by the gamigo group are essentially free of charge (Free2play). The main source of income for the gamigo group from these types of game is the sale of virtual currency that can be used to purchase virtual items that increase enjoyment of the games and allow players to be successful more rapidly within the game or to set themselves apart from other players. The success of the gamigo group therefore depends on a high ratio of players being willing to use real money to acquire virtual currency and use it to buy virtual items. The failure to acquire a large number of players who are willing to buy virtual currency and use it to buy virtual items would therefore have a negative impact on the business activities, as would a lack of attractive virtual items leading to a decrease in the number of players willing to purchase virtual currency and virtual items. This would negatively affect the net assets, financial position and results of operations of the gamigo group.

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The gamigo group is dependent on the success of online marketing measures

The success of the gamigo group depends on the success of the online, console and mobile games offered by the gamigo group. New players are acquired particularly by way of online marketing activities. Therefore, the success of the gamigo group depends substantially on the success of its online marketing measures. The failure of online marketing measures to achieve the desired results (therefore resulting in only a few new players being acquired), an increase in the cost of customer acquisition or a decrease in the efficiency of customer acquisition can have a negative impact on the business activities and therefore on the net assets, financial position and results of operations of the gamigo group.

The gamigo group could infringe third-party industrial property rights

The gamigo group is not aware of any infringements of the industrial property rights of any third parties in relation to the computer games it provides. However, it cannot be ruled out that the gamigo group may potentially infringe the rights of third parties, that third parties may make a successful claim against the gamigo group for the infringement of industrial property rights, or that claims may be lodged against the gamigo group as part of legal disputes. This can lead to gamigo group products not being commercially deployable, or only with delays. Even just the assertion by third parties that the gamigo group has infringed the industrial property rights of third parties could cause economic damage. Claims of infringement of industrial property rights that have been successfully pursued could lead to the gamigo group having to pay substantial compensation. Litigation relating to industrial property rights can include complex issues of fact and of law, with the outcome often being uncertain. Such legal disputes can, whether justified or unjustified, also cost a substantial amount of time, occupy staff and trigger other expenses, or distract the gamigo group from its actual business activities. The delay or disruption of the marketing of a product can also have a substantially negative effect on its financial position and results of operations.

The gamigo group is dependent on reliable payment processing partners

The gamigo group sells and markets online, console and mobile games. Its main source of income is the sale of virtual items that make the games more fun and allow the player to advance more rapidly in the games. With regard to the purchase of these virtual items, the gamigo group is dependent on low-cost and correctly functioning payment processing partners (payment providers). The cost of clearing payments through these payment providers is relatively high. There is also a risk with the payment providers in relation to technical facilities; the temporary or structural unavailability of technical platforms, systems, databases and clearing systems; and the insolvency of a payment provider partner. Other risks exist in relation to liability due to system failures, fraud and hacker attacks on the payment provider partner, to name a few examples.

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The gamigo group is dependent on the leading platforms in western markets, such as Steam, Sony Playstation and Microsoft X-Box, as well as the Google Play Store and the Apple App Store for the sale of games for mobile devices

The cost of using these platforms is relatively high, which squeezes the profit margins. The approval process for these platforms can also be negative or more protracted than expected, meaning that the business activity of the gamigo group may be delayed or even hindered. The loss of availability of these platforms to the gamigo group or the end user would therefore have a negative effect on the net assets, financial position and results of operations.

The gamigo group is dependent on properly functioning collaborations with both internal and external developers

Given that the gamigo group acquires a significant part of its portfolio of online and mobile games from external developers, it is also heavily dependent on these developers. The developers must not only have adequate resources available for the maintenance and ongoing development or enhancement of the games licensed by the gamigo group, but must also share liability for them. External factors, such as a poor order pipeline or other unsuccessful titles owned by a developer, could have a negative impact on its business activities, which in turn would also have a negative effect on the business activities of the gamigo group. A further risk in this area is the failure by one or both sides to perform one or more contractual commitments, which could lead not only to contractual penalties or additional payments to the developer, but also to the termination of the existing contract. Although the gamigo group only seeks out business partners with the intention of building a long-term and successful contractual relationship, various factors can lead to a change in strategy on the part of the business partner, meaning that the mutual termination of the business relationship may become necessary, even involving legal steps. More and more games are now being developed in-house by the gamigo group. Finding and motivating developers is a challenge in a tight labour market. Any of the aforementioned risks could weaken the net assets, financial position and results of operations of the gamigo group.

Risks of the subscription model

Some of the gamigo group’s portals primarily make games available using a subscription model, which creates a different risk structure than in free-to-play publishing. On the one hand, the model demands a constant supply of new (simple) games for subscribers that need to be purchased from third parties (developers, publishers). Even though a broad portfolio of sources is available here, the loss of any major individual partners fundamentally has the potential to quickly impact the range and therefore the attractiveness of the subscriptions. On the other hand, the subscription model is based on stable, long-term customer relationships where changes to the product offering or how the product range is offered can always risk an increased churn rate. Subscription portals mainly offer download games for desktop PCs. Although the subscription business is fundamentally very stable, there is a risk of canni- balisation in the medium term due to the growing spread of mobile casual games within the target group.

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Risks relating to the deutschland-spielt.de platform

Through its own wholly owned subsidiary gamigo Portals GmbH, the gamigo group markets mainly computer games from third-party providers on casual download portals. Even if there are still many developers, 80% of the releases are actually supplied by 20% of the developers. It would not be possible to maintain the current release pattern if one of the larger developers were to leave the market, making it impossible to guarantee reliable revenue in the long term. Similar to the reduction in Internet users who use a PC, fewer and fewer new developers are selecting PCs as their primary distribution platform. A large proportion of portals’ revenue comes from the “bonus card” subscription model. There are still many subscribers, but they are constantly falling in number as the PC grows less attractive as a means of communication. As a result, it is not possible to reliably predict long-term earnings, even for long-term customer relationships. As a provider of platform services, the group is also exposed to the risk of the games sold on its various platforms being copied illegally and offered on other platforms. The group cannot guarantee the ability to take down games that are played on platforms other than those managed by the group or to stop consumers from playing counterfeit games, which can lead to a loss of earnings. The spread of counterfeit products and the illegal copying of games can also damage the reputation of the in-house platform and the games it offers and cause players to lose interest in what the group has to offer.

The management of gamigo AG rates the likelihood of the risks related to the business activities of gamigo AG in the B2C sector occurring as low.

Risks relating to the business activities of the gamigo group in the B2B sector

The gamigo group is dependent on successfully marketing computer games from third-party providers

The gamigo group markets computer games from third parties, among other things, through its subsidiary adspree media. In this business segment, there are the same type of markets risks as in the publishing sector, as well as risks concerning customer relationships. The number of customers continues to remain relatively high. Even if the general trend in the number of customers is downward, the size and therefore the importance of existing customers is growing. This business segment consists mainly of project business – i.e. reliable revenues (whether game-based or campaign-based) are not guaranteed in the long term, even for long-term customer relationships. adspree media GmbH is primarily responsible for competitors in gamigo’s publishing arena. Even though the games are usually not direct competition, what matters for adspree media is that the separation of the business divisions (known as Chinese walls) are deemed to be adequate by the customers. Any doubts in customers’ minds as to this Chinese-walls principle (e.g. in relation to launch pipelines, customer data, campaign data) could have a significant impact on adspree media’s volume of business and therefore also negatively affect the business activities and the net assets, financial position and results of operations of the gamigo group.

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Risk from fraud

The gamigo group could become exposed to fraud, especially in the area of affiliate marketing. This risk is best mitigated by internal mechanisms. Because of the high level of fraud in internet advertising, there is still a substantial risk remaining, especially as there is normally no possibility of access to customer data and systems in order to better detect fraud. Fraud can have a significant impact on adspree media’s volume of business and therefore also negatively affect the business activities and the net assets, financial position and results of operations of the gamigo group.

Risks of managing an influencer network, i.e. especially in the production and dissemination of online video content and the provision of influencer marketing services

The online video business (production of video content for online platforms) is a very new, volatile business, with high levels of dependence on the major platform operators (e.g. YouTube and Google) and on artists who produce content in return for a share in revenue. The platforms have a major influence on the business model and profitability (achievable advertising revenue, production requirements (costs) and algorithms for prioritising content) and a strong negotiating position.

The influencer marketing business (organising and implementing advertising campaigns with influencers on a variety of channels, e.g. YouTube, Facebook, Instagram) is also a very new business that still does not have any stable market standards in relation to performance and pricing. In this business segment, there is huge competition, which is driven primarily by the major market players, in particular the major media houses (ProSieben, RTL Group). The risks from this competition lie mainly in the area of pricing and margin levels. Alongside the economic risks, there are other legal risks, e.g. violating the guidelines on misleading advertising on the Internet (product placement without identification) or new laws and any upload filters to be introduced. These risks can have a significant impact on the business volume of the B2B companies (especially Mediakraft and adspree media) and therefore also negatively affect the business activities and the net assets, financial position and results of operations of the gamigo group.

Risks relating to the provision of an SaaS solution

The gaming backend SaaS solutions developed by the gamigo group may become unavailable or contain technical errors. Given the continuous development of the system, updates or patches can lead to downtime for services. The software and infrastructure may no longer work because of incompati- bilities arising. This may not only negatively affect existing customers, but also prevent potential customers from using the service solutions offered by the gamigo group. If such disruptions and interrup- tions cannot be resolved rapidly, then the business activity and the net assets, financial position and results of operations of the gamigo group may be negatively affected.

As part of the provision of software as a service, the gamigo group plans to conclude service level agreements (SLAs) with customers. Infringements of these SLAs for any of the above reasons, system downtime or the failure to adhere to contractually promised standards, for example, can lead to the termination of the relevant customer relationship and therefore end the business activity, resulting in a negative impact on the net assets, financial position and results of operations of the gamigo group.

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The SaaS market is heavily dependent on the constantly changing technical requirements. Any further major technology shift in the next few years could lead to the market stagnation of the SaaS sector due to a drop in demand for cloud solutions (on-demand business models). This in turn would mean that significant investments would be needed in new technologies and cloud solutions in order not to suffer any competitive disadvantage against competing entities. The unwillingness of the gamigo group to make these investments could have an unfavourable impact on the net assets, financial position and results of operations of the gamigo group.

As well as the strong technological dependency outlined above, stable market standards in terms of performance and pricing have yet to emerge in the SaaS market. Competitors of the gamigo group could therefore deliver their products on better terms or free of charge as open source solutions, which would severely limit the business activity of the gamigo group in this sector. This could negatively affect the net assets, financial position and results of operations of the gamigo group.

The management of gamigo AG rates the likelihood of the risks related to the business activities of gamigo AG in the B2B sector actually occurring as low.

Technical failure risks

The gamigo group could be exposed to risks in relation to the malfunctioning and/or failure of its IT system and/or networks

The gamigo group implements complex IT systems as part of its overall business activities and is reliant on functional IT systems and networks in order to provide its services. Carrying out business activities over the Internet and via IT installations relies fundamentally on stable availability of data, rapid data transmission and a technically stable, functioning Internet connection. The functional capability of the gamigo group’s own servers and cloud servers, together with related hardware and software infrastructure and the data, especially the databases, is of considerable importance to the gamigo group in terms of its business activity, reputation and its attractiveness to customers. Errors and weaknesses cannot be ruled out in existing hardware, software or data.

The business activities of the gamigo group could also be seriously affected by downtime or disruptions to the IT systems and networks due to destruction of the hardware, system crashes, software problems, virus attacks, penetration by unauthorised people (hackers) into the system or similar types of disruption, which could also give rise to substantial costs. The gamigo group’s inability to guarantee the reliability, security and availability of its IT infrastructure to a suitable extent could have a negative impact on the net assets, financial position and results of operations of the gamigo group. In addition, the reputation of the gamigo group could suffer considerable damage in the event of disruption to the IT systems.

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Fundamentally speaking, there are consistently a variety of technical downtime risks for online gaming publishers and platform providers like gamigo, such as attacks, hacks, distributed denial of service (DDOS) attacks and problems with distribution, marketing and payment processing partners, as well as problems in the sphere of influence of the development partners for games and technology. These can occasionally cause substantial drops in income and loss of reputation. By outsourcing parts of the infrastructure and technical administration to external companies, gamigo can lose some of its independent and direct influence on decisions concerning the hardware, software and security systems.

The ability to use the domains could be negatively affected

The gamigo group also markets its online computer games through domains which it owns. The marketing of games over the Internet assumes that the domains function without disruption and that their use is not negatively affected either legally or in reality. Any disruption, downtime or significant limitation on the potential use of the gamigo group’s domains would directly and adversely impact the business activity and have a negative effect on the net assets, financial position and results of operations of the gamigo group.

Third parties could take steps to object to the use of brand names and/or the group of registered domains

The group is the owner of certain brands and domains. There is a risk of a legal dispute arising with competitors over the legality and use of brands, or that other third parties may take action against the use of brand names by the group or try to register the relevant brands themselves. The success of this kind of attack would risk the group’s ability to continue using this brand or other important brands for its business activities. This might mean, among other things, major costs for the group in establishing an alternative brand in the marketplace, which would have a negative impact on the group’s net assets, financial position and results of operations.

There is a risk of fraudulent software being distributed

Third parties regularly attempt to develop new fraudulent software in order to prevent use of the games or services offered by the gamigo group, among others, and/or to give some players unfair advantages over other players. Third parties also try to tempt players with fraudulent offers. The distribution of fraudulent software and other attempts at fraud that are intended to block the games provided by the gamigo group and to exploit players of those games via fraudulent offers can result in players no longer using the games offered by the gamigo group and/or no longer paying to buy virtual items. Fraudulent software is increasingly also being used on mobile devices (e.g. smartphones and tablets). As the gamigo group is eager to also provide computer games on mobile devices (smartphones, tablets etc.) in future, it may also be affected by risks in this sector. The distribution of fraudulent software can therefore negatively affect the profitability of the games provided and also lead to reputation damage, which could negatively affect the net assets, financial position and results of operations of the gamigo group.

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The protection of customer data might not be adequately ensured by the gamigo group

The protection of customer data that is collected and processed as part of the gamigo group’s business activities is taken very seriously by the gamigo group. All the measures that the gamigo group deems necessary are taken, and the legal requirements for securing customer data are implemented. Overall, however, no guarantee can be provided that the gamigo group is safe from attack when protecting these customer related data. It is possible that third parties may infiltrate the internal security systems and acquire and use customer data or other information that the gamigo group classifies as business secrets. The loss of customer data could lead not only to reputation damage but also to adverse effects on the net assets, financial position and results of operations of the gamigo group.

The online and mobile games offered by the gamigo group could contain program bugs

The online games sold and marketed by the gamigo group could contain program bugs that are not discovered until after their marketing has begun or until after an update/patch has been installed. There is a risk that program bugs could negatively affect the game experience and therefore lead to a loss of (paying) players or to a loss of payments. Program bugs may also trigger negative game experi- ences by the players and lead to reputation damage. These risks apply to both external and internal game development and can have a negative influence on the net assets, financial position and results of operations of the gamigo group.

An increasing number of people are using devices that are not PCs to access the Internet

The gamigo group has so far mainly sold and marketed online computer games. It therefore targets customers who use their PC to access the Internet. The number of users who use their PC for internet access is falling, however, and people are increasingly using devices such as smartphones, tablets, TVs and set-top boxes instead to access the Internet (source: http://www.gartner.com/newsroom/ id/347421). The gamigo group believes this trend is going to continue. The generally slower processing speed, performance, functionality and memory on these devices makes it difficult to use them for the computer games sold to date by the gamigo group. Therefore, the success of the gamigo group also depends significantly on the use of PCs for Internet access. An increase in the number of people using devices other than PCs to access the Internet could have a negative impact on the number of players and therefore on the growth of the gamigo group. This could negatively affect the net assets, financial position and results of operations of the gamigo group.

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The use of the streaming/download solutions may lead to risks

For some of its client games, the gamigo group uses a streaming/downloader technology from Goril- labox LLC, an entity in which it holds a minority share. This solution enables users to start an online game very quickly using streaming while it is downloaded, installed and patched in the background on the local PC. Before starting the stream, Gorillabox carries checks the bandwidth and quality of the connection to see if they can support stable streaming. Streaming only starts if the conditions are good enough. This kind of measurement is only a snapshot, however, and the quality of connections and bandwidths can vary if more users log into a shared network, for example. As a result, the player’s stream may stutter or even be interrupted. Such insufficient performance can in some cases be negatively attributed to gamigo. During the installation process, data from Gorillabox are also downloaded onto the user’s PC. Due to a lack of transparency, users could become confused if they interrupt the game while it is being streamed and discover files from Gorillabox. This could negatively affect the net assets, financial position and results of operations of the gamigo group.

The market is increasingly investing in streaming solutions for games, with ever more platforms being announced as the “Netflix” or “Spotify” for gaming and being positioned correspondingly. Examples include Stadia, a platform announced by Google. Such platforms could change user behaviour substantially and therefore affect the market position of the gamigo group. Gamigo could provide content for such subscription services, which would place it in competition with various other providers. The introduction of streaming subscription services could have negatively affect the net assets, financial position and results of operations of the gamigo group.

Technical risks of downtime in the B2B sector

As an SaaS vendor, the gamigo group is dependent on the services of Internet carriers. The possible failure of Internet carrier connections could lead to the services offered by the gamigo group no longer being available to the gamigo group’s customers. Even if gamigo is not responsible for these failures, the result could be damage to gamigo. This could negatively affect the net assets, financial position and results of operations of the gamigo group.

The gamigo group cannot rely solely on its own resources when supplying its software solutions, but also has to obtain services from third-party providers, such as Internet carriers, external data centre operators, power supply companies and third-party software. As a result, it may not be possible for third-party providers to procure the necessary resources should demand for the gamigo group’s services rise (interruption in the supply chain), leaving the gamigo group unable to cater to potential demand. In addition, a cost increase by third-party suppliers may be beyond the control of the gamigo group and could have a negative impact on the net assets, financial position and results of operations of the gamigo group.

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The third-party software used by gamigo AG in the B2B sector could become incompatible with regard to new and necessary updates due to their no longer being supported by the developer in question or due to potential architectural issues that prevent the expansion of the software, for example. In addition, the third-party software in use may violate the licence or intellectual property rights of other entities. The gamigo group’s failure to discover existing security or data vulnerabilities at an early stage could lead to a lack of security for the shared resources that are offered. This means that one customer might be able to access data for another customer. These potential risks, if realised, could negatively affect the net assets, financial position and results of operations of the gamigo group.

The management of gamigo AG rates the likelihood of the technical failure risks actually occurring as low.

Organisational and entity risks

The success and development of the gamigo group depend on its managers and its skilled employees

The implementation of the business strategy and corporate goals, and therefore the development of the gamigo group, is based in particular on the knowledge, skills and experience of the current management team (the board and other senior managers reporting to the board). There is a risk that the gamigo group will not be able to retain the members of management or to recruit new members of management as necessary. There is a risk that valuable knowledge, skills and experience could be lost to the gamigo group and/or become available to competitors if one or more members of management were to leave the entity and/or join competitors. In addition, there is the risk that difficulties in search- ing for suitable new members of management could affect the competitiveness of the entity and therefore negatively impact the business development of the gamigo group. Both the loss of members of management and difficulties in any necessary search for new members of management could each have an adverse effect on the business activities of the gamigo group and therefore on its net assets, financial position and results of operations.

The gamigo group is also dependent on qualified experts, especially in the areas of IT, marketing, game management, game sourcing, game development, B2B marketing, B2B sales and design, as well as in the areas of finance, legal and human resources. The departure of such expert employees from the entity could have an adverse effect on the general business activities of the gamigo group and therefore on its net assets, financial position and results of operations. The gamigo group’s future inability to recruit qualified experts on suitable terms and in adequate numbers could affect the competitiveness of the gamigo group and hamper the entity’s growth. This could also result in negative effects on the net assets, financial position and results of operations of the gamigo group.

33 gamigo group Consolidated management report 2018

The internal organisational structures and management processes might not be appropriate

The continuous development of internal organisational structures and management processes presents the gamigo group with new challenges and binds a substantial part of its management resources. The systems available within the gamigo group for budgeting, managing and controlling business activities are currently only compatible to a limited extent with the demands and the organisation that would be appropriate for the size and business activity envisioned for the future. In particular, the strong growth of the gamigo group in terms of revenue, in the business segments and in the number of employees means that there is a constant need to continuously adjust the systems and processes to the new scope. In addition, the GDPR presents the group with new challenges, particularly a broader burden of proof and documentation duties, as well as additional rights for data subjects, such as an expanded duty to provide information, the right to be forgotten and the creation of a notification procedure for reporting any data protection infringements to the supervisory authorities within 72 hours. Furthermore, processing activities involving personal data must be documented at a detailed level, both by the customer and by the processor, and technical organisational measures must be defined and implemented using a risk-based approach. As a result, these systems must be created or, if they already exist, adjusted and expanded.

There is a risk that the gamigo group may not succeed in expanding and developing its internal budgeting, management and control systems in good time. Any errors during adjustment to these systems could also harbour the risk of business and administrative actions occurring or invalid decisions being made that could have an adverse effect on the net assets, financial position and results of operations of the group.

The gamigo group could be exposed to risks due to lack of insurance, or no insurance cover being available on suitable terms

The gamigo group has taken out insurance cover for various risks associated with its business activities. Nevertheless, it cannot be guaranteed that the existing insurance policies will cover all eventualities.

In particular, there is a risk that losses may arise, or that claims may be submitted, that exceed the scope of the existing insurance policies. In addition, there is a risk that cover may be unavailable or not available on acceptable terms for certain risks. If damages arose for the gamigo group for which there was no or only insufficient insurance cover, this could have a negative impact on the net assets, financial position and results of operations of the gamigo group.

