SOUTHPEAK INTERACTIVE CORPORATION 
By MIDLOTHIAN, Va., Feb. 17, 2011 /PRNewswire/ -- SouthPeak Interactive Corporation (OTC Bulletin Board: SOPK), today announced financial results for the fiscal 2011 second quarter which ended December 31, 2010.
Second Quarter Fiscal 2011 Financial Highlights
-- Net revenues of $7.5 million, compared with $10.1 million in the
comparable period in fiscal 2010
-- Total operating expenses decreased by 37% to $3.3 million, compared with
$5.3 million in the second quarter of fiscal 2010
-- Net loss was ($2.1) million, or ($0.04) per share, compared with a net
loss of ($2.6) million, or ($0.06) per diluted share in the comparable
period in fiscal 2010
-- Adjusted EBITDA(1) was ($615,000), compared with an adjusted EBITDA of
$1.3 million in the prior fiscal year period
Second Quarter Fiscal 2011 and Recent Business Highlights
-- Successfully won the legal dispute with Nobilis, regaining our rights to
My Baby First Steps
-- Announced a strategic relationship with NVIDIA to pursue mobile and
tablet gaming
-- Released our first educational product, Tap & Teach: The Story of Noah's
Ark (Nintendo DS)
-- Increased catalog sales to approximately 29% of total sales
-- Commenced marketing campaign for the January release of Two Worlds II
(Xbox 360, PS3 and PC)
"In regaining our rights to the highly popular My Baby First Steps we experienced a significant legal victory. We capitalized upon this returning My Baby to the retail channel, where we hope to continue the phenomenal sales initiated by our innovative marketing and PR strategies," said Melanie Mroz, President and CEO of SouthPeak. "In addition, the quarter saw excellent progress as we look to the future and our digital strategy, which included the acquisition of an industry veteran to lead this important part of our business model. Furthermore, our operational strategy delivered positive changes including continued and substantial expense reductions, effectively aligning our cost structure with our anticipated revenue stream."
Terry Phillips, Chairman of SouthPeak, added, "During this quarter, our substantial investment in the release of Two Worlds II delivered terrific momentum and broad-scale consumer anticipation and excitement. We are also thrilled by our new relationship with NVIDIA; we believe that they are an ideal partner as we head toward our goal of becoming a market leader in mobile and tablet gaming."
Second Quarter Fiscal 2011 Financial Summary
For the second quarter that ended December 31, 2010, SouthPeak reported net revenues of $7.5 million, compared with $10.1 million in the second quarter ended December 31, 2009. The decrease in revenues was primarily due to a 28% decrease in the number of units shipped in the fiscal 2011 period. Average net revenue per videogame unit sold increased 3%, from $15.60 to $16.10 for the three months that ended December 31, 2009 and 2010, respectively. This increase in revenue per unit shipped was attributed to the fact that titles released in the fiscal 2011 period included games for the Xbox 360 and PS3, which sell at a higher MSRP, whereas the releases in the fiscal 2010 period only included Nintendo DS and Wii product, which sell at a lower MSRP.
For the three months that ended December 31, 2010, gross profit decreased to $978,000, or 13% of revenues, from $3.2 million, or 32% of revenues, in the comparable period in 2009. The decrease in gross profit was due primarily to increased royalty expense associated with the sale of co-publishing titles during the three months ended December 31, 2010 versus the prior period.
Total operating expenses for the second quarter of fiscal 2011 decreased by 37% to $3.3 million, compared with $5.3 million in the second quarter of fiscal 2010. The decrease in operating expenses for the fiscal 2011 period was due primarily to a 56% reduction in sales and marketing expense to $974,000, compared with $2.2 million in the comparable prior year period. The reduction in sales and marketing costs was due to lower direct spending as a result of releasing fewer titles and operational cost reductions. The decrease in operating expenses was also attributed to $3.1 million in litigation costs associated with legal fees and a UK judgment associated with SouthPeak's legal proceedings with CDV Software Entertainment A.G during the three months ended December 31, 2009.
GAAP net loss for the second quarter of fiscal 2011 was ($2.1) million, or ($0.04) per share based on 57.3 million weighted average shares outstanding, compared with GAAP net loss of ($2.6) million, or ($0.06) per diluted share, based on 45.0 million weighted average shares outstanding in the second quarter of fiscal 2010.
Adjusted EBITDA for the second quarter of fiscal 2011 was ($615,000), compared with adjusted EBITDA of $1.3 million in the prior fiscal year period.
