SOUTHPEAK INTERACTIVE CORPORATION 
By MIDLOTHIAN, Va., May 24, 2011 /PRNewswire/ -- SouthPeak Interactive Corporation (OTC Bulletin Board: SOPK), today announced financial results for the fiscal 2011 third quarter ended March 31, 2011.
Third Quarter Fiscal 2011 Financial Highlights
-- Net revenues of $16.1 million, compared with $7.5 million in the
comparable period in fiscal 2010
-- Total operating expenses, excluding one-time gains, decreased by 17% to
$3.3 million, compared with $4.0 million in the third quarter of fiscal
2010
-- GAAP net income was $3.2 million, or $0.06 per share, compared to $0.2
million, or $0.004 per share in the comparable period in fiscal 2010
-- Adjusted EBITDA(1) was $4.9 million, compared with an adjusted EBITDA of
$1.2 million in the prior fiscal year period
Third Quarter Fiscal 2011 and Recent Business Highlights
-- Successfully launched Two Worlds(TM) II for the PlayStation 3® and Xbox
360®
-- Regained momentum for the My Baby franchise
-- Launched first Android Tablet game with partner NVIDIA Corporation
-- Three titles approved for digital release on the Xbox LIVE® online
entertainment network Games on Demand service for the Xbox 360
"We are pleased with the results of the quarter which included the successful launch of Two Worlds II on the PlayStation 3 and Xbox 360 platforms and a resurgence in sales of our My Baby franchise," said Melanie Mroz, CEO of SouthPeak. "During the quarter we continued to make great progress on our digital strategy, including the launch of our first title with our partner NVIDIA Corporation, Monster Madness, one of the first games to fully utilize the NVIDIA® Tegra(TM) 2 chip and developed on the Epic Unreal® 3 Engine. In addition to launching future titles with NVIDIA Corporation, we will look to advance our digital initiative with publishing some of our most successful boxed product titles on the Xbox LIVE online entertainment network Games on Demand service for the Xbox 360," Mroz concluded.
Terry Phillips, Chairman of SouthPeak, added, "During the quarter we experienced success with the release of Two Worlds II, and have seen enthusiastic anticipation for the upcoming Stronghold 3 release. This validates our approach of focusing on titles with strong brand recognition and awareness. We are also excited by the continued interest in our catalog titles, and believe our catalog to be a stable base of business which complements our new releases."
Third Quarter Fiscal 2011 Financial Summary
For the third quarter ended March 31, 2011, SouthPeak reported net revenues of $16.1 million, compared with $7.5 million in the third quarter ended March 31, 2010. The increase in revenues was primarily due to an increase in the number of units shipped in the fiscal 2011 period. Average net revenue per videogame unit sold increased 109%, from $14.09 to $29.47 for the three months ended March 31, 2010 and 2011, respectively.
For the three months ended March 31, 2011 gross profit increased to $8.3 million, or 52% of revenues, from $0.4 million, or 5% of revenues, in the comparable period in 2010.
Total operating expenses for the third quarter of fiscal 2011 decreased by 17% to $3.3 million, compared with $4.0 million in the third quarter of fiscal 2010, excluding the benefits from one-time gains related to the extinguishment or settlement of debt and other obligations. The decrease in operating expenses for the fiscal 2011 period was due primarily to a 49% reduction in general and administrative expenses to $1.4 million, compared with $2.7 million in the comparable prior year period. This reduction was offset in part by an increase in sales and marketing costs of 65% to $1.6 million from $1.0 million in the same period during fiscal 2010, which was directly attributable to the release of Two Worlds II.
GAAP net income for the third quarter of fiscal 2011 was $3.2 million, or $0.06 per share based on 57.4 million weighted average shares outstanding, compared to $0.2 million, or $0.004 per share, based on 45.3 million weighted average shares outstanding in the third quarter of fiscal 2010.
Adjusted EBITDA for the third quarter of fiscal 2011 was $4.9, compared with adjusted EBITDA of $1.2 million in the prior fiscal year period.
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 Adjusted EBITDA, in this press release. The company's management believes this non-GAAP measure provides investors, potential investors, securities analysts and others with useful information to evaluate the performance of the business. In addition, this non-GAAP measure is 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. 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.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Three Months Ended
------------------
March 31,
---------
2011 2010
---- ----
Net Income (Loss) $3,212,763 $192,140
Depreciation&
Amortization 63,288 70,219
Amortization of
intellectual property 88,393 95,892
Income taxes - -
Interest 1,430,834 393,405
--------- -------
EBITDA $4,795,278 $751,656
Noncash stock
compensation 118,855 436,405
------- -------
Adjusted EBITDA $4,914,133 $1,188,061
========== ==========
About SouthPeak Interactive Corporation
SouthPeak Interactive Corporation develops, publishes and distributes 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.