34 gamigo group Consolidated management report 2018

Acquisitions can represent a significant business risk

The gamigo group plans to expand its business activities in the years ahead, which may involve further acquisitions. As acquisitions fundamentally create a sizeable business risk, there is the risk that some acquisitions may not progress successfully. For example, after the acquisition of an entity or of a part of an entity, it may turn out that the skills of the management at the acquired entity have been mises- timated, or that the group has wrongly evaluated the market position, game quality, earnings potential, profitability, customer loyalty to the entity, growth opportunities of the entity or other significant factors. Integration processes may also be slower, more difficult or more expensive than anticipated, and unexpected costs may arise. In particular, the integration process for acquired entities generally involves the risk of members of management and employees in key positions moving on and of existing customers of the acquired entity being lost, as well as the risk of the entity not being able to maintain or expand its market position and/or realise synergies. The entities or assets acquired may even bring in less money than planned. There is also the risk that the risks associated with the acquisition or purchase of assets may arise at a later date because they were not identified or were wrongly estimated during due diligence and are not covered by any guarantees provided. In this case, the relevant warranty term may already have expired, or action against the supplier may not be possible for other reasons. There is also a risk that fewer acquisition candidates are available or that there is more competition to buy gaming companies. In relation to the latter, special mention should be given to gaming companies in the gaming cluster on the Nordic Nasdaq, which are increasingly focusing on acquisitions thanks to their high valuations. Each of these risks can have a negative effect on the net assets, financial position and results of operations of the gamigo group.

There are risks associated with the expansion of international activities

The entity intends to expand the game licences, and therefore its business activities, internationally. The expansion of business activities to other countries can be adversely affected by a whole series of factors, such as the general political, economic, legal and fiscal environments; unexpected changes in regulatory requirements; and tariffs, recessions or limited protection of intellectual property. In addition, national or international competitors may be in a position than the gamigo group to better satisfy the demand for games in those markets. Each of these risks can have a negative effect on the net assets, financial position and results of operations of the gamigo group.

The management of gamigo AG rates the likelihood of the organisational and business risks actually occurring as low.

Economic and financial risks

Loss of equity

There is a risk that the planned return on liquid funds from intangible assets and shareholdings may not be realised to the expected extent which might lead to a extraordinary amortisation resulting in negative equity.

35 gamigo group Consolidated management report 2018

In addition, the gamigo group has created substantial deferred tax assets for existing tax losses carried forward. There is a risk that the deferred tax assets created may need to be reversed and cause negative equity, in case the planned tax earnings fail to occur as expected or in case the tax structure of the gamigo group fail to permit the use of losses carried forward.

Provision of liquid funds

Against the background of the growth strategy and the related required investment in intangible assets and in other entities, there was a medium level of liquidity as at the balance sheet date. Along with cashflows from operations, the management of the gamigo group also considers the possibility of a capital increase or further borrowing as part of its liquidity planning in order to avoid liquidity bottlenecks or finance further acquisitions. The gamigo group aims to mitigate liquidity risk by way of access to the capital market.

Risk of payment default

The close collaboration inherent to this sector between games publishers, distributors and payment providers, as the interface to the paying players of online games, involves the risk of late payment or non-payment by these payment provider debtors or for certain payment methods by the upstream carrier for the payment provider. The gamigo group seeks to mitigate this risk through cautious risk management in the selection of payment partners, as well as efficient debt management in its relationships with these partners.

Risk of acquisitions

The gamigo group has acquired various assets and entities and plans to continue expanding its business activities in the years ahead, which may also involve further acquisitions. In particular, the integration process for acquired entities generally involves the risk of members of management and employees in key positions moving on and of existing customers of the acquired entity being lost, as well as the risk of the entity not being able to maintain or expand its market position and/or realise synergies. Fur- thermore, each acquisition involves revenue and cost risks due to commitments and risks that have been improperly estimated or were not discovered, or even deliberately obscured, during due diligence.

36 gamigo group Consolidated management report 2018

Financing, liquidity and credit risks

The gamigo group finances its business activities using both debt and equity capital. Debt capital funding is always associated with the risk that it may not be possible to borrow the volume required at economically acceptable conditions or that attempts at refinancing using debt capital may fail totally or partially. Internal factors (such as the credit rating assigned by the market on the basis of the group’s earnings and financial situation or management’s skill in dealing with existing and potential sources of debt funding) and external factors (such as the general interest rate levels on the market, the lending policies of banks and other sources of debt capital, or changes in the legal environment) both play a role. In addition, there is a risk that the refinancing interest level could move in an unfavourable direction and that the cost of financing could increase due to an rise in the interest rate. The gamigo group is also subject to the general risk that extensions of existing liabilities, refinancing or acquisition financing may not be available to the desired extent or can only be obtained on economically unattractive terms, and that loan due dates may be brought forward, making it necessary to cash in securities under certain circumstances.

The future unavailability of equity or debt on the scale required could weaken or render impossible the financing and growth of the gamigo group.

Risks relating to the corporate bond

In addition to the generally applicable risks relating to debt financing, there are also some risks specific to the gamigo corporate bond. For example, an infringement of the general terms of the corporate bond could lead to an event of default. This in turn could force the group to pay the bond creditors the relevant call premium. There is a risk that the group may not have adequate funds available at the time of repayment to make the necessary bond repayments.

Tax risks

The gamigo group regularly seeks advice on taxes in order to be able to identify any risks early. The gamigo group is currently undergoing an audit. There is the risk that the tax treatments of business events applied by the gamigo group and by the holding companies themselves may not be accepted in future audits, necessitating the payment of additional taxes. In addition, the tax authorities could in one or more cases come to the conclusion that the tax returns prepared with the accountants are incomplete or have not been correctly submitted, resulting in the inadequacy of the reserves set aside for tax liabilities for prior financial years. In addition, legislators may change tax laws in such a way that losses carried forward or deferred tax credits can no longer be offset against future earnings to the same extent as in the past. Furthermore, there is a risk of tax increases and the introduction of additional taxes. There is a risk that the gamigo group may not fully meet the requirements of European Directive 2006/112/EC and European Regulations 904/2010, 967/2912, 282/2011, 815/2012 and 904/2014.

37 gamigo group Consolidated management report 2018

Financial risk from stakeholdings

A stakeholding risk occurs fundamentally from future losses of subsidiaries and other entities in which a stake is held that could have an effect on the earnings situation and liquidity of the gamigo group. It cannot be totally precluded that company values may be corrected in future if the business development of individual entities remains below expectations.

Currency risks

Currency risks also exist for the gamigo group. There is a translation risk arising from the conversion of financial statements prepared in foreign currencies by overseas subsidiaries or from revenue from services provided in foreign currencies. However, the relative weight of the financial statements prepared in foreign currencies in the group’s financial statements is very small. Currency risks relating to revenue are also not apparent for the gamigo group.

Risks from existing liabilities of gamigo AG and the covenants attached to them

The terms of the financing contracts for the gamigo group could restrict the financial and operational flexibility of the gamigo group. In addition, the gamigo group has to comply with certain covenants. The gamigo group cannot fully guarantee the full compliance with covenants in the future or the ability replace financial liabilities with better conditions in future financing agreements.

The management of gamigo AG rates the likelihood of the economic and financial risks occurring as low.

Risks relating to legal disputes and political risks and risks arising from differing legal requirements

Risks in connection with legal disputes

As part of its general business activities, the gamigo group is involved in various legal disputes, especially in court cases and arbitrations, and more could be initiated or enforced in future. The gamigo group cannot exclude the risk of financially significant legal disputes with former shareholders, partners and employees, particularly in relation to corporate transactions. Although it is not possible to predict the outcome of the individual legal proceedings with any degree of certainty, in light of the imponderables always associated with legal disputes, the present estimation of the risks provided for in the financial statements in the form of liabilities or provisions are unlikely to represent any significant adverse impact on the results of operations of the group.

The gamigo group distinguishes between active and passive legal disputes. Active disputes are all disputes in which the gamigo group seeks to assert a claim, such as outstanding payments due under contractual relationships and other claims such as warranty claims. Passive disputes are those disputes in which some kind of claim is being made against the gamigo group.

The management of gamigo AG rates the likelihood of the risks related to legal disputes actually occurring as medium.

38 gamigo group Consolidated management report 2018

Political risks and risks from differing legal provisions

The group currently has subsidiaries in the US, Canada, Poland and Turkey and sells its games and services worldwide. In addition, a large number of the online and mobile games sold by the group are developed in China, Korea, Russia, Taiwan and various other countries. As a result, risks arising in the locations of the subsidiaries, sales and production sites can also have a negative impact on the group’s business development. The political, social, economic and/or legal environment in the production locations and sales countries could change to the detriment of the group. For example, trade restrictions, limited protection for intellectual rights, currency control regulations or changes to customs regulations or increases in customs tariffs could have a negative effect on the group’s business activities. These location and country risks could also lead to a situation in which foreign subsidiaries or production and sales locations may temporarily be incapable, or only capable to a limited extent, of perform- ing as required. In addition, the integration of foreign bookkeeping systems can involve a considerable amount of time and costs.

There may also be adverse changes to the other terms and conditions that are important for procurement, sales and production, such as economic stability, exchange rates, infrastructure and availability, and especially costs for skilled workers in these countries.

As a result, social and political developments in production countries can lead to an increase in production costs due to increases in non-wage labour costs, for example. In addition, a shift in the economic environment in these countries towards high-end technologies may result in employees moving into other sectors. This can result in a shortage of skilled labour and therefore to delivery shortages and/or cost increases. Future labour disputes in foreign production locations that can lead to delays in delivery, inability to deliver and/or increased costs also pose a threat.

The occurrence of one or more of these risks would have negative effects on the net assets, financial position and results of operations of the group.

Hamburg, 10 May 2019

……………………………………. Remco Westermann (Chief Executive Officer)

Consolidated Statement of Financial Position as at 31 December 2018

ASSETS in kEUR Note 31 Dec. 2018 31 Dec. 2017

Non-current assets

Intangible assets 6 67,585 47,467

Goodwill 27,909 28,916

Internally-generated intangible assets 3,727 1,899

Other intangible assets 35,109 16,227

Prepayments made on other intangible asset 840 425

Property, plant and equipment 7 4,186 1,691 Investments in associates 94 106

Other non-current financial assets 9 1,717 364

Deferred tax assets 8 8,127 7,141

Total 81,709 56,769

Current assets

Trade receivables 11 6,279 4,888

Other receivables 9 1,646 4,116

Current receivables from income tax 95 715

Other current financial assets 55 2,485

Other current non-financial assets 1,496 916

Cash and cash equivalents 12 4,158 1,021

Total 12,083 10,025

Total assets 93,792 66,794

EQUITY and LIABILITIES in kEUR Note 31 Dec. 2018 31 Dec. 2017

Equity 14

Share capital 2,311 2,311

Capital reserves 48,153 48,153

Difference from currency translation 85 -28

Accumulated retained earnings -21,972 -23,589

Equity attributable to shareholder of gamigo AG 28,577 26,847

Non-controlling interests -51 -119

Total 28,526 26,728

Non-current liabilities

Bond 18 24,877 0

Liabilities to related parties 837 832

Other non-current financial liabilities 15 14,330 13,895

Deferred tax liabilities 20 1,774 191

Total 41,818 14,918

Current liabilities

Current provisions 21 6,451 3,011

Liabilities to banks 0 6,957

Trade payables 22 8,736 7,219

Other current financial liabilities 22 3,556 5,421

Other current non-financial liabilities 16 4,705 2,541

Total 23,448 25,149

Total equity and liabilities 93,792 66,794

Consolidated Statement of Profit or Loss and Other Comprehensive Income for the Financial Year from 1 January to 31 December 2018

in kEUR Note 2018 2017

Revenue 25 45,289 42,082 Other own work capitalised 26 4,168 3,585 Other operating income 27 6,667 2,374 Purchased services 28 -17,638 -16,229 Employee benefits expense 29 -14,730 -13,912 Wages and salaries -12,060 -11,766 Social security -2,670 -2,146 Other operating expenses 30 -12,705 -10,865 Earnings before interest, income tax, depreciation,

amortisation and allowances (EBITDA) 11,051 7,034 Depreciation, amortisation and write-downs 31 -8,464 -10,392 Amortisation and write-downs of intangible assets -6,966 -8,353 Depreciation and write-downs of property, plant and

equipment -1,499 -728 Amortisation and write-downs of financial assets 0 -1,311

Earnings before interest and income tax (EBIT) 2,587 -3,358 Finance income 32 -2,096 -2,308 Other interest and similar income 14 1 Other investment income 0 50 Interest and similar expenses -2,110 -2,359 Earnings before income tax (EBT) 491 -5,666 Current income tax expense 33 -103 -10 Deferred income tax expense 33 1,229 685 Consolidated profit/loss for the year 1,617 -4,991 Share of profit of non-controlling interests 68 -8 Share of profit of the shareholder of gamigo AG 1,549 -4,983

Consolidated Statement of Comprehensive Income Consolidated profit/loss for the year 1,617 -4,991 Item that will be reclassified subsequently to profit or loss Foreign currency exchange differences 181 -59 Total consolidated comprehensive income for the year 1,798 -5,050 of which Share of profit of non-controlling interests 68 -8 Share of profit of the shareholder of gamigo AG 1,730 -5,042

Consolidated Statement of Changes in Equity from 1 January to 31 December 2018

Difference from currency Accumulated retained Equity attributable to in kEUR Share capital Capital reserves Non-controlling interests Total translation earnings shareholder of gamigo AG

Total Equity 2,311 48,153 31 -18,606 31,889 0 31,889 as at 31 Dec. 2016/1 Jan. 2017 Issue on shares 0 0 0 0 0 0 0 Consolidated p rofit/loss for the year 0 0 0 -4.983 -4,983 -8 -4,991 Other comprehensive income 0 0 -59 0 -59 0 -59 Other changes 0 0 0 0 0 -111 -111 Total Equity 2,311 48,153 -28 -23,589 26,847 -119 26,728 as at 31 Dec. 2017/1 Jan. 2018 Issue on shares 0 0 0 0 0 0 0 Consolidated p rofit/loss for the year 0 0 0 1.617 1,617 0 1,617 Other comprehensive income 0 0 113 0 113 68 181 Total equity 2,311 48,153 85 -21,972 28,577 -51 28,526 as at 31 December 2018

Consolidated Statement of Cash Flows from 1 January to 31 December 2018

in kEUR 2018 2017

Consolidated profit/loss for the year (including shares of profit of non-controlling interests) 1,617 -4,991 + Depreciation, amortisation and write-downs of intangible assets, property, plant and equipment and financial assets 8,464 10,392 + Loss on disposal of fixed assets 188 242 +/- Increase/decrease in provisions 2,499 -1,904 - Other non-cash expenses/income -4,738 -564 + Increase in trade receivables and other assets not related to investing and financing activities 21 628 +/- Increase/decrease in trade payables and other liabilities not related to investing and financing activities 1,445 -1,627 - Income tax expenses -1,126 -675 + Finance cost booked 2,096 2,309 -/+ Income tax paid/received 0 -10 -/+ Interest paid/received 15 1 Cash flow from operating activities 10,481 3,801 - Purchase of intangible assets -3,674 -6,936 + Proceeds from disposals of intangible assets 0 688 - Purchase of property, plant and equipment 0 -368 + Proceeds from disposal of property, plant and equipment 360 0 + Proceeds from the disposal of consolidated entities 488 58 - Payments from the acquisition of business units -3,519 -2,170 Cash flow from investing activities -6,345 -8,728 + Cash proceeds of loans or borrowings 0 11,680 - Cash repayments of loans or borrowings -20,569 -1,587 + Cash proceeds from issue of bonds 25,800 1,927 - Cash repayments of bonds 0.0 -12,051 - Interest paid -1,454 -837 Cash flow from financing activities 3,777 -868 Net increase/decrease in cash funds 7,913 -5,795 +/- Changes to cash funds due to currency translation 181 0 + Cash funds at the beginning of the period -3,936 -1,859 Cash funds at the end of the period 4,158 -3,936

Components of cash funds Cash and cash equivalents 4,158 1,021 Current liabilities to banks 0 -4,957 Cash funds at the end of the period 4,158 -3,936

Notes to the Consolidated Financial Statements of gamigo AG as at 31 December 2018

Contents

1. General Information ...... 48

2. Significant Accounting Policies ...... 49 2.1. Basis of Accounting...... 49 2.2. Change in Accounting Policies – Amendments to Standards and Interpretations ...... 50 2.3. Basis of Consolidation ...... 59 2.3.1. Subsidiaries ...... 59 2.3.2. Companies to be included in consolidation ...... 63 2.4. Foreign Currencies ...... 64 2.5. Revenue...... 65 2.6. Income Tax ...... 66 2.6.1. Current Tax ...... 66 2.6.2. Deferred Tax ...... 66 2.7. Intangible assets ...... 67 2.8. Property, plant and equipment ...... 69 2.9. Impairment of Tangible and Intangible Assets Excluding Goodwill ...... 70 2.10. Financial Assets ...... 71 2.10.1. Classification of Financial Assets ...... 71 2.10.2. Foreign Exchange Gains and Losses ...... 72 2.10.3. Impairment of Financial Assets ...... 72 2.10.4. Derecognition of Financial Assets ...... 73 2.11. Cash and Bank Balances ...... 73 2.12. Equity ...... 73 2.13. Short-term and Other Long-term Employee Benefits ...... 74 2.14. Other Provisions ...... 74 2.15. Severance payments ...... 74 2.16. Financial Liabilities ...... 74 2.17. Cash flow statement ...... 76 2.18. Estimation Uncertainty and Critical Accounting Judgements ...... 76 2.19. New but not yet Mandatory Standards and Interpretations ...... 80

3. Acquisition of subsidiaries ...... 85 3.1. Acquisition of the material assets of Trion Worlds Inc...... 85 3.2. Acquisition of the material assets of WildTangent Inc...... 88

4. Disposal of subsidiaries and information regarding subsidiaries ...... 89 4.1. Disposal of subsidiaries ...... 89 4.2. Subsidiaries ...... 90

5. Segment Information ...... 91

6. Intangible assets ...... 97

7. Property, plant and equipment ...... 100

8. Deferred tax assets ...... 101

9. Financial assets ...... 102

10. Impairment of financial assets ...... 103

11. Trade receivables ...... 103

12. Cash and cash equivalents ...... 104

13. Non-cash transactions ...... 104

14. Equity ...... 105

15. Other financial liabilities ...... 107

16. Other non-financial liabilities ...... 110

17. Reporting on financial instruments ...... 110

18. Bond ...... 113

19. IFRS 16 leases ...... 113

20. Deferred tax liabilities ...... 114

21. Short-term provisions ...... 115

22. Trade payables ...... 115

23. Litigation and contingent liabilities ...... 115

24. Other financial obligations ...... 116

25. Revenues ...... 117

26. Own work capitalised ...... 117

27. Other operating income ...... 117

28. Services purchased ...... 118

29. Employee benefits expense ...... 118

30. Other operating expenses ...... 119

31. Write-downs ...... Fehler! Textmarke nicht definiert.

32. Financial result ...... 120

33. Income taxes ...... 120

34. Business transactions with related parties ...... 122

35. Employees ...... 124

36. Auditors’ fee for annual financial statements ...... 124

37. Executive bodies of the company and remuneration ...... 125

38. Events after the balance sheet date ...... 125

39. Approval of the consolidated financial statements ...... 126

1. General Information gamigo AG (hereafter referred to as “gamigo”, the “Company” or the “Group”) is a German public limited company (Aktiengesellschaft) with registered office at Behringstraße 16b, 22765 Hamburg/ Germany. The Company is registered with the commercial register of the Hamburg local court (HRB 105628). The direct parent company of gamigo AG is Samarion SE, Düsseldorf/Germany, and the controlling parent company is Bodhivas GmbH, Düsseldorf/Germany.

The gamigo Group is a leading provider of massive multiplayer online games, mobile games, games web portals and platform services.

The Group primarily conducts its publishing activities in Europe and North America.

Since its placement of a bond on the capital market in October 2018, gamigo has been a publicly traded company pursuant to Section 264d German Commercial Code (HGB) and, therefore, is required to prepare consolidated financial statements in compliance with International Financial Reporting Standards (IFRS) in accordance with Article 4 of Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002. At the same time, gamigo thereby also complies with its disclosure requirements to Nasdaq Nordic under its general terms and conditions of the Stockholm Stock exchange.

The consolidated financial statements have been prepared in compliance with the International Financial Reporting Standards as adopted by the European Union and, additionally, in compliance with the requirements of German commercial law applicable in accordance with Section 315e (1) in connection with Section 244 German Commercial Code (HGB).

The Group’s financial year begins on 1 January and ends on 31 December of the calendar year.

The functional currency and reporting currency of gamigo AG is the euro. The consolidated financial statements are drawn up in accordance with Section 244 HGB in EUR. Unless otherwise stated, all amounts are presented in thousand euros (kEUR).

The assets and liabilities are classified as current if they are anticipated to be realised or compensated within twelve months after the reporting date.

The consolidated statement of profit or loss is classified according to the nature of expense format.

In order to improve the clarity of presentation, different items of the consolidated statement of financial position and of the consolidated statement of profit or loss are shown in a combined form. These items are presented and explained separately in the notes to the consolidated financial statements.

2. Significant Accounting Policies

2.1. Basis of Accounting

The consolidated financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below.

Historical cost is based on the fair value of the consideration given in exchange for goods and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique.

In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability (such as the condition and location of the asset or restrictions on the sale and use of the asset) if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for:

• leasing transactions that are within the scope of IFRS 16 Leases

• measurements that have some similarities to fair value but are not fair value, such as value in use in IAS 36 Impairment of Assets.