SouthPeak's financial results for the period that ended December 30, 2010 were prepared on a going concern basis. SouthPeak has taken steps to maintain its viability as a going concern and improve its prospects by attempting to expeditiously resolve its contingencies for amounts significantly less than currently accrued for, in order to reduce aggregate liabilities on the Company's condensed consolidated balance sheet and on payment terms manageable by the Company, reducing costs and expenses, selling additional product, and raising additional capital. SouthPeak has also invested in key new titles from which the anticipated profits should help improve its financial prospects.
While the Company is committed to pursuing options to continue to address its viability as a going concern, there can be no assurance that the Company's efforts will prove successful.
Use of Non-GAAP Financial Information
To supplement SouthPeak's consolidated condensed financial statements presented on a GAAP basis, SouthPeak also presents certain non-GAAP measures including non-GAAP net income (loss) and adjusted EBITDA information in this press release. The company presents the following non-GAAP measures of results: operating income and earnings per share. Each is adjusted to exclude special items.
The company's management believes these non-GAAP measures provide investors, potential investors, securities analysts and others with useful information to evaluate the performance of the business, because they exclude losses that management believes are not indicative of the ongoing operating results of the business. In addition, these non-GAAP measures are used by management to evaluate the operating performance of the company. The presentation of this additional information is not meant to be considered in isolation or as a substitute for operating income or earnings per share as determined in accordance with GAAP.
The Company uses the non-GAAP measure of EBITDA as an indication of the Company's operating trends. SouthPeak defines adjusted EBITDA as earnings before interest, taxes, depreciation and amortization.
Three Months Ended
------------------
December 31,
------------
2010 2009
---- ----
Net Loss $(2,082,835) $(2,642,266)
Depr & Amort 67,031 65,095
Amort intellectual property 95,893 99,551
Income taxes - -
Interest 1,244,436 508,858
EBITDA $(675,475) $(1,968,762)
Noncash stock compensation 60,681 203,724
Reserve adjustments:
Loss reserved for CDV litigation - 3,075,206
Adjusted EBITDA $(614,794) $1,310,168
About SouthPeak Interactive Corporation
SouthPeak Interactive Corporation develops and publishes interactive entertainment software for all current hardware platforms including: PlayStation®3 computer entertainment system, PSP® (PlayStation®Portable) system, PlayStation®2 computer entertainment system, PSP®go system, Xbox 360® videogame and entertainment system, Wii(TM), Nintendo DS(TM), Nintendo DSi(TM) and PC. SouthPeak's games cover all major genres including action/adventure, role playing, racing, puzzle strategy, fighting and combat. SouthPeak's products are sold in retail outlets in North America, Europe, Australia and Asia. SouthPeak is headquartered in Midlothian, Virginia, and has offices in Grapevine, Texas and Leicester, England.
SouthPeak's extensive portfolio of over 50 interactive entertainment games spans a variety of platforms and genres including RPG, simulation, FPS, sports, strategy, puzzle and fighting.
For additional information, please visit SouthPeak's corporate website: www.southpeakgames.com.
If you would like to be added to SouthPeak's email list to receive news directly, please send your request to southpeak@tpg-ir.com.
Forward-Looking Statements
This release contains "forward-looking" statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These are statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as "may," "will," "expects," "projects," "anticipates," "estimates," "believes," "intends," "plans," "should," "seeks," and similar expressions. This press release contains forward-looking statements relating to, among other things, SouthPeak's expectations and assumptions concerning future financial performance. Forward-looking statements involve known and unknown risks and uncertainties that may cause actual future results to differ materially from those projected or contemplated in the forward-looking statements. Forward-looking statements may be significantly impacted by certain risks and uncertainties described in SouthPeak's filings with the Securities and Exchange Commission.
The risks and uncertainties referred to above include, but are not limited to, risks associated with SouthPeak's potential inability to compete with larger businesses in its industry, the limitations of SouthPeak's business model, SouthPeak's potential inability to anticipate and adapt to changing technology, the possibility that SouthPeak may not be able to enter into publishing arrangements with some developers, SouthPeak's dependence on vendors to meet its commitments to suppliers, SouthPeak's dependence on hardware manufactures to publish new videogames, SouthPeak's potential inability to recuperate the up-front license fees paid to console manufacturers, SouthPeak's dependence on a limited number of customers, SouthPeak's potential dependence on the success of a few videogames, SouthPeak's dependence on developers to deliver their videogames on time, the potential of litigation, interference with SouthPeak's business from the adoption of governmental regulations; and the inability to obtain additional financing to grow its business.
(1) Adjusted EBITDA is a non-GAAP measurement that the Company uses as a metric to provide information about SouthPeak's operating trends. SouthPeak defines adjusted EBITDA as earnings before interest, taxes, depreciation and amortization.