SouthPeak is a registered trademark of SouthPeak Interactive Corporation. All other trademarks and registered trademarks are properties of their respective owners.
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. 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 U. S. Securities and Exchange Commission, including but not limited to the Company's most recent reports on Form 10-K and Form 10-Q, for factors potentially affecting the Company's future financial results.
(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, amortization and non-cash compensation charges.
SOUTHPEAK INTERACTIVE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months
ended
--------------------
March 31,
---------
2011 2010
---- ----
Net revenues $16,118,896 $7,538,840
----------- ----------
Cost of goods sold:
Product costs 4,975,572 3,778,704
Royalties 2,721,656 3,251,395
Intellectual property licenses 88,393 95,893
------ ------
Total cost of goods sold 7,785,621 7,125,992
--------- ---------
Gross profit 8,333,275 412,848
--------- -------
Operating expenses:
Warehousing and distribution 328,669 327,286
Sales and marketing 1,633,499 988,226
General and administrative 1,350,875 2,665,494
Litigation costs - -
Gain on settlement of contingent
purchase price obligation - (908,210)
Gain on extinguishment of accrued
litigation costs - (3,249,610)
Loss (gain) on settlement of trade
payables (261,416) 4,118
-------- -----
Total operating (income) expenses 3,051,627 (172,696)
--------- --------
Income (loss) from operations 5,281,648 585,544
Other expenses (income):
Change in fair value of warrant
liability 638,051 -
Interest expense, net 1,430,834 393,404
--------- -------
Net income (loss) $3,212,763 $192,140
========== ========
Basic income (loss) per share: $0.06 $0.004
Diluted income (loss) per share: $0.05 $0.004
Weighted average number of common
shares outstanding -Basic 57,429,675 45,356,744
Weighted average number of common
shares outstanding -Diluted 68,653,293 53,297,317
For the nine months
ended
-------------------
March 31,
---------
2011 2010
---- ----
Net revenues $25,020,808 $34,312,441
----------- -----------
Cost of goods sold:
Product costs 8,834,291 12,474,987
Royalties 5,953,086 9,871,028
Intellectual property licenses 280,179 315,350
------- -------
Total cost of goods sold 15,067,556 22,661,365
---------- ----------
Gross profit 9,953,252 11,651,076
--------- ----------
Operating expenses:
Warehousing and distribution 677,085 934,520
Sales and marketing 3,504,668 6,858,902
General and administrative 5,374,272 8,754,206
Litigation costs - 3,075,206
Gain on settlement of contingent
purchase price obligation - (908,210)
Gain on extinguishment of accrued
litigation costs - (3,249,610)
Loss (gain) on settlement of trade
payables (846,538) (3,252,371)
-------- ----------
Total operating (income) expenses 8,709,487 12,212,643
--------- ----------
Income (loss) from operations 1,243,765 (561,567)
Other expenses (income):
Change in fair value of warrant
liability (2,424,595) -
Interest expense, net 3,739,366 1,201,578
--------- ---------
Net income (loss) $(71,006) $(1,763,145)
======== ===========
Basic income (loss) per share: $(0.001) $(0.04)
Diluted income (loss) per share: $(0.001) $(0.04)
Weighted average number of common
shares outstanding -Basic 57,240,695 45,069,852
Weighted average number of common
shares outstanding -Diluted 57,240,695 45,069,852
SOUTHPEAK INTERACTIVE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March June
31, 30,
2011 2010
------ -----
(Unaudited)
Assets
Current assets:
Cash and cash
equivalents $529,836 $92,893
Accounts receivable,
net of allowances of
$1,567,911 and
$5,700,931 at March
31, 2011 and June 30,
2010, respectively 2,680,675 3,703,825
Due from factor 1,705,336 -
Inventories 1,197,008 1,211,301
Current portion of
advances on royalties 9,479,698 12,322,926
Current portion of
intellectual property
licenses 353,571 383,571
Related party
receivables 7,895 34,509
Prepaid expenses and
other current assets 622,795 695,955
------- -------
Total current assets 16,576,814 18,444,980
Property and equipment,
net 2,502,102 2,667,992
Advances on royalties,