Fair value is not always available as market price. Often, it has to be determined on the basis of different measurements. Depending on the availability of observable inputs and the significance of these inputs for determining the fair value as a whole, fair value is allocated to levels 1, 2 or 3. The classification of fair value is carried out according to the following criteria:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. • Level 2 inputs are inputs other than quoted market prices included within Level 1 that are either directly observable for the asset or liability or that can be indirectly derived from other prices. • Level 3 inputs are unobservable inputs for the asset or liability.

2.2. Change in Accounting Policies – Amendments to Standards and Interpretations

The Group has applied the following new or amended standards and interpretations for the first time in the current year.

IFRS 9 Financial Instruments

In the current year, the Group has for the first time applied IFRS 9 Financial Instruments (as revised in July 2014) and the related consequential amendments to other IFRS Standards that are effective for an annual period that begins on or after 1 January 2018. The transition provisions of IFRS 9 allow an entity not to restate comparatives. The Group has elected not to restate comparatives in respect of the classification and measurement of financial instruments.

Additionally, the Group adopted consequential amendments to IFRS 7 Financial Instruments: Disclosures that were applied to the disclosures for 2018 and to the comparative period. IFRS 9 introduced new requirements for:

1) The classification and measurement of financial assets and financial liabilities,

2) Impairment of financial assets, and

3) General hedge accounting.

Details of these new requirements as well as their impact on the Group’s consolidated financial statements are described below.

The Group has applied IFRS 9 in accordance with the transition provisions set out in IFRS 9.

(a) Classification and measurement of financial assets The date of initial application (i.e. the date on which the Group has assessed its existing financial assets and financial liabilities in terms of the requirements of IFRS 9) is 1 January 2018. Accordingly, the Group has applied the requirements of IFRS 9 to instruments that continue to be recognised as at 1 January 2018 and has not applied the requirements to instruments that have already been derecognised as at 1 January 2018. All recognised financial assets that are within the scope of IFRS 9 are required to be measured subsequently at amortised cost or fair value on the basis of the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets.

In the current year, the Group has debt investments that meet the criteria for measurement at amortised costs or FVTOCI. The Group has not designated any debt investments that meet the FVTPL criteria.

When a debt investment measured at FVTOCI is derecognised, the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment. When an equity investment designated as measured at FVTOCI is derecognised, the cumulative gain or loss previously recognised in other comprehensive income is subsequently transferred to retained earnings.

Debt instruments that are measured subsequently at amortised cost or at FVTOCI are subject to impairment. See (b) below.

The executive board of the Company reviewed and assessed the Group’s existing financial assets as at 1 January 2018 based on the facts and circumstances that existed at that date and concluded that the initial application of IFRS 9 has had the following impact on the Group’s financial assets as regards their classification and measurement:

• the Group’s investments in equity instruments (neither held for trading nor a contingent consideration arising from a business combination) that were previously classified as available- for-sale financial assets and were measured at fair value at each reporting date under IAS 39, are held under IFRS 9 within a business model whose objective is both to collect contractual cash flows and to sell the financial assets, and they have contractual cash flows that are solely payments of principal and interest on principal outstanding. The change in the fair value on these equity instruments continues to accumulate in the investment revaluation reserve until they are derecognised or reclassified. For reasons of materiality it is assumed that the fair value corresponds to the book value. • financial assets classified as held-to-maturity and loans and receivables under IAS 39 that were measured at amortised cost continue to be measured at amortised cost under IFRS 9 as they are held within a business model to collect contractual cash flows and these cash flows consist solely of payments of principal and interest on the principal amount outstanding.

(b) Impairment of financial assets

In relation to the impairment of financial assets, IFRS 9 (new impairment requirements) requires an expected credit loss model as opposed to an incurred credit loss model under IAS 39 (old impairment requirements). The expected credit loss model requires the Group to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised. As at 31 December 2018 the Group did not held any material equity instruments, therefor the new impairment requirements did not affect the Group´s consolidated financial statements.

A significant change introduced by IFRS 9 in the classification and measurement of financial liabilities relates to the accounting for changes in the fair value of a financial liability designated as at FVTPL attributable to changes in the credit risk of the issuer. As at 31 December 2018, there were no changes in credit risk in respect of the recognised financial liabilities of the gamigo Group.

Specifically, IFRS 9 requires that the changes in the fair value of the financial liability that is attributable to changes in the credit risk of that liability be presented in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss.

Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss, but are instead transferred to retained earnings when the financial liability is derecognised.

The application of IFRS 9 had no impact on the consolidated cash flows of the Group.

IFRS 15 Revenue from Contracts with Customers

In the current year, the Group has applied IFRS 15 Revenue from Contracts with Customers (as amended in April 2016) which is effective for an annual period that begins on or after 1 January 2018. IFRS 15 introduced a 5-step approach to revenue recognition. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Details of the new requirements as well as their impact on the Group’s consolidated financial statements are described below. The Group has applied the standard on a prospective basis.

IFRS 15 uses the terms ‘contract asset’ and ‘contract liability’ to describe what might more commonly be known as ‘accrued revenue’ and ‘deferred revenue’, however the standard does not prohibit an entity from using alternative descriptions in the statement of financial position. The Group has adopted the terminology used in IFRS 15 to describe such balances.

The Group’s accounting policies for its revenue streams are disclosed in detail in note 2.5 below. Apart from providing more extensive disclosures for the Group’s revenue from contracts with customers, the application of IFRS 15 has not had a significant impact on the financial position and/or financial performance of the Group.

IFRS 16 Leases

General impact of application of IFRS 16 Leases

In the current year, gamigo, for the first time, has applied IFRS 16 Leases that was issued by the IASB in January 2016.

IFRS 16 provides a comprehensive model for the identification of lease arrangements and their treatment in the financial statements for both lessors and lessees. IFRS 16 will supersede IAS 17 Leases and the related interpretations. Under the new standard, lessors are generally required to recognise all leases in the form of a right-of-use asset or a corresponding lease liability. The impact of the initial application of IFRS 16 on gamigo AG’s consolidated financial statements is described below. IFRS 16 Leases applies to annual periods that begin on or after 1 January 2019. The Group has chosen the option for early adoption and voluntarily applies IFRS 16 for the first time in the financial year 2018.

In accordance with IFRS 16 Appendix C5b, on initial application (1 January 2018), the Group has applied the cumulative retrospective approach (cumulative catch-up approach), with the cumulative effect from the transition to IFRS 16 being recognised as an adjustment in the consolidated opening balance as at 1 January 2018. At the time of the first-time application, the transition as at 1 January 2018 did not have any cumulative adjustment effect as an entry in the opening equity in the financial year in which IFRS 16 is initially applied since the amount of the right-of-use assets equaled the amount of the lease liabilities.

Impact of the new definition of a lease

On the date of initial application of IFRS 16 (1 January 2018) gamigo used the option not to reassess whether a contract is or contains a lease according to the definition of IFRS 16. Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4 continues to apply to those leases entered or modified before 1 January 2018. The change in definition of a lease mainly relates to the concept of control. IFRS 16 distinguishes between leases and service contracts on the basis of whether the use of an identified asset is controlled by the customer. Control is considered to exist if the customer has:

• The right to direct the use of that asset; and

• The right to obtain substantially all of the economic benefits from the use of an identified asset.

The Group applies the definition of a lease and related guidance set out in IFRS 16 to all lease contracts1 entered into or modified on or after 1 January 2018 (whether it is a lessor or a lessee in the lease contract). In preparation for the first-time application of IFRS 16, gamigo has carried out an implementation project. The project has shown that the new definition in IFRS 16 will not lead to material capitalisation of assets and lease liabilities in the consolidated statement of financial position of gamigo at 1 January 2018.

Impact on Lessee Accounting

Leases2 IFRS 16 changes how the Group accounts for leases previously classified as operating leases under IAS 17, which were off-balance sheet. On initial application of IFRS 16 as at 1 January 2018, for all leases (except as noted below), the Group has:

• Recognised right-of-use assets (hereafter referred to as “ROU assets”) and lease liabilities in the consolidated statement of financial position, initially measured at the present value of the future lease payments;

• Recognised depreciation of ROU assets and interest on lease liabilities in the Group’s statement of other comprehensive income.

• Separated the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within operating activities) in the consolidated cash flow statement. Lease incentives (e.g. rent free period) have been recognised as part of the measurement of the ROU assets and lease liabilities whereas under IAS 17 they resulted in the recognition of a lease liability ‑ incentive, amortised as a reduction of rental expenses on a straight-line basis. Under IFRS 16, ROU assets will be tested for impairment in accordance with IAS 36 Impairment of Assets. This will replace the previous requirement to recognise a provision for onerous lease contracts. For short-term leases (lease term of 12 months or less) and leases of low-value assets (such as personal computers and office furniture), the Group opted to recognise a lease expense on a straight-line basis as permitted by IFRS 16.

1 Under the previous standard IAS 17, these were recognised as operating lease liabilities. 2 Under the previous standard IAS 17, these were recognised as operating lease liabilities.

The Group as lessee The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a ROU asset and a corresponding lease liability with respect to all leased assets, except for short-term leases (defined as leases with a lease term of 12 months or less). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease The lease liabilities are initially measured at the present value of the future lease payments. The interest rate implicit in the lease liabilities cannot be readily determined. Therefore, the Group made use of the weighted average of the incremental borrowing rate of the Group as at 1 January 2018 of 5.8%, which was determined based on the financing loans with a comparable term that would be available to the Group for the acquisition of the assets. The lease liabilities are presented as a separate line in the consolidated statement of financial position. The lease liabilities are subsequently measured by using the effective interest method. The Group subsequently remeasures the lease liabilities in order to reflect changes with respect to:

• the lease term (using a revised discount rate);

• the assessment of a purchase option (using a revised discount rate);

• the expected payments under a guaranteed residual value (using the initial discount rate); or

• future lease payments due to changes in an index or rate (using the initial discount rate). Any remeasurement is presented as an adjustment of the ROU asset. When changes do not result in the presentation of a separate lease, the lease liabilities3 may be remeasured. A corresponding adjustment on account of the above reasons is recognised as an adjustment of the ROU assets. When the ROU assets are or have already been reduced to zero and the lease liabilities are subject to another correction, the amount is recognised in profit or loss. No remeasurements were carried out in the period ended 31 December 2018. As at 31 December 2017, the Group had non-cancellable lease obligations of kEUR 1,985. As a result of the application of IFRS 16, as at 1 January 2018, the Group has recognised lease obligations of kEUR 1,673 and capitalised ROU assets in the same amount. The remaining lease contracts amounting to kEUR 203 are short-term in nature and have not been recognised as liabilities. The following tables below show the impact of the adoption of IFRS 16 on the consolidated financial statements in the financial year 2018.

3 Under the previous standard IAS 17, these were recognised as operating lease liabilities.

Impact on the consolidated statement of profit or loss in the financial year 2018 in kEUR 2018 Increase in depreciation and amortisation expenses 1,358 Increase in interest expenses from IFRS 16 215 Decrease in other operating expenses -1,342 Decrease in profit for the year 231

As at 31 December 2018, the application of IFRS 16 had a negative overall effect of kEUR 231 on Group profit.

Impact on the consolidated statement of financial position as at 1 January 2018

Carrying amount IFRS 16 Carrying amount in kEUR 31 Dec. 2017 Adjustments 1 Jan. 2018 Intangible assets 47,467 0 47,467 Property, plant and equipment 1,691 1,673 3,364 Net impact on total assets 1,673

Other non-current financial liabilities 14,727 0 14,727 Other current financial liabilities 12,378 1,673 14,051 Net impact on total liabilities 1,673

Total impact 0

Impact on the consolidated statement of financial position as at 31 December 2018

As if IAS 17 still IFRS 16 in kEUR applied Adjustments As presented Intangible assets 54,450 13,680 68,130 Property, plant and equipment 1,821 2,365 4,186 Net impact on total assets 16,045

Other non-current financial liabilities 26,111 13,880 39,991 Other current financial liabilities 1,002 2,411 3,413 Net impact on total liabilities 16,291

Total impact -246

As at 31 December 2018, non-current lease obligations included expected licensing payments over the next five years mainly resulting from licenses to IP rights for Trion Worlds games. The liability give rise to interest within the scope of IFRS 16, however this interest is not cash interest as is usually the case with financial liabilities and therefore the liability does not represent a financial liability bearing cash interest. Liabilities bearing cash interest include loans, bonds and current account overdrafts. As at 31 December 2017, the Group had no provisions for onerous lease contracts required under IAS 17. Moreover, there were no lease liability incentives as were previously recognised in the context of leases. The measurement indicates that kEUR 1,342 of these arrangements relate to other leases than short- term leases and leases of low value assets, so as at 31 December 2018, the Group has recognised ROU assets of kEUR 16,045 and a corresponding lease liability of kEUR 16,291 with respect to all of these leases. ROU assets in the amount of kEUR 16,045 comprise property, plant and equipment and license leasing. As a result, this led to a reduction in other expenses by kEUR 1,342, an increase in depreciation and amortisation of kEUR 1,358 and an increase in interest expenses of kEUR 215. Under IAS 17, all lease payments were presented as part of the cash flow from operating activities. The introduction of IFRS 16 results in a reduction in cash inflow from operating activities in 2018 by kEUR 1,342 and an increase in cash outflow from financing activities of the same amount. The development of the ROU assets and the lease liabilities in the financial year 2018 is presented in Note 16.

Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses

In the current year, the Group has for the first time applied the amendments. The amendments clarify how an entity assesses whether sufficient taxable profits will be available against which a deductible temporary difference can be utilised.

The application of the amendments does not have any impact on the consolidated financial statements as the way the Group assesses the availability of future taxable profits already is consistent with these amendments.

Amendments to IAS 7 Disclosure Initiative

In the current year, the Group has for the first time applied these amendments. The amendments require an entity to provide disclosure that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both cash and non-cash changes.

The Group’s liabilities from financing activities comprise bonds (note 18) and certain other financial liabilities (note 15). In accordance with the transition provisions of the amendments, the Group abstained from disclosing comparative information for the comparative period. The application of these amendments results in additional disclosures in the notes to the consolidated financial statements.

Annual Improvements to IFRS Standards (2014 – 2016 Cycle)

Standard Type of Amendment Details of Amendment IFRS 12 Relation of disclosure Clarifies the scope of the standard by specifying that the Disclosure of Interests in requirements in IFRS 12 disclosure requirements in IFRS 12 apply to an entity’s Other Entities to those in IFRS 5 interests that fall within the scope of IFRS 5. Excluded from this are only the disclosures listed in paragraphs B10-B16 of IFRS 12. IAS 28 Measurement at the level Clarifies that the election to measure at fair value Investments in Associates of individual investments through profit or loss an investment in an associate or a and Joint Ventures joint venture that is held by an entity that is a venture capital organisation, or other qualifying entity, is available for each investment in an associate or joint venture on an investment-by-investment basis, upon initial recognition. A similar clarification was also made in IAS 28.36A, according to which an entity may retain the fair value measurement at the level of the investment entity when applying the equity method to interests in investment entities. This option is available separately for each investment.

The application of these amendments did not have any impact on the consolidated financial statements.

Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions

The amendments clarify the following:

• Accounting for cash-settled share-based payment transactions that include a performance condition: In accordance with the approach applied for equity-settled share-based payments, only certain vesting conditions will be used to estimate the fair value in the future, while others will only have an effect through the quantity structure.

• Classification of share-based payment transactions with net settlement features: Despite the tax payment to be made in cash by the Company, the share-based payment arrangement is to be treated as equity-settled in its entirety under certain conditions.

• Accounting for modifications of share-based payment transactions from cash-settled to equity- settled: In this case, the latter shall be measured at the modification date with the modified share- based payments being recognised in equity proportionately to the past vesting period.

The modifications did not have any impact on the consolidated financial statements as the Group did have neither cash-settled share-based payment plans nor share-based payment plans with net settlement features.

IFRIC 22 Foreign Currency Transactions and Advance Consideration

IFRIC 22 contains the following guidance on determining the exchange rate when consideration for foreign currency transactions is paid or received in advance.

The date of transaction for the purpose of determining the exchange rate to use on initial recognition of a related asset, expense or income is the date on which the entity initially recognises a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration.

Where several advance payments or receipts are made, the entity has to determine the date of transaction for every single consideration paid or received in advance.

Applying IFRIC 22 did not have any impact on the consolidated financial statements as the Group’s accounting for foreign currency transactions where considerations are paid or received in advance has already complied with this interpretation.

2.3. Basis of Consolidation

2.3.1. Subsidiaries

The consolidated financial statements incorporate the financial statements of the parent company and entities controlled by the parent company including structured entities (its subsidiaries). Control is achieved when the parent company:

• has the power of the investee; • is exposed, or has rights, to variable returns from its involvement in the investee; and • has the ability to use its power to affect its returns.

The parent company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

When the parent company has less than a majority of the voting rights of an investee, it considers that it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The parent company considers all relevant facts and circumstances in assessing whether or not the parent company’s voting rights in an investee are sufficient to give it power, including:

• the size of the parent company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;

• potential voting rights held by the parent company, other vote holders or other parties;

• rights arising from other contractual arrangements; and • any additional facts and circumstances that indicate that the parent company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.

Consolidation of a subsidiary begins when the parent company obtains control over the subsidiary and ceases when the parent company loses control of the subsidiary. Specifically, the results of subsidiaries acquired or disposed of during the year are included in profit or loss from the date the parent company gains control until the date when the parent company ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income are attributed to the owners of the parent company and to the non-controlling interests. Total comprehensive income of the subsidiaries is attributed to the owners of the parent company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with the Group’s accounting policies.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between the members of the Group are eliminated on consolidation. a) Changes in the Group’s interests in existing subsidiaries

Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amount of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the parent company.

When the parent company loses control of a subsidiary, the gain or loss on disposal recognised in profit or loss is calculated as the difference between:

(i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), less liabilities of the subsidiary and any non-controlling interests.

All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or directly transferred to retained earnings).

Any investment retained in the former subsidiary is measured at the fair value determined at the date when control is lost. This is regarded as the fair value on initial recognition for subsequent accounting under IFRS 9 Financial Instruments when applicable, or the cost on initial recognition of an investment in an associate or a joint venture. b) Acquisition of subsidiaries

Acquisition of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interest issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.

The identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that:

• deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits, respectively;

• liabilities or equity instruments related to share-based payment arrangements of the acquiree or share based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share-Based Payments at ‑ the acquisition date; and • assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that standard.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date fair values of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date fair values of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein. Those interests of non-controlling shareholders that are present ownership rights entitling their holders to a proportionate share of net assets upon liquidation may initially be measured at fair value or at the non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets. The choice of measurement is made on an acquisition-by-acquisition basis. Other non- controlling interests are initially measured at fair value or the measurement criteria resulting from other standards. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests’ share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance. In 2018, only individual assets and liabilities were acquired but no interests were acquired in subsidiaries. In the prior year, non- controlling interests were measured within the scope of the acquisition of Mediakraft Group as at 1 June 2017 at the corresponding fair value of the identified net assets.

When the consideration transferred by the Group in a business combination includes contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value. Changes in fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information about facts and circumstances that existed at the acquisition date. However, the measurement period cannot exceed one year from the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Other contingent consideration is remeasured to fair value at subsequent reporting dates with changes in fair value recognised in profit or loss.

When a business combination is achieved in stages, the Group’s previously held interests in the acquired entity are remeasured to its acquisition date fair value and the resulting gain or loss, if any, is recognised in profit or loss. ‑

Changing amounts arising from equity interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss if the Group gains control over the acquired entity.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete.

Those provisional amounts are adjusted during the measurement period, or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date.

2.3.2. Companies to be included in consolidation

The following companies are included in consolidation as at 31 December 2018:

Company Ownership interest %

gamigo AG, Hamburg/Germany - adspree media GmbH, Berlin/Germany 100 Aeria Games GmbH, Hamburg/Germany 100 Aeria Interactive GmbH, Cologne/Germany (formerly: Produktkraft Vermarktung GmbH) 100 gamigo Advertising GmbH, Hamburg/Germany 100 gamigo Inc., Wilmington, Delaware/U.S. 100 gamigo Portals GmbH, Hamburg/Germany 100 gamigo Publishing GmbH, Hamburg/Germany 100 gamigo US Inc., Dover, Delaware/U.S. 100 Mediakraft GmbH, Cologne/Germany 100 Mediakraft Networks GmbH, Cologne/Germany 100 Mediakraft PL Sp.z o.o., Warsaw/Poland 95 Mediakraft Turkey Yayin Hizmetleri A.S., Istanbul/Turkey 80 MK Productions GmbH, Cologne/Germany 100

In addition to the parent company, 13 (2017: 14) subsidiaries are included in the scope of consolidation of the gamigo Group.

The following companies are not included in consolidation on account of their minor significance for the Group:

Companies not included in consolidation Ownership interest % Aeria Games Inc., Wilmington, Delaware/U.S. 100 cloudgame4u Ltd., Maidenhead/United Kingdom 100 highdigit GmbH, Münster/Germany 100 Just Digital GmbH, Hamburg/Germany 100

The deletion of the following companies was resolved on 23 February 2018 but had not been carried out as at 31 December 2018:

• Aeria Games Inc., Wilmington, Delaware/U.S.

• cloudgame4u Ltd., Maidenhead/United Kingdom.

2.4. Foreign Currencies

In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured at cost are retranslated at the rate prevailing at the date of their initial recognition.

Exchange differences from monetary items are recognised in profit or loss in the period in which they arise except for:

• exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings;

• exchange differences on transactions entered into to hedge certain foreign currency risks; and

• exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur in the foreseeable future (therefore forming part of the net investment in the foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on disposal of the net investment.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into euro (EUR) at exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rate for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising from the translation of foreign operations into the group currency are recognised in other comprehensive income and accumulated in equity.