SOUTHPEAK INTERACTIVE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three
months ended
December 31,
2010 2009
Net revenues $7,470,053 $10,063,952
---------- -----------
Cost of goods sold:
Product costs 3,097,437 5,149,597
Royalties 3,298,538 1,618,962
Intellectual property
licenses 95,893 99,797
------ ------
Total cost of goods sold 6,491,868 6,868,356
--------- ---------
Gross profit 978,185 3,195,596
======= =========
Operating expenses
(income):
Warehousing and
distribution 282,327 320,723
Sales and marketing 974,498 2,215,620
General and administrative 2,091,082 2,973,944
Litigation costs - 3,075,206
Gain on settlement of
trade payables - (3,256,489)
--- ----------
Total operating expenses 3,347,907 5,329,004
--------- ---------
Loss from operations (2,369,722) (2,133,408)
Other expenses (income):
Change in fair value of
warrant liability (1,531,323) -
Interest and financing
costs, net 1,244,436 508,858
--------- -------
Net loss (2,082,835) (2,642,266)
========== ==========
Basic loss per share: $(0.04) $(0.06)
Diluted loss per share: $(0.04) $(0.06)
Weighted average number of
common shares outstanding
-Basic 57,252,122 45,039,292
Weighted average number of
common shares outstanding
-Diluted 57,252,122 45,039,292
For the six
months ended
December 31,
2010 2009
Net revenues $8,901,912 $26,773,601
---------- -----------
Cost of goods sold:
Product costs 3,858,719 8,696,283
Royalties 3,231,430 6,619,633
Intellectual property
licenses 191,786 219,457
------- -------
Total cost of goods sold 7,281,935 15,535,373
--------- ----------
Gross profit 1,619,977 11,238,228
========= ==========
Operating expenses
(income):
Warehousing and
distribution 348,416 607,234
Sales and marketing 1,871,169 5,870,676
General and administrative 4,023,397 6,088,712
Litigation costs - 3,075,206
Gain on settlement of
trade payables (585,122) (3,256,489)
-------- ----------
Total operating expenses 5,657,860 12,385,339
--------- ----------
Loss from operations (4,037,883) (1,147,111)
Other expenses (income):
Change in fair value of
warrant liability (3,062,646) -
Interest and financing
costs, net 2,308,532 808,174
--------- -------
Net loss (3,283,769) (1,955,285)
========== ==========
Basic loss per share: $(0.06) $(0.04)
Diluted loss per share: $(0.06) $(0.04)
Weighted average number of
common shares outstanding
-Basic 57,140,971 44,930,125
Weighted average number of
common shares outstanding
-Diluted 57,140,971 44,930,125
SOUTHPEAK INTERACTIVE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December June
31, 30,
2010 2010
-----
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $78,631 $92,893
Accounts receivable, net of
allowances of $928,451 and
$5,700,931 at December 31,
2010 and June 30, 2010,
respectively 1,150,873 3,703,825
Inventories 1,131,915 1,211,301
Current portion of advances
on royalties 11,911,559 12,322,926
Current portion of
intellectual property
licenses 353,571 383,571
Related party receivables 16,260 34,509
Prepaid expenses and other
current assets 457,836 695,955
======= =======
Total current assets 15,100,645 18,444,980
Property and equipment, net 2,559,579 2,667,992
Advances on royalties, net
of current portion 1,920,978 1,511,419
Intellectual property
licenses, net of current
portion 1,237,500 1,534,286
Goodwill 7,911,800 7,911,800
Deferred debt issuance
costs, net 532,681 -
Intangible assets, net 10,358 17,025
Other assets 10,955 11,280
====== ======
Total assets $29,284,496 $32,098,782
Liabilities and
Shareholders' Equity
Current liabilities:
Line of credit $ - $3,830,055
Due to factor in default 864,902 -
Secured convertible debt in
default, net of discount 3,884,377 950,000
Warrant liability 1,276,102 -
Current portion of long-
term debt 67,334 65,450
Production advance payable
in default 3,755,104 3,755,104
Accounts payable 9,951,665 12,663,788
Accrued royalties 4,455,312 2,530,253
Accrued expenses and other
current liabilities 4,877,623 3,781,711
Deferred revenues 77,312 325,301
Due to related parties 4,425 2,200
Accrued expenses -related
parties 341,618 322,281
------- =======
Total current liabilities 29,555,774 28,226,143
Long-term debt, net of
current portion 1,507,310 1,541,081
Total liabilities 31,063,084 29,767,224
Shareholders' equity
(deficit):
Preferred stock, $0.0001 par
value; 5,000,000 shares
authorized; no shares
issued and outstanding at
December 31, 2010 and June
30, 2010 - -
Series A convertible
preferred stock, $0.0001
par value; 15,000,000
shares authorized;
5,503,833 shares issued and
outstanding at December 31,
2010 and June 30, 2010,
respectively; aggregate