On the disposal of a foreign operation, all of the exchange differences accumulated in respect of that operation attributable to the owners of the company are reclassified to profit or loss with the following transactions being regarded as a disposal of a foreign operation:

• the disposal of the Group’s entire interest in a foreign operation, • a partial disposal involving loss of control over a subsidiary that includes a foreign operation, or

• a partial disposal of an interest in a joint arrangement or an associate that includes a foreign operation.

In addition, in relation to a partial disposal of a subsidiary that includes a foreign operation that does not result in the Group losing control over the subsidiary, the proportionate share of accumulated exchange differences relating to the sold investment are re-attributed to non-controlling interests. For all other partial disposals of investments in associates or joint arrangements that do not result in the Group losing significant influence or joint control, the proportionate share of the exchange differences is reclassified to profit or loss.

Goodwill and fair value adjustments of the identifiable assets and liabilities arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Exchange differences arising are recognised in currency translation reserves.

2.5. Revenue

The Group derives its revenue from income generated from online, console and mobile games (including casual games, role-play games and strategy games) and from B2B services (platform and advertising services).

Revenue is measured based on the consideration to which the Group expects to be entitled in a contract with a customer. Revenue from the granting of licences for games is recognised when it transfers control of a product or service to a customer. Where major risks pertaining to the receipt of the consideration exist or the customer is unable to use its licence for reasons that it is not responsible for.

If the granting of licences comprises an identifiable partial amount for several or subsequent services, the attributable revenue is recognised as a contract liability and released in profit or loss over the term of the licence. As a rule, revenue is released in correspondence with the provision of services.

Revenue is generally recognised at fair value of the consideration received or receivable after deduction of value added tax and other tax and after deduction of sales deductions such as bonuses and discounts.

2.6. Income Tax

The income tax expense represents the sum of the tax currently payable and deferred tax.

Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity, respectively. In such cases, the currently payable and the deferred tax is equally recognised in the other comprehensive income or directly in equity. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

2.6.1. Current Tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in profit or loss because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

2.6.2. Deferred Tax

Deferred tax is recognised for temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the net profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are calculated at the tax rates and based on tax laws that are expected to apply in the period when the liability is settled or the asset is realised. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

2.7. Intangible assets a) Other Intangible Assets

Other intangible assets and ROU assets with finite useful lives are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives through profit and loss. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses.

Industrial rights and licences are amortised over a period of no longer than five years. b) Goodwill

The goodwill resulting from a business combination is recognised at cost less impairment losses, if any, and is reported separately in the consolidated statement of financial position.

For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash generating units upon acquisition (or groups of cash generating units) expected to benefit from the synergies of ‑ the combination. ‑

Cash-generating units to which goodwill has been allocated are tested for impairment at least annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. Recoverable amount is the higher of value in use and fair value less costs of disposal.

Any impairment loss of goodwill is directly recognised in profit or loss. An impairment loss recognised for goodwill may not be reversed in a subsequent period.

On disposal of a cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. c) Internally-generated Intangible Assets – Research and Development Expenditure

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

Internally-generated intangible assets arising from development or from the development phase of an internal project are recognised if the following conditions have been demonstrated:

• the technical feasibility of completing the intangible asset so that it will be available for use or sale;

• the intention to complete the intangible asset and use or sell it;

• the ability to use or sell the intangible asset; • how the intangible asset will generate probable future economic benefits;

• the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

• the ability to measure reliably the expenditure attributable to the intangible asset during its development.

The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be capitalised or no intangible asset is yet on hand, the development expenditure is recognised in profit or loss in the period in which it is incurred.

Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired. Capitalised development expenditure is generally amortised in the Group over a useful life of 4 years on a straight-line basis.

68 d) Intangible Assets acquired in a business combination

Intangible assets acquired in a business combination are recognised separately from goodwill and measured at their fair value at the acquisition date.

Subsequent to initial recognition, intangible assets acquired in a business combination are measured at cost less accumulated amortisation and, where appropriate, accumulated impairment losses, on the same basis as intangible assets that are acquired separately. e) Derecognition of Intangible Assets

An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or loss when the asset is derecognised. They are reported in other income or other expenses, respectively.

2.8. Property, plant and equipment

Plant and machinery as well as fixtures and equipment are stated at cost less accumulated depreciation and recognised impairment loss.

Depreciation is recognised so as to write off the cost or revaluation of assets (other than freehold land and properties under construction) less their residual values over their useful lives, using the straight- line method.

The estimated useful lives, residual values and depreciation methods are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

Other plant, fixtures and equipment are predominantly depreciated over a period of three to five years. Property, plant and equipment is depreciated over the economic useful life on a straight-line basis.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

2.9. Impairment of Tangible and Intangible Assets Excluding Goodwill

At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the recoverable amount of an asset cannot be estimated, the recoverable amount of the cash-generating unit the asset relates to is estimated. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Intangible assets with an indefinite useful life or such that are not yet available for use are tested for impairment at least annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs of disposal and value in use. The estimated future cash flows are discounted at a pre-tax rate in determining the recoverable value. Said pre-tax rate firstly takes current market estimates on the time value of money into account and, secondly, the risks inherent in the asset to the extent that these have not already been included in the estimate of the cash flows.

If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation reserve increase.

2.10. Financial Assets

Financial assets are recognised when a group company becomes a party to the contractual provisions of the financial instrument.

Financial assets are measured at fair value on initial recognition. Transaction cost that are directly attributable to the acquisition of financial assets that are not measured at FVTPL increase the fair value of the financial assets upon initial recognition. Transaction costs that are directly attributable to financial assets, which are measured at FVTPL, are directly recognised in the consolidated statement of profit and loss.

Purchases or sales of financial assets are recognised and derecognised on a trade date basis, unless their delivery is outside the customary time period.

All recognised financial assets are measured subsequently in their entirety at either amortised cost or fair value, depending on the classification of the financial assets.

2.10.1. Classification of Financial Assets

Debt instruments that meet the following two conditions are measured subsequently at amortised cost:

• the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and • the contractual terms of the financial asset are solely payments of principal and interest on the principal amount outstanding.

Debt instruments that meet the following two conditions are measured at fair value through other comprehensive income (FVTOCI):

• the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling the financial assets; and • the contractual terms of the financial asset are solely payments of principal and interest on the principal amount outstanding.

All other financial assets not meeting the conditions stated above are principally measured at FVTPL. The Group does not disclose any equity instruments in this category in the financial year.

Equity instruments measured at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in the investments revaluation reserve.

The cumulative gain or loss is not reclassified to profit or loss on disposal of the equity investments, instead, it is transferred to retained earnings.

Dividends on these equity instruments are recognised in profit or loss in accordance with IFRS 9, unless the dividends clearly represent a recovery of part of the cost of the equity instruments. Dividends are included in the “other finance income” line item in profit or loss.

The Group has designated all investments in equity instruments that are not held for trading as at FVTOCI on initial application of IFRS 9.

2.10.2. Foreign Exchange Gains and Losses

The fair value of financial assets that are denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of each reporting period. Specifically;

• for financial assets measured at amortised cost that are not part of a designated hedging relationship, exchange differences are recognised in profit or loss in the “other gains and losses” line item; • for investments in equity instruments measured at FVTOCI, exchange differences arising on measurement at fair value are recognised in other comprehensive income in the investments revaluation reserve.

2.10.3. Impairment of Financial Assets

The Group always recognises the lifetime expected credit loss (ECL) for trade receivables and other assets. These are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for factors that are specific to the debtors, general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecast direction of conditions at the reporting date. Fair value of money is additionally taken into account where appropriate. No credit risks were identified for trade receivables and contract assets and therefore no expected credit losses were recognised in the period ended 31 December 2018.

The Group writes off a financial asset when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings, or in the case of trade receivables, when the amounts are over two years past due, whichever occurs sooner. Financial assets written off may still be subject to enforcement activities of the Group. Any resulting recoveries made are recognised in profit or loss.

2.10.4. Derecognition of Financial Assets

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss. In addition, on derecognition of an investment in a debt instrument classified as at FVTOCI, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss. In contrast, on derecognition of an investment in equity instrument which the Group has designated on initial recognition to be measured at FVTOCI, the cumulative gain or loss previously accumulated in the investments revaluation reserve is not reclassified to profit or loss, but is transferred to retained earnings.

2.11. Cash and Bank Balances

Cash and bank balances are measured at cost, comprising cash, call deposits and other short-term highly liquid financial assets with a term of a maximum of three months.

2.12. Equity

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs. Issue costs refer to costs that would not have been incurred had the equity instruments not been issued.

Repurchase of the Company’s own equity instruments is deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.

Debt and equity instruments issued by a group entity are classified as financial liabilities or equity in accordance with the substance of the contractual agreement and the definitions.

2.13. Short-term and Other Long-term Employee Benefits

For short-term employee benefits (wages, sick pay, bonuses, etc.), the undiscounted amount of the benefits expected to be paid in exchange for that service provided shall be recognised in the period in which the employee provides the service.

The expected cost of short-term employee benefits in the form of compensated absences shall be recognised in the case of accumulating benefits when the service that increases employees’ entitlement to future compensated absences is rendered. Non-accumulating compensated absences, however, are recognised at the time when the absences occur.

Liabilities from other long-term employee benefits are measured at the present value of the estimated future cash outflows the Group expects for the service rendered by the employee as at the balance sheet date.

2.14. Other Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that the settlement of the obligation involves an outflow of resources, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured on the basis of the estimated cash flows required to settle the obligation, these cash flows shall be discounted (when the interest effect is material).

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

2.15. Severance payments

A liability for a termination benefit will be recognised at the earlier of when the Group can no longer withdraw the offer of the termination benefit and when the Group recognises any related restructuring costs.

2.16. Financial Liabilities

Financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument. These are measured at amortised cost using the effective interest method or at FVTPL.

However, financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies, and financial guarantee contracts issued by the Group, are measured in accordance with the specific accounting policies set out below.

Financial liabilities are measured at fair value on initial recognition. Transaction cost directly attributable to the issue of financial liabilities that are not measured at FVTPL, reduce the fair value of the financial liabilities on initial recognition. Transaction costs directly attributable to financial liabilities that are measured at FVTPL, are directly recognised in the consolidated statement of profit and loss. a) Financial Liabilities Measured at FVTPL

Financial liabilities are classified as at FVTPL when the financial liability is contingent consideration of an acquirer in a business combination, held for trading or it is designated as at FVTPL.

The Group did not have any financial liabilities measured as at FVTPL in the financial year. b) Financial Liabilities Measured Subsequently at Amortised Cost

Financial liabilities that are not contingent consideration of an acquirer in a business combination, held-for-trading, or designated as at FVTPL, are measured subsequently at amortised cost using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and charges paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount derived from its initial recognition. c) Derecognition of Financial Liabilities

The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in the consolidated profit or loss statement.

When the Group exchanges with the existing lender one debt instrument into another one with substantially different terms, such exchange is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, the Group accounts for substantial modification of terms of an existing liability or part of it as an extinguishment of the original financial liability and the recognition of a new liability. It is assumed that the terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective rate is at least 10 % different from the discounted present value of the remaining cashflows of the original financial liability. If the modification is not substantial, the difference between the carrying amount of the liability before the modification; and the present value of the cashflows after modification should be recognised in profit or loss as the modification gain or loss within other income.

Contingent liabilities acquired in a business combination are initially measured at fair value at the acquisition date. At the end of subsequent reporting periods, such contingent liabilities are measured at the higher of the amount that would be recognised in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets and the amount recognised initially less, where appropriate, the cumulative amortisation recognised in accordance with the principles of IFRS 15.

2.17. Cash flow statement

Cashflows from operating activities are calculated by using the indirect method. In the case of compound transactions the underlying amounts are allocated to several cash flow sections if necessary. Cashflows in foreign currencies were translated by using the annual average foreign currency exchange rate. Cash funds are determined as cash and cash equivalents plus current liabilities due to banks.

Financial liabilities are all liabilities due to banks and interest-bearing loans granted by shareholder or suppliers. Interest and dividend income are discloses in the cashflows from operating activities, whereas interest paid or received are discloses in the cashflows from financing activities. Tax payments are shown in the cashflows from operating activities because an allocation to individual activities is not practicable.

The composition of the cash funds, the general disclosure (structure and content) of the cashflow statement and the voluntary disclosure options remain unchanged compared to the prior year.

2.18. Estimation Uncertainty and Critical Accounting Judgements

In preparing the consolidated financial statements, assumptions and estimates are to be made that have a significant impact on the amount and the reporting of the assets and liabilities, income and expense items and contingent liabilities recognised.

The assumptions mainly relate to the determination of the useful lives of intangible assets and property, plant and equipment in compliance with the unified policies across the Group.

The estimates used have a significant influence on the determination of discounted cash flows in the purchase price allocation process and of impairment tests, on the valuation of internally-generated intangible assets, allowances on receivables, other provisions and realisability of deferred tax assets.

Estimates are based on experience and premisses valid at reporting date and that are considered appropriate under the given circumstances. The future development that is considered most probable is assumed for this purpose. The development of banks and providers of similar services and of the company environment are also taken into account. The estimates and the underlying assumptions are continually reviewed. However, in individual cases, the actual values might deviate from the assumptions and estimates made if the mentioned framework conditions develop differently than expected at reporting date. Changes are recognised through profit and loss at the time they become known and the premises adjusted accordingly.

Key Sources of Estimation Uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period that may have a significant risk of causing a material adjustment to the amounts reported of assets and liabilities within the next financial year, are disclosed below. a) Accounting for and Impairment of Internally-generated Intangible Assets

The Group renders in-house development services (further game development). In this context, a decision must be made on an annual basis regarding to what extent development services are to be capitalised as internally-generated intangible assets. The intangible assets are recognised at kEUR 3,727 in the consolidated statement of financial position as at 31 December 2018 (prior year: kEUR 1,899).

The progress of the individual projects has been satisfactory, and customer response to the executive board’s previous estimates of expected revenue from the respective projects has also been confirmed. Higher competitor activity, however, has prompted the executive board to reconsider its assumptions concerning future market shares and expected profit margins for individual projects. Following a detailed sensitivity analysis, the executive board has reached the conclusion that the carrying amount of the assets is to be realised in full regardless of possibly lower revenue. The situation will continue to be monitored closely and adjustments will be made in the coming financial years if the future market situation should make this appear appropriate.

77 b) Impairment of Goodwill

In order to determine goodwill impairment, it is required to determine the recoverable amount of the cash-generating unit to which the goodwill has been allocated. The calculation of the recoverable amount requires an estimate of future cash flows from the cash-generating unit as well as an appropriate discount rate for the calculation of the present value. If the actual expected future cash flows are lower than the previous estimate, this might result in material impairment.

The carrying amount of goodwill amounted to kEUR 27,909 as at 31 December 2018 (prior year: kEUR 28,916). In 2018, as in the prior year, there was no loss of risk and therefore no impairment to be recognized. c) Taxation Provisions

The Group’s current tax provisions of kEUR 253 relate to the executive board’s assessment of the amount tax payable in respect of tax returns that have not yet been assessed. Uncertain tax items relate principally to the interpretation of tax legislation regarding arrangements entered into by the Group. Due to the uncertainty associated with such tax positions, there is a possibility that, on conclusion of open tax matters with the tax authorities at a future date, the final outcome may differ significantly. d) Deferred Tax Assets on Loss Carry-forwards

Income tax is to be estimated for each individual tax jurisdiction in which the Group operates. The expected actual income tax and the temporary differences from the divergent treatment of specific items recognised in the balance sheet in the consolidated financial statements pursuant to IFRS and the corresponding tax bases. To the extent that temporary differences arise, these differences principally result in the recognition of deferred tax assets and liabilities in the consolidated financial statements. The executive board is required to make assessments in calculating actual and deferred taxes. Deferred tax assets are recognised to the extent that it is probable that these can be utilised. The utilisation of deferred tax assets depends on the ability to generate sufficient taxable profits according to the respective tax type and jurisdiction, taking into account, where relevant, legal restrictions concerning the maximum period allowed for loss carry-forwards.

In assessing the probability of the future usability of deferred tax assets, several factors are to be taken into account such as, the financial performance of the past, operational planning, loss carry-forward period and tax planning strategies. Where the actual results deviate from these estimates or where these estimates are to be adjusted in future period, this might negatively affect the assets, liabilities, financial position and financial performance.

If the impairment assessment for deferred tax assets is changed, the deferred tax assets are to be reduced through profit and loss.

No deferred tax assets were recognised on corporation income and trade tax loss carry-forwards of kEUR 58,613 (prior year: kEUR 1,011) and kEUR 53,253 (prior year: kEUR 775), respectively, as at 31 December 2018 since the entities currently affected have a loss history, and it can, at present, be assumed that under the medium-term tax result planning, the tax loss carry-forwards will probably not be utilised. These tax loss carry-forwards can be utilised for an indefinite period. e) Fair Value Measurement

Some assets and liabilities of the Group are measured at fair value for financial reporting purposes. To the extent possible, the Group uses observable market data to determine the fair value of assets and liabilities. Where Level 1 inputs are not available, gamigo engages qualified external experts to perform the measurements. The Group works closely with external experts in order to determine appropriate measurement procedures and inputs. The chief financial officer reports regularly to the supervisory board to lay down the reasons for fluctuations in the fair values of assets and liabilities.

On the acquisition of material assets of Trion, an agreement was concluded with the seller, stipulating that in return for the acquired assets and liabilities, a contingent consideration depending on the future performance of the acquired assets shall be paid in addition to the purchase price payable in cash. On the date of acquisition of 22 October 2018, the market value of the contingent consideration to be paid in the future was required to be determined under the pertinent Standard, IFRS 3 ´Business Combinations`. For this purpose, gamigo has recognised an amount of kEUR 143 as liabilities.

See note 3.1 for details on the measurement methods applied and inputs in determining the fair values of the various assets and liabilities.

2.19. New but not yet Mandatory Standards and Interpretations

The following new or amended standards and interpretations have been issued by the IASB, but have not yet become mandatorily effective or been incorporated in European law. The provisions were not subject to early application by the Group.

IFRS 17 Insurance Contracts 3, 5 Amendments to IFRS 10 and IAS 28 Sales or Contributions of Assets between an Investor and its Associate/Joint Venture 4, 5 Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures 1, 5 Amendments to IFRS 9 Prepayment Features with Negative Compensation 1,5 Annual Improvements to IFRS Standards 2015 – 2017 Cycle 1 Amendments to IAS 19 Employee Benefits Plan Amendment, Curtailment or Settlement 1, 5 Amendments to IFRS 3 Definition of a Business 2, 5 Amendments to IAS 1 and IAS 8 Definition of Material 2, 5 IFRIC 23 Uncertainty over Income Tax Treatments 1,5

1 Effective for annual periods beginning on or after 1 January 2019. 2 Effective for annual periods beginning on or after 1 January 2020. 3 Effective for annual periods beginning on or after 1 January 2021. 4 Effective date postponed for an indefinite period of time. 5 EU endorsement pending.

IFRS 17 Insurance Contracts

The new standard establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts and supersedes IFRS 4 Insurance Contracts.

The standard outlines a general model, which is modified for insurance contracts with direct participation features, described as the variable fee approach. The general model is simplified if certain criteria are met by measuring the liability for remaining coverage using the premium allocation approach.

The general model will use current assumptions to estimate the amount, timing and uncertainty of future cash flows and it will explicitly measure the cost of that uncertainty, it takes into account market interest rates and the impact of policyholders’ options and guarantees.

The implementation of the standard is likely to bring significant changes to an entity’s processes and systems, and will require much greater co-ordination between many functions of the business, including finance, actuarial and IT.

The standard is effective for annual reporting periods beginning on or after 1 January 2021, with early application permitted. It is applied retrospectively unless impracticable, in which case the modified retrospective approach or the fair value approach is applied.

The executive board of the parent company does not anticipate that the application of the standard in the future will have an impact on the Group’s consolidated financial statements as it does not hold any corresponding insurance contracts.

Amendments to IFRS 10 and IAS 28 Sales or Contributions of Assets between an Investor and its Associate/Joint Venture

The amendments address a conflict between the requirements of IAS 28 Investments in Associates and Joint Ventures and IFRS 10 Consolidated Financial Statements. They clarify that the extent to which gain or loss is recognised for transactions between an investor and its associate or joint venture depends on whether the assets sold or contributed constitute a business as defined in IFRS 3. In the meantime, the IASB postponed the effective date of this amendment indefinitely.

Until now, transactions with associates or joint ventures within the Group do not include a business as defined in IFRS 3 but only individual assets. Therefore, the executive board anticipates that the amendments to IFRS 10 and IAS 28 will not have an impact on the Group’s result for the year.

Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures

The amendments address long-term interests in associates and joint ventures that form part of the net investment in the associate or joint venture but to which the equity method is not applied. They clarify that the application of IFRS 9, including its impairment requirements, is given priority with respect to such long-term interests before losses that equal or exceed the carrying amount of the investment are recognised and before the impairment requirements under IAS 28 for net investments are applied.

The amendments apply retrospectively to annual reporting periods beginning on or after 1 January 2019. Earlier application is permitted. For initial application, specific transition provisions apply.

The executive board of the parent company does not anticipate that the application of the amendments to IAS 28 in the future will have an impact on the Group’s consolidated financial statements.

Amendments to IFRS 9 Prepayment Features with Negative Compensation

The amendments to IFRS 9 clarify that for the purpose of assessing whether a prepayment feature meets the SPPI condition, the party exercising the option may pay or receive reasonable compensation for the prepayment irrespective of the reason for prepayment. In other words, prepayment features with negative compensation do not automatically fail SPPI.

The amendment applies retrospectively to annual periods beginning on or after 1 January 2019, with earlier application permitted. For its initial application, there are specific transition provisions, relative to the already applied IFRS 9.

The executive board of the parent company does not anticipate that the application of these amendments in the future will have an impact on the Group’s consolidated financial statements.

Annual Improvements to IFRS Standards (2015 – 2017 Cycle)

IFRS 3 Business Combinations An acquirer who obtains control of a business that is a joint operation, is obliged to apply the requirements under IFRS 3 for a business combination achieved in stages, i.e. remeasuring its previously held interest (PHI) in the joint operation at fair value when control is obtained.

IFRS 11 Joint Arrangements An entity does not remeasure its PHI when it obtains joint control of a joint operation that is a business.

IAS 12 Income Taxes The amendments clarify that an entity should recognise the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognised the transactions that generated the distributable profits. This is the case irrespective of whether different tax rates apply to distributed and undistributed profits. IAS 23 Borrowing Costs The amendments clarify that specific borrowings for the procurement of a qualifying asset only remain unconsidered when calculating the interest rate on general borrowings if the qualifying asset is not yet ready for its intended use or sale. If, however, any specific borrowing remains outstanding after the qualifying asset is ready for its intended use or sale through appropriate measures, that borrowing becomes part of the funds that an entity borrows generally and are to be taken into account when calculating the interest rate.

All the amendments are effective for annual periods beginning on or after 1 January 2019 and generally require prospective application.

The executive board of the Company does not anticipate that the application of the amendments in the future will have a major impact on the Group’s consolidated financial statements.

Amendments to IAS 19 Employee Benefits Plan Amendment, Curtailment or Settlement

The amendments clarify that if a plan amendment, curtailment or settlement occurs, it is now mandatory that the current service cost and the net interest for the period after the remeasurement are determined using the actuarial assumptions used for the remeasurement. IAS 19 is now clear that the change in the effect of the asset ceiling that may result from the plan amendment (or curtailment or settlement) is determined in a second step and is recognised in the normal manner in other comprehensive income.

An entity applies the amendments to plan amendments, curtailments or settlements occurring on or after the beginning of the annual period that begins on or after 1 January 2019. Retrospective application is therefore not intended. The amendments to IAS 19 may have an impact on the consolidated financial statements to the extent relevant plan amendments, curtailments or settlements are made in the future.

Amendments to IFRS 3 Definition of a Business

The amendments to IFRS 3 Business Combinations serve to clarify the definition of a business.

As before, the definition of a business comprises the three components input(s), process(es) and output. The input and the processes applied to those inputs shall be used in such a way as to contribute to the ability to create output. The changed definition of output focuses on goods and services provided to customers, however, it also includes investment income such as dividends, interest and other revenues. In contrast, cost reductions are not any more a feature of the output definition.

The amendments clarify that to be considered a business, an acquisition must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. Therefore, the existence of processes ultimately constitutes the difference between the acquisition of a business and the acquisition of a group of assets. The evaluation depends on whether or not the acquired group of activities and assets already create outputs.

In addition, a so-called concentration test was introduced as a transaction-related option that permits a simplified assessment of whether an acquired set of activities and assets is not a business. This is the case when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset (or group of similar identifiable assets).

The amendments are to be applied for the first time for transactions with an acquisition date on or after the beginning of annual periods beginning on or after 1 January 2020 (prospective application). Early application is permitted and must be disclosed accordingly.

The amendments to IFRS 3 may have an impact on the consolidated financial statements to the extent relevant transactions take place in the future.

Amendments to IAS 1 and IAS 8 Definition of Material

The amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors aim at refining the definition of materiality by aligning the wording of the definition used in different standards and pronouncements of the IASB and clarifying the concepts related to the definition. Thus, the concept of obscuring is introduced and illustrated by examples.

The revised definition focuses on material information. According to this revised definition, information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of financial statements under IFRS make on the basis of those financial statements.

The revised definition of material will only be contained in IAS 1 in the future. IAS 8 merely refers to the fact that “material” is defined in IAS 1 and is to be applied with the same meaning in IAS 8.

The amendments are for the first time effective for annual periods beginning on or after 1 January 2020 (prospective application).

The executive board of the parent company does not anticipate that the application of the amendments in the future will have a major impact on the Group’s consolidated financial statements.

IFRIC 23 Uncertainty over Income Tax Treatments

IFRIC 23 sets out the accounting for current and deferred tax liabilities when there is uncertainty over income tax treatments.

Such uncertainties arise when the application of the applicable tax law to a specific transaction is unclear and therefore depends – among other things – on the interpretation by the tax authorities that is, however, not known to the entity when it prepares its financial statements.

An entity only considers these uncertainties in its recognised tax liabilities or assets when a payment or reimbursement of the corresponding tax amounts is probable. In making these considerations, an entity is to assume that the tax authorities will exercise their right to examine any reported amounts and will have full knowledge of all related information when doing so.

If facts and circumstances change that served as a basis for the assessment of uncertainties or if new relevant information becomes available, the consideration is to be reviewed and adjusted, where necessary.

Applying IFRIC 23 may have an impact on the consolidated financial statements when transactions are made where there is uncertainty over income tax treatments.

3. Acquisition of subsidiaries

3.1. Acquisition of the material assets of Trion Worlds Inc.

On 22 October 2018, the Group acquired material assets and liabilities of Trion Worlds Inc. Trion Worlds was a leading U.S. games company with offices in Redwood City (California) and Austin (Texas). Its portfolio as a publisher and developer included popular online and console MMO games such as Rift, Defiance, Trove and ArcheAge. The company’s assets were acquired in the context of an “Assignment for the Benefit of the Creditors” process, where the purchaser only acquires those assets with which it would like to continue the business. The assets were acquired since the purchase price turned out to be profitable when compared to revenue. This acquisition offers to gamigo Group the potential for a significant increase in revenue and EBITDA. Thus, the Group continues to consequently pursue its acquisition strategy and brings in its expertise in the sustainable monetisation of online games. The acquisition of the assets and parts of the liabilities and employees is a business combination in regard to IFRS 3. The gamigo US Inc., a wholly owned subsidiary of the gamigo AG acquired the majority of assets, including the platform and customer relations. In addition, part of the liabilities from operating activities and qualified employees were taken over in order to continue operations and the Group obtained the full publishing rights of the games.

The initial measurement of the assets and liabilities was provided by the external experts of PricewaterhouseCoopers GmbH, Stuttgart and Morison AG, Köln. The results were disclosed in a separate valuation report. The report distinguishes intangible assets and fixed assets. Identified intangible assets measured at fair value are customer relationships and the platform. Office-and IT- equipment (e.g. server, PC) were identified as tangible assets and revalued. Furthermore, trade receivables and certain trade payables were identified and revalued. For the customer relationships the fair value which was determined by using the residual value method, amounts to kEUR 2,435. The valuation was performed based on the stand alone forecast of gamigo US Inc. This forecast is part of the forecast of gamigo Group. The forecast is based on considerable experience and skills of the gamigo Group with MMO games as well as historical data of Trion Worlds. Due to the forecast license fees depending on revenues need to be considered material. Besides that, further substantial costs e.g. personnel-, marketing-and IT-costs were identified, deducted from revenue and constituted in EBITDA. The forecast is conducted in EUR.

As further material intangible assets the platform was identified. The Trion platform is the central system for all transactions and payments. The glyph client is part of the platform, through which customers can download the game, enter the game area and by which the customers are granted access to the game. To determine a reliable fair value of the platform, the independent external experts PricewaterhouseCoopers GmbH, Stuttgart, und Morison Köln AG analyzed which costs would be necessary to develop the platform. The average wages and salaries of the development team were used as basis for the analysis. According to the concept of reproduction, the fair value was determined in amount of kEUR 8.066. The amounts recorded for the acquired identifiable assets and assumed liabilities are presented in the table below:

in kEUR Identifiable intangible asset 10,501 Property, plant and equipment 1,127 Financial Assets 1,278 Financial Liabilities -2,294 Deferred tax liabilities -1,962 Foreign currency translation 30 8,681 Total consideration Satisfied by: Cash 3,473 Contingent consideration arrangement 143 Total consideration transferred 3,616

Net cash outflow arising on acquisition: Cash consideration 3,473

The fair value of the financial assets includes trade receivables with a fair value of kEUR 1,278. The best estimate at acquisition date of the contractual cash flows not to be collected are kEUR 0. The gross amount of the trade receivables corresponds to the net value, as of the consolidated balance sheet date all trade receivables were collected.

The total consideration for the acquisition of the assets and liabilities consists of a fixed cash component (kEUR 3,473) and a contingent consideration (earn out). The contingent consideration arrangement requires an additional purchase price to be paid when the subsequently generated revenue exceeds a certain amount. The maximum additional purchase price is capped at kUSD 2,000. The potential undiscounted amount of all future payments that the Group could be required to make under the contingent consideration arrangement is between kUSD 0 and kUSD 2,000. An amount of kUSD 164 (kEUR 143) as a contingent consideration as at 22 October 2018 was calculated by gamigo according to the current planning. The probability of occurrence is considered to be medium. The corresponding amount is accounted for as other financial liability. The contingent consideration arrangement will expire as at 31 December 2019. No further contingent liabilities are to be recognised from the purchase of the assets and liabilities. The gamigo Group has been interested in an acquisition of Trion Worlds since two years. By the end of the year 2018 the assets of the entity could be acquired to a comparatively low purchase price within the scope of the ´Assignment for the Benefit of the Creditors` process, where the buyer only acquires the assets for continuing the business. Acquisition-related costs (included in administrative expenses in the 2018 consolidated statement of comprehensive income) amount to kEUR 108. Taken into consideration the ABC process in regard to the acquisition of Trion World, where only the secured lenders needed to be payed out, the acquisition of Trion World resulted in an acquisition at a price below market value (lucky buy). The bargain purchase was recorded in other operating income and amounts to kEUR 5,065. The lucky buy is mainly due to additionally identified intangible assets (kEUR 10,501) less related deferred taxes (kEUR 1,962) totalling kEUR 8,539. This is the result of the independent expert reports of PricewaterhouseCoopers GmbH, Stuttgart und Morison AG, Köln. Accordingly the difference between the purchase price and the measured intangible assets is accounted for as bargain purchase. There is no goodwill arising from the acquisition. The independent appraiser confirmed its valuation result following a re-assessment under IFRS 3.

The business operations acquired on 22 October 2018 contributed kEUR 3,471 to revenue and kEUR 686 to the Group’s profit for the period. Quantitative statements concerning the contribution of the revenue and profit for the period of the acquired assets and liabilities to the Group’s revenue and profit for the period under the assumption that they were acquired as at 1 January 2018 cannot be provided without significant cost and a degree of uncertainty. This is due to the fact that few assets and liabilities were dissolved from the entire unprofitable business of Trion Worlds Inc., acquired by gamigo US Inc. and integrated into the established expertise, infrastructure and management of the gamigo Group. It is extremely hypothetical to predict what effect these synergy effects would have had ten months prior under a partially changed management structure at gamigo.

3.2. Acquisition of the material assets of WildTangent Inc.

On 3 April 2019, gamigo AG assumed material assets and liabilities of WildTangent Inc. (WildTangent) via its wholly-owned subsidiary gamigo Inc. WildTangent is a leading publisher of casual games in Bellevue (Washington)/U.S.

By acquiring WildTangent, the gamigo Group continues its series of successful acquisitions and takes advantage of the consolidation potentials in the market. Based on its platform strategy, synergies between gamigo and its acquired entities can be leveraged and, hence, contribute to the further profitable growth of the Group. By acquiring the assets of WildTangent and Trion Worlds in 2019 and at the end of 2018 respectively, gamigo was able to substantially strengthen its position in the U.S., one of the biggest games markets in the world. WildTangent was acquired in April 2019. The purchase price stood at kUSD 5,000. A large number of employees at gamigo AG are currently busy engaged in integrating the company into the gamigo Group and analysing and measuring the acquired assets and liabilities. A purchase price allocation is being prepared at the same time.

4. Disposal of subsidiaries and information regarding subsidiaries

4.1. Disposal of subsidiaries

On 1 March 2018, the Group disposed of 100% of its shares in Mobile Business Engine GmbH.

The net assets of Mobile Business Engine GmbH at the date of the disposal were as follows:

in kEUR Other intangible assets 223 Property, plant and equipment 3 Financial Assets 13 Trade receivables 865 Other assets 5 Bank balances and cash 12 Deferred tax liability -17 Trade payables -1,254 Other payables -6 Attributable goodwill 1,020 Net assets 864

Total consideration Satisfied by: Cash 500 Waiver of purchase price liability 80 580

Net cash inflow arising on disposal: Cash consideration received 500 Less: cash disposed of -12 488

The consideration was settled in cash by the purchaser on 5 March 2018. There were no disposals of subsidiaries made in the prior year.

4.2. Subsidiaries

Information about the composition of the Group at the end of the reporting period is as follows:

Company Registered office Ownership interest % 31 Dec. 2018

gamigo AG Hamburg/Germany - adspree media GmbH Berlin/Germany 100 Aeria Games GmbH Hamburg/Germany 100 Aeria Interactive GmbH (formerly: Produktkraft Vermarktung GmbH) Cologne/Germany 100 gamigo Advertising GmbH Hamburg/Germany 100 gamigo Inc. Wilmington, Delaware/U.S. 100 gamigo Portals GmbH, Hamburg/Germany Hamburg/Germany 100 gamigo Publishing GmbH, Hamburg/Germany Hamburg/Germany 100 gamigo US Inc. Dover, Delaware/U.S. 100 highdigit GmbH, Münster/Germany Münster/Germany 100 Just Digital GmbH, Hamburg/Germany Hamburg/Germany 100 Mediakraft GmbH, Cologne/Germany Cologne/Germany 100 Mediakraft Networks GmbH, Cologne/Germany Cologne/Germany 100 Mediakraft PL Sp.z o.o. Warsaw, Poland 95 Mediakraft Turkey Yayin Hizmetleri A.S. Istanbul/Turkey 80 MK Productions GmbH, Cologne/Germany Cologne/Germany 100

Effective as of 1 January 2018, Aeria Games GmbH, Berlin/Germany, as transferring entity under the merger agreement dated 28 August 2018 merged into ElbSpree Media Holding GmbH by way of merger through acquisition. As of 1 October 2018, ElbSpree Media Holding GmbH was renamed Aeria Games GmbH in accordance with the articles of association.

The following company was founded in 2018:

• gamigo US Inc., Wilmington, Delaware/U.S.

The striking off of the following companies was resolved on 23 February 2018 but was not yet carried out until 31 December 2018:

• Aeria Games Inc., Wilmington, Delaware/U.S. • cloudgame4you, Maidenhead/United Kingdom.

The parent company of the Group of the largest group of consolidated entities included in the consolidation is Bodhivas GmbH, Dusseldorf/ Germany. The consolidated financial statements of Bodhivas GmbH will be published in the Federal Gazette.

The parent company of the Group of the smallest group of consolidated entities included in the consolidation is gamigo AG, Hamburg/ Germany. The consolidated financial statements of gamigo AG will be published in the Federal Gazette.

5. Segment Information a) Products and services from which reportable segments derive their revenues

Under IFRS 8, on the basis of the internal reporting, operating segments are to be defined across group divisions that are subject to a regular review by the Chief Operating Decision Maker of the Company with respect to decisions on the allocation of resources to these segments and the assessment of segment performance. Information reported to the Chief Operating Decision Maker for the purposes of resource allocation and assessment of segment performance is focused on the two segments of B2C/Game Publishing and B2B/Media and Platform Services.

B2C/Game Publishing

In the B2C/Game Publishing division, online and mobile games are supplied to end customers, supported, operated and sometimes developed internally. The Group disposes of a broad portfolio of online and console games, including casual games, role-play games and strategy games. It markets its products and services to gamers in Europe, North and South America and Australia with the focus being on Europe and North America. The games are licensed exclusively, either worldwide or for certain regional territories. In Asia, gamigo does not market its product directly but in cooperation with licence partners.

The so-called free-to-play Massively Multiplayer Online Games (MMOGs) account for the most important share of revenue in the gamigo Group portfolio. Free-to-play means that the consumers in general play free of charge but can acquire goods for a fee (so-called “items”) that increase the gaming experience and/or facilitate faster success, in particular, by adding new equipment or new functions for the game characters. By means of this business model, revenue has the potential to scale better as customers usually do not just pay once but, thanks to various incentives in the games, are motivated to invest money in the games on a continuous basis and over a longer period of time. MMOG means that, often, several thousands of players meet and interact with one another in an arena or server environment. Due to the large number of co-players who play the game at different times and are frequently linked to one another through fixed games communities (so-called “guilds” or “clans”), in most cases, the users play a game over several months or even years. With the MMOGs, there is a technical difference between browser games (games are played in the browser online), client games (games are first downloaded and the client is saved on the PC. However, during the game, players must be online in order to be able to communicate with the server) and console games (games are played online on consoles such as Xbox and PlayStation). In addition, the portfolio includes games that can be played on Facebook and/or on mobile end devices (iOS and Android). In these types of games, apart from the items that can be paid for, advertisements and advertising videos are also shown.

The gamigo Group has various MMOGs, especially anime and fantasy role plays, strategy and shooter games. The casual games that are also marketed by the gamigo Group typically are simpler games which are not that intensive and are mostly played for shorter periods of time (these especially comprise puzzles, quizzes and skill games). Even here, the gamigo Group has a wide portfolio.

Currently, the gamigo Group offers over 30 MMOGs and more than 500 casual games. These include various MMOGs, e.g. Fiesta Online and Shaiya, which have been on the market for many years now. The revenue generated by these games, if the games are well supported and marketed, usually shows only slight churn, but by optimising marketing and improving the game content revenue can be stabilised or returned to growth.

The gamigo Group has driven its growth in the Game Publishing business division to a large extent by market consolidation. Since 2014, gamigo has acquired a total of more than 20 assets and companies, the majority of which are in the publishing sector. In this area, among others, the following companies and assets have been acquired: INTENIUM GmbH (company, now gamigo Portals GmbH), GameSpree GmbH (company, now gamigo Publishing GmbH), Piraya Mobile GmbH (now gamigo Portals GmbH), Fiesta Online game licence (first U.S., later on also the worldwide exclusive IPs as an asset deal each), Infernum Games GmbH (company, merged into gamigo Publishing GmbH), Last Chaos game licence, Looki Publishing GmbH (company, merged into gamigo Publishing GmbH), Looki Assembly Studios GmbH (company, merged into gamigo Publishing GmbH), Aeria Games GmbH, game licence of Heroes and Puzzles (global and exclusive licence, asset deal) and Trion Worlds Inc. (asset deal).

The acquisition of new customers for the games offered by the gamigo Group is done via marketing to the Company’s own customer base (e.g. email, cross-selling) and on own portals (e.g. gamigo.com and aeriagames.com). In addition, the Company’s own games are offered via the B2B advertising companies of the gamigo Group (adspree media GmbH and Mediakraft group) and, among others, on their portals (e.g. mmogames.com, browsergames.de) or through other advertising measures. In selling its games, the gamigo Group also works with a large number of third party customer acquisition and sales channels (including partner websites, TV broadcasting companies, print media, telecommunications providers and marketing partners).

B2B/Media and Platform Services

Besides the B2C/Game Publishing division, the gamigo Group has been developing the B2B/media and platform services since 2014 that are offered to business customers. For the most part, the same systems and infrastructures are used in the background of the platform services that are used in the context of game publishing. While the platform modules were primarily used during 2018 for gamigo’s own activities, there are future plans to make the services available on a “Software as a Service” basis to other games publishers and developers.

The gamigo Group particularly provides marketing and sales opportunities within the Media and Platform Services division. To a lesser extent, “Platform as a Service” products continue to be offered. The gamigo Group created further synergies driven by acquisitions, and so the offering of payment services in January 2018 by means of the 100% equity investment in Mobile Business Engine GmbH was no longer required. Owing to the enhanced synergies, gamigo is in a position to offer its customers comparable and, in some cases, better payment solutions.

In the Media Marketing and Sales division, services are now concentrated at adspree media GmbH and Mediakraft Networks GmbH. adspree media GmbH, formerly SevenGames Network, is an international 360-degree marketing agency for gaming companies. adspree media GmbH controls the acquisition of new users or players in a performance-oriented and efficient manner, using major channels, including search engine optimisation (SEO), search engine advertising (SEA, e.g. Google, Bing), Facebook marketing, programmatic/real-time media buying, real-time advertising, influencer marketing, affiliate marketing and TV advertising. In addition, adspree media GmbH has a large number of game portals of its own that are used to address players. These also include SEO-oriented content portals (e.g. Browsergames.de and mmogames.com), as well as SEA-based portals (e.g. Browsergames.org).

Mediakraft Networks GmbH is a group of companies acquired in mid-2017 that is active in Germany, Poland and Turkey in the fields of online video, social marketing and influencer marketing with a strong market position in those countries. The Mediakraft Group manages complete YouTube channels for companies, supports YouTube stars and influencers and designs and implements influencer campaigns. Their own YouTube channels were shut down or handed over to partners at the end of the year due to low or uncertain advertising revenues. Alongside gaming channels and gaming-oriented stars, the Mediakraft Group also owns content in other areas.

On the one hand, synergies are boosted on the sales side, such as servicing adspree gaming customers through Mediakraft campaigns or addressing gaming target groups via adspree media GmbH for Mediakraft (in part non-gaming) customers. On the other hand, the online video production expertise of the Mediakraft Group is also used for adspree campaigns and to generate video content for gaming portals.