liquidation preference of
$5,503,833 at December 31,
2010 550 550
Common stock, $0.0001 par
value; 190,000,000 and
90,000,000 shares
authorized at December 31,
2010 and June 30, 2010,
respectively; 60,181,870
and 59,774,370 shares
issued and outstanding at
December 31, 2010 and June
30, 2010, respectively 6,018 5,976
Additional paid-in capital 30,559,705 31,154,835
Accumulated deficit (32,257,094) (28,973,325)
Accumulated other
comprehensive income (loss) (87,767) 143,522
Total shareholders' equity
(deficit) (1,778,588) 2,331,558
========== =========
Total liabilities and
shareholders' equity
(deficit) $29,284,496 $32,098,782
=========== ===========
SOUTHPEAK INTERACTIVE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the
six
months
ended
December
31,
2010 2009
==== ====
Cash flows from operating
activities:
Net loss $(3,283,769) $(1,955,285)
Adjustments to reconcile net
loss to net cash (used in)
provided by operating
activities:
Depreciation and amortization 132,142 129,972
Allowances for price
protection, returns, and
defective merchandise (2,463,231) (531,050)
Bad debt expense, net of
recoveries (49,161) (35,321)
Stock-based compensation
expense 214,283 359,920
Common stock and warrants
issued to vendor - 104,500
Amortization of royalties and
intellectual property licenses 960,543 5,443,825
Loss on disposal of fixed
assets - 4,839
Amortization of debt discount
and issuance costs 924,403 -
Change in fair value of warrant
liability (3,062,646) -
Fair market value adjustment to
common stock issued for
advances on royalties (2,112) -
Gain on settlement of trade
payables (585,122) (3,256,489)
Changes in operating assets and
liabilities:
Due to/from factor, net (1,395,186) -
Accounts receivable 7,325,432 (1,788,962)
Inventories 79,386 749,689
Advances on royalties (1,575,876) (3,651,309)
Related party receivables 18,249 (27,635)
Prepaid expenses and other
current assets 238,119 42,696
Production advance payable - 3,755,104
Accounts payable (2,127,001) (4,318,114)
Accrued royalties 1,925,059 1,279,109
Accrued expenses and other
current liabilities 1,230,912 1,988,225
Accrued litigation costs - 4,308,035
Deferred revenues (247,989) (2,547,339)
Accrued expenses -related
parties 19,337 (47,478)
------ -------
Total adjustments 1,559,541 1,962,217
--------- =========
Net cash (used in) provided by
operating activities (1,724,228) 6,932
---------- =====
Cash flows from investing
activities:
Purchases of property and
equipment (16,737) (65,544)
Change in restricted cash - 395,982
Net cash (used in) provided by
investing activities (16,737) 330,438
------- -------
Cash flows from financing
activities:
Proceeds from line of credit - 16,557,571
Repayments of line of credit (3,830,055) (16,596,792)
Proceeds from inventory
financing 1,710,281 -
Repayments of inventory
financing (1,710,281) -
Repayments of long-term debt (31,887) (25,013)
Net proceeds from (repayments
of) amounts due to
shareholders - (232,440)
Net proceeds from (repayments
of) amounts due to related
parties 2,225 (120,645)
Proceeds from the issuance of
subordinated convertible
promissory notes 7,000,000 -
========= ===
Payment of debt issuance costs (733,959) -
Repayment of subordinated
convertible promissory notes (450,000) -
======== ===
Proceeds from the exercise of
common stock warrants 1,668 -
----- ---
Net cash provided by (used in)
financing activities 1,957,992 (417,319)
========= ========
Effect of exchange rate changes
on cash and cash equivalents (231,289) 90,247
-------- ======
Net increase (decrease) in cash
and cash equivalents (14,262) 10,298
Cash and cash equivalents at
beginning of the period 92,893 648,311
------ =======
Cash and cash equivalents at
end of the period $78,631 $658,609
======= ========
Supplemental cash flow
information:
Cash paid during the period for
interest $514,642 $243,011
Supplemental disclosure of non-
cash activities:
Fair value of common stock
warrant liability at issuance
date $4,338,748 $ -
Fair market value adjustment to
common stock issued for
advances on royalties $811,039 $ -
Conversion of junior secured
subordinated convertible
promissory note to senior
secured convertible note $500,000 $ -
Issuance of vested restricted
stock $40 $ -
Contingent purchase price
payment obligation related to
Gamecock acquisition $ - $597,124
Decrease in goodwill with
respect to finalizing purchase
price allocation $ - $55,423
Purchase of vehicle through the
assumption of a note payable $ - $73,459
Media Contact: Richard Iggo, +1-817-305-0055;
Investor Contact: investorrealations@southpeakgames.com
SOURCE SouthPeak Interactive Corporation