In the B2B segment, the gamigo Group has its own technologies which will be used to consistently develop the gamigo platform. These technologies include tracking technologies that evaluate user activities within games and on advertising spaces, enabling improvements in how to approach customers and reductions in the cost of customer acquisition.

In the field of B2B platform services, M&A is also considered an important part of the growth strategy. Since 2014, various IT and media companies, and portals or assets have been acquired. In the field of advertising/portals, POGED GmbH (merged with adspree media GmbH), Asset Gulli.com, SevenGames Networks GmbH (renamed adspree media GmbH), the portal MMOgames.com, Mediakraft GmbH and its subsidiaries were acquired. In addition, the HoneyTracks software was acquired in the Platform Services division as part of an asset deal.

94 b) Segment revenues and segment results

Segment revenues and segment results

B2C B2B Eliminations Consolidated in kEUR 2018 2018 2018 2018

Revenues 29,671 15,618 0 45,289

Segment result 10,042 1,009 0 11,051

Write-downs -8,464 Financial result 14 Financing costs -2,110 Pre-tax result 491 Income tax 1,126 Net result 1,617

B2C B2B Eliminations Consolidated in kEUR 2017 2017 2017 2017

Sales revenues 29,605 12,477 0 42,082 Total revenues 29,605 12,477 0 42,082

Segment result 8,154 -1,120 0 7,034

Write-downs -10,392 Financial result 51 Financing costs -2,359 Pre-tax result -5,666 Income tax 675 Net result -4,991

The Group does not use geographical information for purposes of internal controlling nor for Management reports. A separate collection of such data would result in disproportionate costs.

Due to the structure of customers in the B2C segment there are no customers that constitute a proportion of more than 10 percent of the Group´s revenues. The B2B segment in general is characterised by less small scaled customers. Nevertheless there are no customers that are responsible for more than 10 percent of Group´s revenues.

The accounting policies of the reportable segments correspond to the Group accounting policies described above. The segment result represents the result that each segment generates without allocation of the share of the result of associated companies and joint ventures, the central administrative costs including the remuneration of the Management Board, the financial result, the non-operating profits and losses from financial instruments and financing costs as well as the income tax cost. The segment result thus determined is reported to the Group’s chief operating decision maker for the purpose of resource allocation to the segments and the assessment of segment performance. c) Segment assets

Segment assets

31 Dec. 2018 31 Dec. 2017

in kEUR in kEUR

B2C 79,914 54,261

B2B 13,878 12,534

Total segment assets 93,792 66,794

Consolidated total segment assets 93,792 66,794

For the purpose of monitoring segment performance and allocating resources to segments, the Group’s chief operating decision maker monitors the tangible, intangible and financial assets attributable to the individual segments. All assets including goodwill are allocated to the reportable segments.

6. Intangible assets

Intangible assets developed as follows:

Internally generated Other Advance payments on Goodwill Total intangible assets intangible other intangible assets assets in kEUR Acquisition or manu- facturing costs 1 Jan. 2017 702 75,031 4,274 47,279 127,286 Additions: Initial consolidation 0 759 0 0 759 Additions 1,801 2,706 422 65 4,994 Additions IFRS 16 0 0 0 0 0 Disposals 0 -324 -706 0 -1,030 Currency rate differences 0 -2 0 -35 -37 Transfers 0 50 -50 0 0 31 Dec. 2017/ 1 Jan. 2018 2,503 78,220 3,940 47,309 131,972 Additions: Initial consolidation 0 10,501 0 0 10,501 Additions 2,533 694 415 0 3,642 Additions IFRS 16 0 14,152 0 0 14,152 Disposals 0 -223 0 -1,020 -1,020 Currency rate differences 19 0 0 13 32 Transfers 0 0 0 0 0 31 Dec. 2018 5,055 103,344 4,355 46,302 159,056

Internally generated Other Advance payments on Goodwill Total intangible assets intangible other intangible assets assets Write-downs and depreciation 1 Jan. 2017 442 53,875 3,471 18,393 76,181 Additions: Initial consolidation 0 71 0 0 71 Additions during the financial year 162 8,142 49 0 8,353 Additions IFRS 16 0 0 0 0 0 Disposals during the financial year 0 -100 0 0 -100 Revaluations 0 0 0 0 0 Currency rate differences 0 0 0 0 0 Transfers 0 5 -5 0 0 31 Dec. 2017/ 1 Jan. 2018 604 61,993 3,515 18,393 84,505 Additions: Initial consolidation 0 0 0 0 0 Additions during the financial year 724 5,770 0 0 6,494 Additions IFRS 16 0 472 0 0 472 Disposals during the financial year 0 0 0 0 0 Revaluations 0 0 0 0 0 Currency rate differences 0 0 0 0 0 31 Dec. 2018 1,328 68,235 3,515 18,393 91,471

Book value 31 December 2017 1,899 16,227 425 28,916 47,467 Book value 31 December 2018 3,727 35,109 840 27,909 67,585

For the purpose of impairment testing, goodwill is allocated to the following cash generating units:

‑ 31 Dec. 2018 31 Dec. 2017

kEUR kEUR

B2C 21,281 21,268

B2B 6,628 7,648

27,909 28,916

The Group tests Goodwill for impairment at least annually, or more frequently when there is an indication that goodwill may be impaired.

The Group has goodwill from the acquisition of business operations (asset deal) and from the acquisition of controlling interests in companies. Goodwill was reported at kEUR 27,909 (2017: kEUR 28,916) as at the balance sheet date.

The recoverable amount of this goodwill was confirmed by impairment tests carried out on the balance sheet date. Goodwill is tested at the level of the B2B and B2C business segments, as this corresponds to the Group’s internal management approach.

The cash-generating units were redefined in 2017 and consist of business to consumer (B2C) and business to business (B2B) segments.

The impairment tests are based on the calculation of the recoverable amount of the cash-generating units based on their value in use. This calculation is based on cash flow projections based on a five- year financial plan approved by management. The cash flows from B2C include the effects from the acquisition of the TRION business. As in the previous year, cash flows for the period exceeding five years did not include a growth rate. Due to the long-term volatility of the online gaming business, no growth rates were expected. Gross margins of more than 50% and EBITDA margins of more than 20% were assumed. The assumed EBITDA margins are based on historical experience or were forecasted on the basis of cost-reducing measures that have been launched. The cash flows were discounted using the discounted cash flow (DCF) method at an interest rate of 12.05% for B2C and 11.25% for B2B. The weighted average cost of capital used for discounting reflects the risk-adjusted pre-tax interest rate derived from the capital market (WACC).

7. Property, plant and equipment

Fixed assets developed as follows:

in kEUR Buildings on third- Technical Operating and office Total party land equipment equipment and machinery

Acquisitions or production costs

1 Jan. 2017 680 23 8,386 9,089

Additions: Initial consolidation 0 0 737 737

Additions during the financial year 0 0 92 92

Additions IFRS 16 0 0 0 0

Disposals during the financial year 0 0 0 0

Currency rate differences 0 0 48 48

31 Dec. 2017/1 Jan. 2018 680 23 9,263 9,966

Additions: Initial consolidation 0 0 1,127 1,127

Additions during the financial year 1,525 0 0 1,525

Additions IFRS 16 1,684 0 18 1,702

Disposals during the financial year -13 0 -347 -360

Currency rate differences 0 0 0 0

31 Dec. 2018 3,876 23 10,0601 13,960

Depreciation and reductions

in value

1 Jan. 2017 638 23 6,098 6,759

Additions: Initial consolidation 0 0 620 620

Additions during the financial year 17 0 711 728

Additions IFRS 16 0 0 0 0

Disposals during the financial year 0 0 0 0

Currency rate differences 0 0 168 168

31 Dec. 2017/1 Jan. 2018 655 23 7,597 8,275

100

in kEUR Buildings on third- Technical Operating and office Total party land equipment equipment and machinery

Additions: Initial consolidation 0 0 0 0

Additions during the financial year 0 0 613 613

Additions IFRS 16 873 0 13 886

Disposals during the financial year 0 0 0 0

Currency rate differences 0 0 0 0

31 Dec. 2018 1,528 23 8,223 9,774

Book value 31 December 2017 25 0 1,666 1,691

Book value 31 December 2018 2,348 0 1,838 4,186

8. Deferred tax assets

Deferred tax assets are recognized according to the liability method pursuant to IAS 12 income taxes. The tax rates valid enacted on the reference date of the annual financial statements were applied. The deferred tax assets in the amount of kEUR 16,082 (2017: kEUR 9,533) relate to the probable future usage of tax loss carryforwards in the amount of kEUR 10,826 (2017: kEUR 9,533) and in the amount of kEUR 5,256 (2017: kEUR 0) from the first-time application of IFRS 16. Deferred tax assets and liabilities were netted off for identical tax subjects, resulting in total deferred tax assets of kEUR 8,127 (2017: kEUR 7,141). Further explanations on the deferred taxes can be found in the Sections 2.6 “Income taxes” and 17 “Deferred tax liabilities”.

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9. Financial assets

The first-time application of IFRS 9 resulted in the following classification of financial assets compared to IAS 39. The amended classification did not lead to any adjustment effect.

IAS 39 IFRS 9

31 Dec. 2017 1 Jan. 2018 Shareholdings in associated available for sale Fair value with recognition of companies changes in other comprehensive income Other financial assets amortised amortised acquisition costs acquisition costs Trade receivables amortised amortised acquisition costs acquisition costs Cash and cash equivalents amortised amortised acquisition costs acquisition costs

Financial investments in equity instruments are not held for trading purposes. Instead, they are held for medium to long-term strategic purposes. Accordingly, the Management Board has decided to designate the equity instruments as at fair value through other comprehensive income because it believes that recognising short-term fluctuations in the fair value of these investments in the profit and loss statement would not be consistent with the Group’s strategy of holding these investments for medium to long-term purposes and realising their price potential correspondingly. For reasons of materiality, it is assumed that the book value of the shareholdings in associated companies as at 31 December 2018 corresponded to their fair value. As at 31 December 2018, the Group had financial investments in equity instruments amounting to kEUR 94.

In addition, both non-current other financial assets (kEUR 1,717) and other current financial assets (kEUR 55) include loans and receivables from employees, other parties and security deposits.

Both the long-term loans and receivables from employees and other parties and security deposits are held by the Group in a business model whose objective is to hold financial assets to collect the contractual cash flows and whose contractual terms exclusively represent interest and principal payments on the outstanding nominal amount. Accordingly, all these financial assets are measured at amortised cost.

The Group has disbursed loans to affiliated companies in the amount of kEUR 67. Their interest rate corresponds to the average market interest rate.

102

10. Impairment of financial assets

The assessment of risk provisions for loans to related parties led to the conclusion that there is no default risk. In the current reporting period, there were no changes in the impairment methods or in significant assumptions with regard to determining value adjustments.

11. Trade receivables

The trade receivables reported have a remaining term of up to one year. The Group derecognises a trade receivable when information is available that indicates that the debtor is in significant financial difficulty and there is no realistic prospect of payment. This would be the case, for example, if the debtor is in liquidation or insolvency proceedings or if the trade receivables are more than two years past due, whichever comes first. None of the derecognised trade receivables is subject to enforcement measures.

The value adjustments on trade receivables developed as follows:

in kEUR Individual value adjustments Portfolio value adjustments Total

2018 2017 2018 2017 2018 2017

1 January 279 409 6 6 285 415 Additions from initial consolidation 0 4 0 0 0 4

Changes in the value adjustments and receivables write- downs recognised in income -123 -134 0 0 -123 -134

31 December 156 279 6 6 162 285

The table above shows the maturity structure of existing receivables. As the historical experience of the Group’s defaults does not show significant differences with respect to the various segments, there is no differentiation in the past due valuation adjustment among the various segments of the Group.

103

As at the reference date for the annual financial statements, there are overdue, non-value-adjusted trade receivables in the following amount:

overdue

Carrying in kEUR amount 1-30 days 31-180 days more than 180 days Book values

31 Dec. 2018 3,931 1,191 1,071 86 6,279

31 Dec. 2017 3,603 244 470 571 4,888

With regard to the receivables, there is no indication based on the credit history and the current credit rating classifications that the customers are not able to meet their obligations.

12. Cash and cash equivalents

This item includes bank balances of kEUR 4,153 (2017: kEUR 1,019) and cash-in-hand of kEUR 5 (2017: kEUR 2).

13. Non-cash transactions

Significant non-cash transactions result from the first-time application of IFRS 16 and from the acquisition of material assets and liabilities of Trion Worlds. We refer to section 3.1 and 19.

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14. Equity

Equity and its individual components are shown separately in the "Consolidated Statement of Changes in Equity.”

SUBSCRIBED CAPITAL

The share capital is divided into 2,310,716 unit shares (registered shares with no-par value). All shares issued by 31 December 2018 are fully paid up. The share capital consists of 1,548,180 ordinary shares and 762,536 preferential shares with a voting right pursuant to Article 23 of the articles of association. Each share grants a voting right of equal ranking. The number of shares issued and entitled to a dividend has developed as follows in the reporting year:

in units

Status on 1 January 2018 2,310,716 issuing of new shares 0 Status on 31 December 2018 2,310,716

Weighted average of the shares in the financial year 2018 2,310,716

CAPITAL RESERVES

The capital reserves have been created as the result of capital increases. For the acquisition of the respective shares, shareholders paid a purchase price that goes beyond the nominal value of the shares that is recognised in the capital reserve.

DIVIDENDS gamigo is continuing its existing dividend policy – profits are only distributed if they are not used or are not necessary to repay the debt level and/or for the further financial endowment of the company.

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DIFFERENCE FROM FOREIGN CURRENCY TRANSLATION

Translation differences arising from the translation of the functional currency of foreign operations into the reporting currency of the Group (euro) are posted as other income in the Group financial statement and accumulated in the foreign currency translation reserve. This also includes gains and losses from designated hedging instruments to hedge a net investment in a foreign operation. Exchange differences previously recognised in the foreign currency translation reserve (in respect of the translation of both the net assets of the foreign operation and the hedging of net investments in foreign operations) are transferred to the income statement when the foreign operation is disposed of, in whole or in part.

ACCUMULATED RETAINED EARNINGS

The generated Group equity comprises the results of the companies included in the consolidated financial statements, both in the past and in the current period, to the extent that they were not distributed.

CAPITAL MANAGEMENT gamigo fundamentally pursues the goal of generating an appropriate return on the capital used. The accounting capital of the Group, however, is merely used as a passive control criterion. The revenue and the EBITDA are used as active management parameters. However, in its present form, gamigo is a young company that is still growing. Our goal is to make substantial investments in the development of the corporate Group, in particular for M&A activities, although they burden the short-term earning capacity of the company to a considerable extent. These growth targets mean that classic return criteria are not always at the forefront in this growth phase. The investments associated with this are the basis for the company’s long-term success. gamigo is striving to remain a profitable corporate group in the short and long-term.

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15. Other financial liabilities

The financial liabilities are divided into the following classes:

in kEUR 31 Dec. 2018 31 Dec. 2017

Unsecured — at amortised cost Overdrafts 0 4,862

Bank loans 0 11,608

Loans from affiliated companies or persons 837 8,224

Bonds 25,327 0

Lease liabilities according to IFRS 16 16,291 0

Other loans and financial liabilities 1,002 2,411

Earn Out 143 0

Total financial liabilities 43,600 27,105

The financial liabilities contain the consolidated balance sheet items bonds, liabilities to related parties, other non-current financial liabilities, liabilities to banks and other current financial liabilities.

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The development of other financial liabilities as at 31 December 2018 is as follows:

in kEUR 31 Dec. Take-up Repaymen Waiver Accrued Interest 31 Dec. 2017 of new t s interest payments 2018 funds

Overdrafts 4,862 0 4,862 0 0 414 0

Bank loans 11,608 0 11,608 0 0 938 0 Loans from affiliated companies or persons 8,224 0 6,864 554 31 128 837

Bonds 0 24,877 0 0 450 0 25,327 Lease liabilities according to IFRS 16* 0 17,426 1,342 0 207 0 16,291 Other loans and financial liabilities 2,411 0 1,378 0 -31 23 1,002

Earn Out 0 143 0 0 0 0 246

Total financial liabilities 27,105 42,446 26,054 554 657 1,503 43,600

*non-cash

The maturity analysis of the financial liabilities as at 31 December 2018 is as follows:

in kEUR up to 1 year 1 to 5 years Unsecured — at amortised cost Overdrafts 0 0 Bank loans 0 0 Loans from affiliated companies or persons 0 837 Bonds 0 25,327 Operating Lease liabilities according to IFRS 16 2,411 13,880 Other loans and financial liabilities 267 735 Earn Out 143 0 Total financial liabilities 2,821 40,779

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The weighted average effective interest rate is broken down below:

in % 31 Dec. 2018 31 Dec. 2017

Bank loans n/a 5.8 Overdrafts n/a n/a Loans from affiliated companies or persons 4.0 4.0 Other loans 2.0 2.0 Bonds 11.6 n/a

Analysis of other financial liabilities by currency as at 31 December 2018:

in kEUR in EUR in USD Others Total

Loans from affiliated companies or persons 837 0 0 837

Operating leasing liabilities according to IFRS 16 14,663 1,628 0 16,291

Other loans and financial liabilities 1,002 0 0 1,002

Bonds 25,327 0 0 25,327

Earn Out 0 143 0 143

Total 41,829 1,771 0 43,600

Analysis of other financial liabilities by currency as at 31 December 2017:

in kEUR in EUR in USD Others Total

Overdrafts 4,862 0 0 4,862 Bank loans 11,608 0 0 11,608 Loans from affiliated companies or persons 8,224 0 0 8,224

Bonds 0 0 0 0

Other financial liabilities 0 0 0 0

Other loans and financial liabilities 2,411 0 0 2,411

Total 27,105 0 0 27,105

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16. Other non-financial liabilities

The other non-financial liabilities (kEUR 4,705; 2017: kEUR 2,541) mainly contain income tax liabilities at an amount of kEUR 2,068 (2017: kEUR 1,404), and deferred income at an amount of kEUR 1,628 (2017: kEUR 84).

17. Reporting on financial instruments

Classes and categories of financial instruments and their fair values

The following table provides information about classes of financial instruments based on their nature and characteristics, as well as the carrying amounts of financial instruments. The carrying amounts of the financial instruments listed below correspond to the fair values of the financial instruments. As at 31 December 2018, the Group does not hold any financial instruments whose carrying amounts differ materially from their fair values, so that fair values are not disclosed. The hierarchy levels are therefore not indicated in the values listed below.

31 Dec. 2018 Carrying amount Financial assets Financial liabilities At fair value At fair value Amortised cost At fair value Amortised cost through through OCI through profit or loss (Other profit or loss comprehensive income) in kEUR Cash and bank balances - - 4,158 - - Trade receivables and other receivables - - 7,925 - - Other financial assets - - 1,717 - Associated companies 94

Bond - - - - 24,877

Other financial liabilities - - - - 18,723 Trade payables and other liabilities - - - - 9,621

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31 Dec. 2017 Carrying amount (adjusted) Financial assets Financial liabilities At fair value At fair value Amortised cost At fair value Amortised cost through through OCI through profit or loss (Other profit or loss comprehensive income) in kEUR Cash and bank balances - - - - - Trade receivables and other receivables - - 4,888 - - Other financial assets 2,849 Associated companies 106 Other financial liabilities - - - - 27,105 Trade payables and other liabilities - - - - 7,219

RISKS FROM FINANCIAL INSTRUMENTS

Typical risks from financial instruments are the credit risk, the liquidity risk and the individual market risks. The risk management system of the Group is depicted in the risk report of the consolidated management report including its goals, methods and processes. On the basis of the information depicted below, we do not see any explicit risk concentrations from financial risks.

CREDIT RISKS gamigo tries to reduce the default risk of original financial instruments through trade information, credit limits and debtor management including dunning and proactive collection. In addition, to the best of its knowledge, gamigo only concludes transactions with solvent customers. The maximum default risk results from the carrying amounts of the financial assets recognised in the balance sheet.

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LIQUIDITY RISKS

The operational liquidity management encompasses a cash controlling process through which there is a merging of liquid funds. Liquidity surpluses and requirements can thus be managed in accordance with the Group’s requirements and those of individual Group companies. The due dates of financial assets and financial liabilities and estimates of the cash flow from operational activity are included in the short-term and medium-term liquidity management. Cash and cash equivalents totalling kEUR 4,158 (2017: kEUR 1,021) are available to cover the liquidity requirements. The liquidity risk is classified as low overall.

MARKET RISKS

Market risk is understood to be the risk that the fair values to be applied or future payment streams of an original or derivative financial instrument will fluctuate as the result of changes in the risk factors and the risk that the fair value to be applied to the bond will change.

CURRENCY RISKS

Changes in exchange rates can result in unwanted and unforeseeable volatilities of results and payments streams. As a result of the international alignment of the gamigo Group in the direction of the USA, there are currency risks within the framework of the business activity. The risk on the basis of the functional currency is to be classified as low as the subsidiaries gamigo Inc. and gamigo US Inc. generate income and expenses in US dollars. For this reason, there was no hedging of currency.

TRANSLATION RISK

At Group level, there is a translation risk that results from consolidations of subsidiaries that do not carry out their accounting in euros. The largest risk position is the US dollar and/or its respective change in relation to the euro. The long-term exchange risk that exists with investments in shareholdings that do not carry out their accounting in euros is rated continuously. From this translation risk with regard to the US subsidiaries, with an increase of the euro compared to the US dollar of 10% there would be no fundamental effect on the Group equity and the Group´s consolidated statement of profit or loss.

INTEREST RISKS

The scope of the third-party financing associated with variable interest is substantial due to the bond, meaning that the risk resulting from volatile interest rates is significant. Against this backdrop, an interest rate hedge was contracted for the floating rate bond.

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18. Bond gamigo AG issued a senior secured bond loan of kEUR 32,000 on 11 October 2018, within a total framework amount of kEUR 50,000, primarily on the Swedish and continental European bond market. If investors wish to subscribe to further bonds and gamigo AG requires liquidity, the company has a possibility under the terms and conditions to issue new bonds up to a total volume of kEUR 50,000. The bonds with ISIN SE0011614445 carry a floating interest rate of EURIBOR 3m +7.75% per annum (a EURIBOR floor at 0.00% applies) and matures on 11 October 2022.

The bond is traded at the Swedish stock exchange (regulated market) and at the open market (quotation board) in Frankfurt/Germany.

19. IFRS 16 leases

The Group rents various assets including buildings, operating and office equipment and software licences. The average lease term is four years. The effect of the first-time application of IFRS 16 on the consolidated balance sheet as at 1 January 2018 is described in detail in Note 2.2.

RoU assets The carrying amount of the RoU assets and the depreciation by class were as follows:

Carrying Additions Depreciatio Carrying amount n and amount in kEUR 1 Jan. 2018 amortizatio 31 Dec. 2018 n

RoU from building rental 1,583 1,578 873 2,288

RoU from licence rental 0 14,152 472 13,680

RoU from IT equipment rental 66 0 0 66

RoU from vehicle leasing 24 0 13 11

Total 1,673 15,730 1,358 16,045

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Leasing liabilities

in kEUR 31 Dec. 2018 1 Jan. 2018

Long-term 13,880 0

Short-term 2,411 1,673

Total 16,291 1,673

Maturity analysis

in kEUR 31 Dec. 2018

Up to 1 year 2,411 More than 1 year and up to 5 years 13,880 More than 5 years 0

Total 16,291

Interest expenses on leasing liabilities amounted to kEUR 215 in 2018. Rental expenses for short-term leases amounted to kEUR 311. Rental expenses for leases of assets of minor value amounted to kEUR 0. The term of the leasing liabilities is shown in Note 14.

The total cash outflows for rental expenses and licence payments from leases amounted to kEUR 1,342 in 2018. Additions to rights of use amounted to kEUR 15,730.

The Group had no sales and lease back transactions.

20. Deferred tax liabilities

Deferred tax liabilities relate to temporary differences between the fair values of intangible assets and their tax base (kEUR 3,159; 2017: kEUR 1,914) arising from the initial consolidation of companies acquired between 2014 and 2018 as well as temporary differences between the carrying amount of the bond under IFRS and the tax base (kEUR 359; 2017: kEUR 0). Deferred tax liabilities of kEUR 1,044 (2017: kEUR 542) were recognised for temporary differences between the carrying amount of internally generated intangible assets in accordance with IFRS and the tax base, and kEUR 5,167 (2017: kEUR 0) for the first-time application of IFRS 16. The deferred tax liabilities for identical tax subjects were netted with the respective deferred tax assets, resulting in deferred tax liabilities of kEUR 1,774 (2017: kEUR 191) after netting.

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21. Short-term provisions

in kEUR 1 Jan. Initial Utili- Reversal Alloca- 31 Dec. 2018 consoli- sation tions 2018 dation

Personnel-related obligations 692 0 503 194 582 577

Audit and closing costs 179 0 147 7 205 230

Remaining provisions 2,140 655 1,669 362 4,880 5,644

Total short-term provisions 3,011 655 2,319 563 5,667 6,451

Provisions are made for current, legal and de facto obligations resulting from past events that are likely to lead to a future economic burden and whose amounts can be reliably estimated. If a changed estimate results in a reduction in the amounts of the obligation, the provision is reversed accordingly and the income is posted in the area that was originally charged with the expense when the provision was recognized. Other provisions include litigation obligations, obligations for license costs and revenue shares, as well as milestone payments for various games. All provisions have a term of up to one year.

22. Trade payables

Trade payables mainly comprise outstanding amounts for the purchase of goods and services as well as current costs. Most suppliers do not charge interest for the first days after invoicing. Subsequently, different interest rates are payable on the outstanding amount. The Management Board is of the opinion that the carrying amount of trade payables generally corresponds to their market value.

23. Litigation and contingent liabilities

Litigation and other legal proceedings often raise complex issues and entail numerous uncertainties and difficulties, including the facts and circumstances of each individual case, the court in which the action is pending and differences in applicable law. The results of currently pending or future proceedings are generally unpredictable. The final ruling in a court case, official decisions or a settlement may result in gamigo incurring expenses for which no provision has been made in the balance sheet to date due to the lack of reliable predictability, or which exceed the provision formed for this purpose.

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In pending or future legal proceedings, the gamigo Group, drawing on the information available to its legal department and in close consultation with its lawyers, assesses whether and to what extent the Group must make provisions in its balance sheet. If any of the cases can reasonably be expected to result in costs that can be measured today, the present value is posted as a provision for legal disputes. These provisions cover estimated payments to plaintiffs, court and litigation costs, attorneys’ fees and any settlement costs. On each balance sheet date, the Group’s internal and external legal advisors assess the current status of the Group’s significant legal risks. On this basis, they review whether and to what extent a provision should be formed or adjusted. Relevant information is taken into account right up until the consolidated financial statements are finalised. In the course of its general business operations the gamigo Group is involved in various legal disputes, in particular litigation and arbitration proceedings, or such proceedings could be launched in the future. Legal disputes arising from the ongoing business operations of the gamigo Group refer to proceedings against IT service providers, service providers, vendors and former partners. Legal disputes are often the result of M&A transactions. Due to the takeover of loss-making companies and assets, legal disputes regularly arise after the acquisition. In many cases, payments aren’t made due to inadequate or absent service provisions or because parties demand the payment of old liabilities that were not clearly assumed by the gamigo Group, so that this must be decided by arbitration or litigation. Provisions totalling kEUR 429 were recognized to cover disputes resulting from the non-payment of receivables from IT service providers and other service providers; in addition, kEUR 676 were deferred for proceedings resulting from corporate transactions with former service providers of the acquired company; and kEUR 529 for other procedural risks due to corporate transactions. Further proceedings relating to labour law amount to less than kEUR 50.

24. Other financial obligations

As a result of the voluntary early application of IFRS 16 in the reporting year, all contracts leading to other financial obligations were classified as IFRS 16 cases as part of the change in accounting policy (first-time application: 1 January 2018) and recognised in accounts. For detailed explanations please refer to Note 15.

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25. Revenues

Revenues are generated by sales of online, console and mobile games (casual games, roleplay games and strategy games) as well as B2B services (platform and advertising services). This is consistent with the revenue figures disclosed for each reportable segment in accordance with IFRS 8 Operating Segments (see Note 5).

in kEUR 2018 2017

B2C (business to consumer): Games 29,671 29,605

B2B (business to business): Platform and advertising services 15,618 12,477

Total 45,289 42,082

As permitted by the transitional provisions of IFRS 15, transaction prices that are (partially) related to unfulfilled contractual obligations as at 31 December 2018 are not disclosed, because all corresponding contractual obligations are parts of contracts which have an expected initial term of maximum one year.

26. Own work capitalised

This item primarily includes personnel expenses in connection with the capitalisation of development costs for the gamigo platform and for games which were capitalized as subsequent acquisition costs for intangible assets purchased.

27. Other operating income

Other operating income includes the following items:

in kEUR 2018 2017

Bargain purchase 5,065 663

Writing off liabilities, e.g. from M&A activities 1,211 1,111

Exchange rate gains 196 217

Other 150 383

Total 6,667 2,374

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As in previous and following financial years, other regularly occurring operating income includes income from the M&A business. These include, for example, regularly occurring income from bargain purchase gains, the derecognition of purchase price liabilities and income from the sale of companies and rights or licences. The revenues are related to the gamigo Group’s operating activities.

28. Services purchased

Expense items such as revenue shares, technology, royalties and costs for technology are posted.

29. Personnel expense

The Employee benefits expense of the gamigo Group increased in 2018 by kEUR 818 to kEUR 14,730 (previous year: kEUR 13,912). The change is mainly attributable to additional personnel costs in connection with the takeover of the Trion staff.

in kEUR 2018 2017

Wages and salaries 12,060 11,766

Social security 2,670 2,146

Total 14,730 13,912

In the reporting year kEUR 1,072 (2017: kEUR 926) were spent on the contribution-oriented state plans on pension provision (statutory pension insurance).

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30. Other operating expenses

The other operating expenses include the following expenses:

in kEUR 2018 2017

Advertising and media costs 6,205 3,165

Legal and consulting fees 1,986 1,558

IT services 550 2,488

Commissions 265 341

Room costs 714 1,078

Travel and hospitality costs 361 415

Exchange rate losses 194 244

Losses from disposal of fixed assets 188 0

Other 2,242 1,576

Total 12,705 10,865

31. Impairment expense

With regard to the write-downs on intangible assets and fixed assets, we refer to the explanations regarding the intangible assets (Section 6) and fixed assets (Section 7). In the reporting year, no impairment losses on intangible assets or fixed assets were recognised as expenses, as no loss risk was identified. There were no write-downs on financial assets in the reporting year (previous year: kEUR 1,311).

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32. Financial result

The financial income and financial expenses are comprised as follows:

in kEUR 2018 2017

Financial income

Interest income 14 1

Other financial income 0 50

Financial expenditure

Interest expenses -2,110 -1,985

Other financial expenses -374

Total -2,096 -2,308

33. Income taxes

in kEUR 2018 2017

Current income tax expense -103 -10

Deferred tax income 1,229 685

Total 1,126 675

The Current tax income delete mainly comprise taxes on income in Germany and the USA for the respective reporting years.

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The tax rate applied corresponds to the corporate tax rate of 32.3% to be paid by the company in Germany on taxable profits (2017: 32.3%) in accordance with the tax law of the Federal Republic of Germany. Tax expenses in other countries are calculated using the tax rates applicable in the respective jurisdictions.

No tax expense or income arose from the sale of Mobile Business Engine GmbH.

The transition of the expected tax expenses (2017: tax income) to the actual tax expenses (2017: tax income) is depicted in the following table:

in kEUR 2018 2017

Earnings before income taxes 491 -5,666

Income tax rate 32 % 32 %

Expected tax expenditure (previous year: tax income) 157 -1,827

Deviations from the expected tax expenditure:

Tax exemptions due to tax-exempt income -367 0 Non-capitalised deferred taxes on temporary differences and changes in loss carryforwards and change in value adjustment -944 975

Deviation foreign tax rates 19 -15

Non-deductible expenses 18 140

Miscellaneous -9 53

Actual tax income -1,126 -675

Effective tax rate -230% 12 %

The deferred taxes result from temporary differences between the carrying amounts of assets and liabilities in the tax accounts of the individual companies and the carrying amounts in the consolidated annual financial statement as well as from tax loss carryforwards. The significant factor for assessing the recoverability of deferred tax assets is the assessment of the probability of the reversal of the valuation differences and the usability of the loss carryforwards. This depends on the occurrence of future taxable profits during the periods in which tax valuation differences reverse and tax loss carryforwards can be utilised. Within the framework of minimum taxation, tax loss carryforwards in Germany can only be used to a limited extent. Accordingly, a positive tax base of up to million EUR 1 is unlimited; amounts in excess of this are to be reduced by an existing loss carryforward up to a maximum of 60%.

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Based on past experience and the expected taxable income situation, gamigo assumes that the corresponding benefits from deferred tax assets can be partially realised. Deferred tax assets are therefore recognised to the extent that it is probable that the tax losses will be utilised in the coming years. As at the balance sheet date, corporate income tax loss carryforwards amounted to kEUR 92,569 (2017: kEUR 31,383) and trade tax loss carryforwards came to kEUR 86,027 (2017: kEUR 29,304). No deferred tax assets were recognised for tax losses whose recoverability is uncertain. The corporation tax loss carryforwards that were therefore not taken into account amount to kEUR 58,613 (2017: kEUR 1,011) and the trade tax loss carryforwards amount to kEUR 53,253 (2017: kEUR 775). Unused tax losses can be carried forward indefinitely. Taxes directly recorded in the Group´s equity with no effect on the consolidated statement of profit and loss result from the acquisition of Trion Worlds and amounted to kUSD 2,268. There are no temporary differences regarding to dividends not payed in subsidiaries aboard.

Dividends of gamigo to be paid in future in Germany and abroad will have no effect on the Group’s tax burden. As at 31 December 2018, all deferred taxes on temporary differences were calculated on the basis of a rounded tax rate of 32.3% for Germany (previous year: 32.3%) and 28.0% for the USA (previous year: 30.0%). The latter comprises the US federal tax and the state tax for Delaware. The reduction is caused by the U.S. tax reform. As in the previous year, deferred taxes on loss carryforward in Germany were recognised on the basis of tax rates for trade tax, corporate income tax and the solidarity surcharge.

34. Business transactions with related parties

Balances and transactions between the company and its subsidiaries, which are related parties, have been eliminated in the course of consolidation and are not explained in these notes. Details of transactions between the Group and other related parties are given below. In addition to the Management Board, family members close to the Board and, in principle, the Supervisory Board, investments and the shareholders can all be considered “Relationships to associated companies and persons” in the sense of IAS 24 (Related Party Disclosures). Remco Westermann is the sole member of the Management Board of gamigo AG. He is a member of the Management Board of various other companies and holds shares in companies that have relationships with gamigo AG. blockescence plc, Malta, indirectly holds 38.7% of the shares in gamigo AG. Remco Westermann holds 90% of the shares in Bodhivas GmbH (Düsseldorf), which in turn holds 76.9% of the shares in blockescence plc, which in turn holds 100% of the shares in Samarion SE (Düsseldorf), which in turn holds 38.7% (36.2% directly and 2.5% via its 100% holding in Persogold GmbH (Hamburg)) of the shares in gamigo AG. On the basis of voting right agreements with other shareholders of gamigo AG, blockescence indirectly holds 53.2% of the voting rights of gamigo AG.

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Remco Westermann is part of the three-member Board of Directors of blockescence plc and personally holds 69.2% of the shares in blockescence plc indirectly via his holding company Bodhivas GmbH as at the balance sheet date. blockescence Services AG (formerly solidare International AG), Zug (Switzerland), is a wholly-owned subsidiary of blockescence plc. René Mueller is the sole member of the Board of Directors. blockescence DLT solutions GmbH, Düsseldorf, is a wholly-owned subsidiary of blockescence plc. Remco Westermann is the sole managing director. Persogold GmbH, Hamburg, is a wholly-owned subsidiary of Samarion SE and holds 2.5% of the shares in gamigo AG. Remco Westermann is the sole managing director of Persogold GmbH. There were no legal transactions with Persogold GmbH in the reporting year. gamigo AG has various contracts with companies of the blockescence Group:

• In 2012, Samarion S.E., Düsseldorf, granted the company loans totalling EUR 800,000 at an interest rate of 4% p. a. On 9 October 2018, these loans were extended until 31 October 2022. In addition, Samarion SE acquired payment receivables from gamigo AG in the amount of EUR 336,842.55 on 4 September 2018.

• In addition, service agreements exist with blockescence DLT solutions GmbH (since 1 January 2019) and blockescence Services AG (since 1 May 2018) with gamigo AG regarding services that gamigo AG provides for blockescence plc subsidiaries. blockescence Services AG pays remuneration in the amount of the actual consideration to be provided, but at least EUR 5,000. Since July 2018, gamigo AG has settled a corresponding monthly remuneration of EUR 20,000 with blockescence services AG. Up to 30 June 2018, EUR 301,178 was invoiced for extensive one-off special work.

• In addition, a cooperation agreement between blockescence DLT solutions GmbH and gamigo Publishing GmbH regarding an unlimited licence agreement for the use of the Trion IPs and a call option to purchase the Trion IPs has been in place since 22 October 2018.

• Since 26 February 2019, gamigo AG has had a call option expiring 31 March 2020 on the shares in ReachHero GmbH held by blockescence plc.

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35. Employees

The average number of employees totalled:

2018 2017

Germany 258 329

Poland 8 14

Turkey 16 14

USA 59 3

Korea 1 1

Total 342 361

36. Auditors’ fee for annual financial statements

For the services provided in the financial years 2018 and 2017 by the auditor of the annual financial statements, the following fees were recorded as expenditures for the audits of the respective annual financial statements:

in kEUR 2018 2017

Services as an auditor of the annual financial statements 200 120

Other consulting services 0 0

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37. Executive bodies of the company and remuneration

In the 2018 financial year, the Management Board consisted of Remco Westermann (Chief Executive Officer). The Supervisory Board was composed as follows in the 2018 financial year: • Axel Sartingen (Chairman), Managing Partner of Milaco GmbH, Cologne (Germany) • Florian Hörtlehner (Deputy Chairman), Investor, Vienna (Austria) • Martin Otten, chartered accountant of WPNO Wirtschaftsprüfungsgesellschaft, Cologne (Germany) (from 22 February 2018) • Dr Anton Steyrer, Portfolio Manager, London • Oliver Strutynski, Chief Financial Officer of Studio 71 GmbH, Berlin (Germany) • Christoph Vilanek, chief Excecutive Officer der Freenet AG, Hamburg (Germany) (up to 21 February 2018) • Alexander von Voss, Chief Legal Officer of ProSiebenSat. 1 Media SE, Munich (Germany). In the current financial year, the remuneration of the Supervisory Board totalled kEUR 30 (previous year: kEUR 30 kEUR) and that of the Management Board kEUR 223 (previous year: kEUR 202). The total remuneration of the Management Board consists exclusively of short-term components. As at 31 December 2018, as in the entire year and the previous year, there were no advances or loans to members of the Management Board or the Supervisory Board.

38. Events after reporting date

The following events are to be reported as fundamental changes taking place after the reporting date:

On 25 March 2019, gamigo AG placed further bonds totalling million EUR 10 as part of a tap issue within the outline agreement of million EUR 50. The bond issue was carried out over par at a price of 100.50% of the nominal amount of the bond. Like the outstanding bond issue volume of million EUR 32, the tap issue had a floating rate of 7.75% per annum (above 3 months Euribor with a minimum 0.0% floor) and a maturity date of 11 October 2022. The total volume of the gamigo bond thus increases to million EUR 42. The new bonds are listed under the same ISIN as the previous bonds in the Frankfurt Stock Exchange Open Market (Quotation Board) and in the regulated corporate bond segment of Nasdaq Stockholm.

On 3 April 2019, gamigo AG acquired significant assets and liabilities of the US games publisher WildTangent Inc. (WildTangent) through its wholly-owned subsidiary gamigo Inc. WildTangent is a leading publisher of casual games based in Bellevue (Washington), USA.

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With this acquisition, gamigo AG continues its series of successful acquisitions using the consolidation potential of the market. Based on its platform strategy, synergies between gamigo and the acquired companies can be leveraged and thus contribute to the further profitable growth of the Group. With the acquisition of the WildTangent assets in 2019 as well as the Trion Worlds assets at the end of 2018, gamigo significantly strengthened its position in the USA, one of the world’s largest gaming markets. Furthermore, there were no other events or developments that would have led to a material change in the disclosure or valuation of the individual assets and liabilities as at 31 December 2018.

39. Approval of the consolidated financial statements

The consolidated financial statements of gamigo AG as at 31 December 2018 will be approved and released for publication on 10 May 2019.

Hamburg, 10 May 2019

Remco Westermann (CEO)

126 Translation – German Version prevails

INDEPENDENT AUDITOR’S REPORT

To gamigo AG, Hamburg/Germany

INDEPENDENT AUDITOR’S REPORT ON AUDIT OF CONSOLIDATED FINANCIAL STATEMENTS AND GROUP MANAGEMENT REPORT

Audit Opinions

We have audited the consolidated financial statements of gamigo AG, Hamburg/Germany, and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at 31 December 2018, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the financial year from 1 January to 31 December 2018 and the notes to the consolidated financial statements including a summary of significant accounting policies. In addition, we have audited the management report of gamigo AG, Hamburg/Germany, for the financial year from 1 January to 31 December 2018.

In our opinion, on the basis of the knowledge obtained in the audit,

• the accompanying consolidated financial statements comply, in all material respects, with the IFRS, as adopted by the EU, and the additional requirements of German commercial law pursuant to Section 315e (1) German Commercial Code (HGB) and, in compliance with these requirements, give a true and fair view of the assets, liabilities, and financial position of the Group as at 31 December 2018, and of its financial performance for the financial year from 1 January to 31 December 2018, and

• the accompanying group management report as a whole provides an appropriate view of the Group’s position. In all material respects, this group management report is consistent with the consolidated financial statements, complies with German legal requirements and appropriately presents the opportunities and risks of future development.

Pursuant to Section 322 (3) Sentence 1 German Commercial Code (HGB), we declare that our audit has not led to any reservations relating to the legal compliance of the consolidated financial statements and of the group management report.

1 Translation – German Version prevails

Basis for the Audit Opinions

We conducted our audit of the consolidated financial statements and of the group management report in accordance with Section 317 German Commercial Code (HGB) and the EU Audit Regulation (No. 537/2014; referred to subsequently as “EU Audit Regulation”) and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) (Institute of Public Auditors in Germany). Our responsibilities under those requirements and principles are further described in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the Group Management Report” section of our auditor’s report. We are independent of the group entities in accordance with the requirements of European law and German commercial and professional law, and we have fulfilled our other German professional responsibilities in accordance with these requirements. In addition, in accordance with Article 10 (2f) of the EU Audit Regulation, we declare that we have not provided non-audit services prohibited under Article 5 (1) of the EU Audit Regulation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions on the consolidated financial statements and on the group management report.

Key Audit Matters in the Audit of the Consolidated Financial Statements

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements for the financial year from 1 January to 31 December 2018. These matters were addressed in the context of our audit of the consolidated financial statements as a whole and in forming our audit opinion thereon; we do not provide a separate audit opinion on these matters.

In the following we present the key audit matters we have determined in the course of our audit:

1. Acquisition of the assets and liabilities of Trion Worlds Inc.

2. Issuance of a bond of mEUR 32 on stock markets Frankfurt a. M. and Stockholm

3. Recoverability of goodwill

Our presentation of these key audit matters has been structured as follows: a) description (including reference to corresponding information in the consolidated financial statements) b) Auditor’s response

2 Translation – German Version prevails

1. Acquisition of the assets and liabilities of Trion Worlds Inc. a) On 22 October 2018, the Group purchased material assets and liabilities of Trion Worlds Inc. (Trion Worlds). The Company’s assets were acquired in the context of an “Assignment for the Benefit of the Creditors” process, where the purchaser only acquires those assets with which it would like to continue the business.

Golden Gate Games Inc. Dover, Delaware/USA (now gamigo US Inc.), a wholly owned subsidiary of gamigo AG, acquired Trion World’s business for an amount of kUSD 4,164.

The acquisition was treated as a business combination in accordance with IFRS 3 in the consolidated financial statements. For the assessment and valuation of the acquired assets and liabilities, the legal representatives of gamigo AG used the work of external experts.

Due to the acquisition at a price below market, where the market value was determined by external experts and the strategic and quantitative importance of the business volume, we have considered this matter to be of particular relevance.

Information on the acquired assets and liabilities provided by the legal representative of gamigo AG is contained in section 2 and 3 of the notes to the consolidated financial statement. b) We assessed whether the purchase of the assets and the liabilities of Trion Worlds Inc. falls within the scope of IFRS 3. We evaluated whether the Group has obtained control and power over the business combination in accordance with IFRS 10. In particular, we verified the correct application of the corresponding requirements.

We have assessed the competence, capabilities and objectivity of the external expert, who valued the acquired assets and liabilities on behalf of the legal representatives of gamigo AG. We examined the valuation methods used and the underlying assumptions and parameters based on external market data. We evaluated the mathematical correctness of the calculation model.

2. Issuance of a bond of mEUR 32 on stock markets Frankfurt a. M. and Stockholm a) In order to finance its organic growth, planned M&A activities and to refinance existing liabilities of the group, the legal representatives of gamigo AG have issued a senior secured bond of mEUR 32, pursuant to a bond frame of up to mEUR 50, on Frankfurt Stock Exchange Open Market on 11 October 2018. Since 10 December 2018, the bond is also listed on Nasdaq Stockholm. The initial recognition was at fair value, the subsequent measurement is at amortized cost, considering the transaction cost using the effective interest method.

We have determined this matter to be of particular relevance, as the bond issuance is a significant business transaction that affects the capital structure and interest expenses of the consolidated financial statements of gamigo AG and thus has significance on the Group’s net assets, financial position and operating result.

Information of the legal representatives regarding the bond are disclosed in section 2, 15 and 18 in the notes to the consolidated financial statement.

3 Translation – German Version prevails b) We have audited the initial measurement as at 22 October 2018 and the subsequent measurement up until 31 December 2018. For this purpose, we assessed the terms and conditions of the bond and its presentation in the consolidated financial statements, as well as the presentation and accounting treatment of the transaction costs. Additionally, we evaluated whether the presentation as long-term financial liabilities is appropriate and whether the anticipated interest expenses were completely accrued. Furthermore we examined the disclosure in the notes regarding the bond conditions and considering the residual terms against the background of the termination options at the discretion of gamigo AG. With regards to the subsequent measurement we examined, whether the application of the effective interest method was appropriate.

We have examined evidence for a sample of the transaction cost recorded.

3. Recoverability of goodwill a) The consolidated financial statements of gamigo AG include a goodwill amounting to kEUR 27,909, which corresponds to approx. 29.8 % of the consolidated assets or 97.8 % of consolidated equity as at 31 December 2018.

Goodwill is tested for impairment by the legal representatives of gamigo AG within the financial year or on an occasion-specific basis. As part of the impairment tests, the book values of the cash-generating units are compared with their respective recoverable amount, whereby the two business segments B2C and B2B were identified as cash-generating units. The recoverable amount is generally calculated based on the fair value less costs to sell on the basis of discounted cash flow models. The future cash flows are derived based on a five-year plan approved by the Supervisory Board. The discounting is performed with the weighted cost of capital of the respective business segment to which the cash generating units are allocated.

The result of this valuation is highly dependent upon the estimated future cash flows of the respective cash-generating unit and the discount rate used by the legal representatives and is therefore subject to considerable uncertainty. Because of this and due to the complexity of the valuation model we have determined this matter to be of particular relevance.

Information of the legal representative about the goodwill is disclosed in sections 2 and 6 of the notes to the consolidated financial statements. b) In the course of our audit, we particularly reviewed the methodological procedures of the impairment test. We assessed whether the valuation model used properly represents the corresponding standards, whether the required input parameters were complete, correctly determined and adopted, and whether the calculation in the model was correct. Through comparison with the five-year plan and through inquires with the legal representatives on the key assumptions we assessed whether the future cash flows, that form the basis of the calculation, are appropriate. In addition, we critically assessed the planning considering general and industry- specific market and industry expectations.

4 Translation – German Version prevails

Due to the significance and the fact that the valuation of goodwill also depends on the general economic conditions that are beyond the control of the Group, we critically examined the parameters used for the determination of the discount rate used and retraced the calculation scheme. In addition and due to the importance of goodwill, we critically assessed the client’s sensitivity analyses for the cash-generating units. Furthermore, we have included internal valuation specialist in the audit engagement team.

Responsibilities of the Executive Directors and the Supervisory Board for the Consolidated Financial Statements and the Group Management Report

The executive directors are responsible for the preparation of the consolidated financial statements that comply, in all material respects, with IFRS as adopted by the EU and the additional requirements of German commercial law pursuant to Section 315e (1) German Commercial Code (HGB) and that the consolidated financial statements, in compliance with these requirements, give a true and fair view of the assets, liabilities, financial position, and financial performance of the Group. In addition, the executive directors are responsible for such internal control as they have determined necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the executive directors are responsible for assessing the Group’s ability to continue as a going concern. They also have the responsibility for disclosing, as applicable, matters related to going concern. In addition, they are responsible for financial reporting based on the going concern basis of accounting unless there is an intention to liquidate the Group or to cease operations, or there is no realistic alternative but to do so.

Furthermore, the executive directors are responsible for the preparation of the group management report that as a whole provides an appropriate view of the Group’s position and is, in all material respects, consistent with the consolidated financial statements, complies with German legal requirements, and appropriately presents the opportunities and risks of future development. In addition, the executive directors are responsible for such arrangements and measures (systems) as they have considered necessary to enable the preparation of a group management report that is in accordance with the applicable German legal requirements, and to be able to provide sufficient appropriate evidence for the assertions in the group management report.

The supervisory board is responsible for overseeing the Group’s financial reporting process for the preparation of the consolidated financial statements and of the group management report.

5 Translation – German Version prevails

Auditor’s Responsibilities for the Audit of the Annual Financial Statements and of the Group Management Report

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and whether the group management report as a whole provides an appropriate view of the Group’s position and, in all material respects, is consistent with the consolidated financial statements and the knowledge obtained in the audit, complies with the German legal requirements and appropriately presents the opportunities and risks of future development, as well as to issue an auditor’s report that includes our audit opinions on the consolidated financial statements and on the group management report.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Section 317 German Commercial Code (HGB) and the EU Audit Regulation and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) will always detect a material misstatement. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and this group management report.

We exercise professional judgment and maintain professional scepticism throughout the audit. We also

• identify and assess the risks of material misstatement of the consolidated financial statements and of the group management report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our audit opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls.

• obtain an understanding of internal control relevant to the audit of the consolidated financial statements and of arrangements and measures relevant to the audit of the group management report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an audit opinion on the effectiveness of these systems.

• evaluate the appropriateness of accounting policies used by the executive directors and the reasonableness of estimates made by the executive directors and related disclosures.

• conclude on the appropriateness of the executive directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor’s report to the related disclosures in the consolidated financial statements and in the group management report or, if such disclosures are inadequate, to modify our respective audit opinions. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to be able to continue as a going concern.

6 Translation – German Version prevails

• evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements present the underlying transactions and events in a manner that the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and financial performance of the Group in compliance with IFRS, as adopted by the EU, and with the additional requirements of German commercial law pursuant to Section 315e (1) German Commercial Code (HGB).

• obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express audit opinions on the consolidated financial statements and on the group management report. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinions.

• evaluate the consistency of the group management report with the consolidated financial statements, its conformity with German law, and the view of the Group’s position it provides.

• perform audit procedures on the prospective information presented by the executive directors in the group management report. On the basis of sufficient appropriate audit evidence we evaluate, in particular, the significant assumptions used by the executive directors as a basis for the prospective information, and evaluate the proper derivation of the prospective information from these assumptions. We do not express a separate audit opinion on the prospective information and on the assumptions used as a basis. There is a substantial unavoidable risk that future events will differ materially from the prospective information.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with the relevant independence requirements, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, the related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter.

7 Translation – German Version prevails

OTHER LEGAL AND REGULATORY REQUIREMENTS

Further information pursuant to Article 10 of the EU Audit Regulation

Upon request of the executive director dated 11 December 2018, we were appointed as group auditor by the Hamburg local court – registration court – on 23 January 2019. We have been the group auditor of gamigo AG, Hamburg/Germany, since the financial year 2018.

We declare that the audit opinions expressed in this auditor’s report are consistent with the additional report to the audit committee pursuant to Article 11 of the EU Audit Regulation (long-form audit report).

GERMAN PUBLIC AUDITOR RESPONSIBLE FOR THE ENGAGEMENT

The German Public Auditor responsible for the engagement is Thomas Sauer.

Leipzig/Germany, 10 May 2019

Deloitte GmbH Wirtschaftsprüfungsgesellschaft

Signed: Christian Schwarz Signed: Thomas Sauer Wirtschaftsprüfer Wirtschaftsprüfer [German Public Auditor] [German Public Auditor]

8 [Translator's notes are in square brackets] General Engagement Terms for Wirtschaftsprüfer and Wirtschaftsprüfungsgesellschaften [German Public Auditors and Public Audit Firms] as of January 1, 2017

1. Scope of application 6. Distribution of a German Public Auditor's professional statement

(1) These engagement terms apply to contracts between German Public (1) The distribution to a third party of professional statements of the Ger- Auditors (Wirtschaftsprüfer) or German Public Audit Firms man Public Auditor (results of work or extracts of the results of work wheth- (Wirtschaftsprüfungsgesellschaften) — hereinafter collectively referred to as er in draft or in a final version) or information about the German Public "German Public Auditors" — and their engaging parties for assurance Auditor acting for the engaging party requires the German Public Auditor's services, tax advisory services, advice on business matters and other written consent, unless the engaging Party is obligated to distribute or engagements except as otherwise agreed in writing or prescribed by a inform due to law or a regulatory requirement. mandatory rde.. (2) The use by the engaging Party for promotional purposes of the German (2) Third parties may derive claims from contracts between German Public Public Auditor's professional statements and of information about the Auditors and angaging parties only when this is expressly agreed or results German Public Auditor acting for the engaging party is prohibited. from mandatory rules prescribed by law. In relation to such claims, these engagement terms also apply to these third parties. 7. Deficiency rectification

2. Scope and execution of the engagement (1) In case there are any deficiencies, the engaging Party is entitled to specific subsequent performance by the German Public Auditor. The (1) Object of the engagement is the agreed service — not a particular engaging party may reduce the fees or cancel the contract for failure of economic result. The engagement will be performed in accordance with the such subsequent performance, for subsequent non-performance or unjusti- German Prinaiples of Proper Professional Conduct (Grundsätze ord- fied refusal to perform subsequently, or for unconscionability or impossibil- nungsmäßiger Berufsausübung). The German Public Auditor does not ity of subsequent performance. If the engagement was not commissioned assume any management functions in connection with his services. The by a consumer, the engaging party may only cancel the contract due to a German Public Auditor is not responsible for the use or implementation of deficiency if the service rendered is not relevant to him due to failure of the results of his services. The German Public Auditor is entitled to make subsequent performance, to subsequent non-performance, to unconscion- use of competent persons to conduct the engagement. ability or impossibility of subsequent performance. No. 9 applies to the extent that further claims for damages exist. (2) Except for assurance engagements (betriebswirtschaftliche Prüfungen), the consideration of foreign law requires an express written agreement. (2) The engaging Party must assert a claim for the rectification of deficiencies in writing (Textform) [Translators Note: The German term "Textform" (3) If circumstances or the legal situation change subsequent to the release means in written form, but without requiring a signature] without delay. of the Tinal professional statement, the German Public Auditor is not obli- Claims pursuant to paragraph 1 not arising from an intentional act expire gated to refer the engaging party to changes or any consequences result- alter one year subsequent to the commencement of the time limit under the ing therefrom. statute of limitations.

(3) Apparent deficiencies, such as clerical errors, arithmetical errors and deficiencies associated with 3. The obligations of the engaging party to cooperate technicalities contained in a German Public Auditor's professional statement (long-form reports, expert opinions etc.) (1) The engaging party shall ensure that all documents and further infor- may be corrected — also versus third Parties — by the German Public mation necessary for the performance of the engagement are provided to Auditor at any time. Misstatements which may call into question the results the German Public Auditor on a timely basis, and that he is informed of all contained in a German Public Auditors professional statement entitle the events and circumstances that may be of significance to the performance German Public Auditor to withdraw such statement — also versus third of the engacement. This also applies to those documents and further parties. In such cases the German Public Auditor should first hear the information, events and circumstances that first become known during the engaging party, if practicable. German Public Auditors work. The engaging party will also designate suitable perscns to provide information. 8. Confidentiality towards third parties, and data (2) Upon the request of the German Public Auditor, the engaging party protection shall confirm the completeness of the documents and further information (1) Pursuant to the law (§ [Article] 323 Abs 1 [paragraph 1] HGB [German provided as well as the explanations and statements, in a written statement Commercial Code: Handelsgesetzbuch], § 43 WPO [German Law regulat- drafted by the German Public Auditor. ing the Profession of Wirtschaftsprüfer: Wirtschaftsprüferordnung], § 203 StGB [German Criminal Code: Strafgesetzbuch]) the German Public Auditor is obligated to maintain confidentiality regarding facts and circum- 4. Ensuring independence stances confided to him or of which he becomes aware in the course of his professional work, unless the engaging party releases him from this confi- (1) The engaging party shall refrain from anything that endangers the dentiality obligation. independence of the German Public Auditors staff. This applies throughout the term of the engagement, and in particular to offers of employment or to (2) When processing personal data, the German Public Auditor will observe assume an executive or non-executive role, and to offers to accept en- national and European legal provisions on data protection. gagements on their own behalf. (2) Were the performance of the engagement to impair the independence 9. Liability of the German Public Auditor, of related firms, firms within his network, or such firms associated with him, to which the independence requirements (1) For legally required services by German Public Auditors, in particular apply in the same way as to the German Public Auditor in other engage- audits, the respective legal limitations of liability, in particular the limitation ment relationships, the German Public Auditor is entitled to terminate the of liability pursuant to § 323 Abs. 2 HGB, apply. engagement for good cause. (2) Insofer neither a statutory limitation of liability is applicable, nor an individual contractual limitation of liability exists, the liability of the German Public Auditor for claims for damages of any other kind, except for 5. Reporting and oral information damages resulting from injury to life, body or health as well as for damages that To the extent that the German Public Auditor is required to present results constitute a duty of replacement by a producer pursuant to § 1 ProdHaftG in writing as per. of the work in executing the engagement, only that written [German Product Liability Act: Produkthaftungsgesetz], for an individual work is authoritative. Drafts are non-binding. Except as otherwise agreed, case of damages caused by negligence is limited to € 4 million pursuant to oral statements and explanations by the German Public Auditor are binding § 54 a Abs. 1 Nr. 2 WPO. only when they are confirmed in writing. Statements and information of the (3) The German Public Auditor is entitled to invoke demurs and defenses German Public Auditor outside of the engagement are always non-binding. based on the contractual relationship with the engaging party also towards third parties. (4) When multiple claimants assert a claim for damages arising from an (6) Work relating to special individual issues for income tax, corporate tax, existing contractual relationship with the German Public Auditor due to the business tax, valuation assessments for property units, wealth tax, as well German Public Auditor's negligent breach of duty, the maximum amount as all issues in relation to sales tax, payroll tax, other taxes and dues stipulated in paragraph 2 applies to the respective claims of all claimants requires a separate engagement. This also applies to: collectively. a) work on non-recurring tax mattem, e.g. in the field of estate tax, capital (5) An individual case of damages within the meaning of paragraph 2 also transactions tax, and real estate sales tax; exists in relation to a uniform damage arising from a number of breaches of duty. The individual case of damages encompasses all consequences from b) support and representation in proceedings before tax and administra- a breach of duty regardless of whether the damages occurred in one year tive courts and in criminal tax mattem; or in a number of successive years. In this Gase, multiple acts or omissions c) advisory work and work related to expert opinions in connection with based on the same source of error or on a source of error of an equivalent changes in legal form and other re-organizations, nature are deemed to be a single breach of duty if the mattem in question capital increases and reductions, insolvency related business reorganizations, admis- are legally or economically connected to one another. In this event the sion and retirement of owners, sale of a business, liquidations and the claim against the German Public Auditor is limited to € 5 million. The like, and limitation to the fivefold of the minimum amount insured does not apply to compulsory audits required by law. d) support in complying with disclosure and documentation obligations. (6) A claim for damages expires if a suit is not filed within six months (7) To the extent that the preparation of the annual sales tax return is subsequent to the written refusal of acceptance of the indemnity and the undertaken as additional work, this includes neither the review of any engaging party has been informed of this consequence. This does not special accounting prerequisites nor the issue as to whether all potential apply to claims for damages resulting from scienter, a culpable injury to life, sales tax allowances have been identified. No guarantee is given for the body or health as well as for damages that constitute a liability for replace- complete compilation of documents to claim the Input tax credit. ment by a producer pursuant to § 1 ProdHaftG. The right to invoke a plea of the statute of limitations remains unaffected. 12. Electronic communication

10. Supplementary provisions for audit engagements Communication between the German Public Auditor and the engaging Party may be via e-mail. In the event that the engaging party does not wish (1) If the engaging party subsequently amends the financial statements or to communicate via e-mail or sets special security requirements, such as management report audited by a German Public Auditor and accompanied the encryption of e-mails, the engaging party will inform the German Public by an auditor's report, he may no longer use this auditor's report. Auditor in writing (Textform) accordingly. If the German Public Auditor has not issued an auditor's report, a reference to the audit conducted by the German Public Auditor in the management report or any other public reference is permitted only with the German 13. Remuneration Public Auditor's written consent and with a wording authorized by him. (1) In addition to his claims for Tees, the German Public Auditor is entitled to (2) If the German Public Auditor revokes the auditor's report, it may no claim reimbursement of his expenses; sales tax will be billed additionally. longer be used. If the engaging party has already made use of the auditor's He may claim appropriate advances on remuneration and reimbursement report, then upon the request of the German Public Auditor he must give of expenses and may make the delivery of his services dependent upon the notification of the revocation. complete satisfaction of his claims. Multiple engaging parties are jointly and severally liable. (3) The engaging party has a right to live official copies of the report. Additional official copies will be charged separately. (2) If the engaging party is not a consumer, then a set-off against the German Public Auditor's claims for remuneration and reimbursement of expenses is admissible only for undisputed claims or claims determined to be legally binding. 11. Supplementary provisions for assistance in tax matters

(1) When advising on an individual tax issue as well as when providing ongoing tax advice, the German Public Auditor is entitled to use as a 14. Dispute Settlement correct and complete basis the facts provided by the engaging Party — especially numerical disclosures; this also applies to bookkeeping en- The German Public Auditor is not prepared to participate in dispute settle- gagements. Nevertheless, he is obligated to indicate to the engaging Party ment procedures before a consumer arbitration board (Verbraucherschlich- any errors he has identified. tungsstelle) within the meaning of § 2 of the German Act on Consumer Dispute Settlements (Verbraucherstreitbeilegungsgesetz). (2) The tax advisory engagement does not encompass procedures required to observe deadlines, unless the German Public Auditor has explicitly accepted a corresponding engagement. In this case the engaging Party must provide the German Public Auditor with all documents required to 15. Applicable law observe deadlines — in particular tax assessments — on such a timely basis The contract, the performance of the services and all claims resulting that the German Public Auditor has an appropriate lead time. therefrom are exclusively governed by German law. (3) Except as agreed otherwise in writing, ongoing tax advice encompasses the following work during the contract period: a) preparation of annual tax returns for income tax, corporate tax and business tax, as well as wealth tax returns, namely on the basis of the annual financial statements, and on other schedules and evidente documents required for the taxation, to be provided by the engaging party b) examination of tax assessments in relation to the taxes referred to in (a) c) negotiations with tax authorities in connection with the returns and assessments mentioned in (a) and (b) d) support in tax audits and evaluation of the results of tax audits with respect to the taxes referred to in (a) e) participation in petition or protest and appeal procedures with respect to the taxes mentioned in (a). In the aforementioned tasks the German Public Auditor takes into account material published legal decisions and administrative interpretations. (4) If the German Public auditor receives a fixed fee for ongoing tax advice, the work mentioned under paragraph 3 (d) and (e) is to be remunerated separately, except as agreed otherwise in writing. (5) Insofar the German Public Auditor is also a German Tax Advisor and the German Tax Advice Remuneration Regulation (Steuerberatungsvergü- tungsverordnung) is to be applied to calculate the remuneration, a greater or lesser remuneration than the legal default remuneration can be agreed in writing (Textform).