net of current portion 2,099,160 1,511,419
Intellectual property
licenses, net of
current portion 1,149,107 1,534,286
Goodwill 7,911,800 7,911,800
Deferred debt issuance
costs, net 412,550 -
Intangible assets, net 7,025 17,025
Other assets 10,796 11,280
------ ------
Total assets $30,669,354 $32,098,782
=========== ===========
Liabilities and
Shareholders' Equity
Current liabilities:
Line of credit $ - $3,830,055
Secured convertible
debt in default, net
of discount 4,245,940 950,000
Warrant liability 1,914,153 -
Current portion of
long-term debt 67,764 65,450
Production advance
payable in default 3,687,177 3,755,104
Accounts payable 9,933,788 12,663,788
Accrued royalties 2,152,917 2,530,253
Accrued expenses and
other current
liabilities 5,192,308 3,781,711
Deferred revenues 151,152 325,301
Due to related parties - 2,200
Accrued expenses -
related parties 200,809 322,281
------- -------
Total current
liabilities 27,546,008 28,226,143
Long-term debt, net of
current portion 1,493,096 1,541,081
Total liabilities 29,039,104 29,767,224
Commitments and
contingencies - -
Shareholders' equity:
Preferred stock,
$0.0001 par value;
5,000,000 shares
authorized; no shares
issued and outstanding
at March 31, 2011 and
June 30, 2010 - -
Series A convertible
preferred stock,
$0.0001 par value;
15,000,000 shares
authorized; 5,503,833
and 5,503,833 shares
issued and outstanding
at March 31, 2010 and
June 30, 2010,
respectively;
aggregate liquidation
preference of
$5,503,833 at March
31, 2011 550 550
Common stock, $0.0001
par value; 90,000,000
shares authorized;
60,188,536 and
59,774,370 shares
issued and outstanding
at March 31, 2011 and
June 30, 2010,
respectively 6,019 5,976
Additional paid-in
capital 30,848,266 31,154,835
Accumulated deficit (29,044,331) (28,973,325)
Accumulated other
comprehensive income
(loss) (180,254) 143,522
-------- -------
Total shareholders'
equity 1,630,250 2,331,558
--------- ---------
Total liabilities and
shareholders' equity $30,669,354 $32,098,782
=========== ===========
SOUTHPEAK INTERACTIVE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended
-------------------------
March 31,
---------
2011 2010
---- ----
Cash flows from operating
activities:
Net loss $(71,006) $(1,763,145)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 195,430 200,191
Allowances for price
protection, returns, and
defective merchandise (598,135) (573,870)
Bad debt expense, net of
recoveries (72,557) (23,364)
Stock-based compensation
expense 333,138 551,325
Common stock issued to seller
for settlement of contingent
purchase price obligation - 245,000
Common stock and warrants
issued to vendor - 104,500
Amortization of royalties and
intellectual property licenses 3,508,174 6,235,905
Loss on disposal of fixed
assets - 4,839
Amortization of debt discount
and issuance costs 1,406,096 -
Change in fair value of warrant
liability (2,424,595) -
Fair market value adjustment to
common stock issued for
advances on royalties (2,964) -
Gain on settlement of trade
payables (846,538) (3,252,371)
Gain on settlement of
contingent purchase price
obligation - (908,210)
Gain on extinguishment of
accrued litigation costs - (3,249,610)
Changes in operating assets and
liabilities:
Due to/from factor, net (5,167,664) -
Accounts receivable 5,156,170 582,233
Inventories 14,293 2,060,950
Advances on royalties (1,610,876) (5,600,173)
Related party receivables 26,614 (29,404)
Prepaid expenses and other
current assets 73,160 (297,519)
Production advance payable - 3,755,104
Accounts payable (1,883,462) (5,420,220)
Accrued royalties (377,336) 2,477,615
Accrued expenses and other
current liabilities 1,545,597 7,153,737
Deferred revenues (174,149) (2,547,339)
Accrued expenses -related
parties (121,472) 36,163
-------- ------
Total adjustments (1,021,076) 1,505,482
---------- ---------
Net cash used in operating
activities (1,092,082) (257,663)
---------- --------
Cash flows from investing
activities:
Purchases of property and
equipment (19,056) (83,225)
Change in restricted cash - 739,799
--- -------
Net cash provided by (used in)
investing activities (19,056) 656,574
------- -------
Cash flows from financing
activities:
Proceeds from line of credit - 23,538,071
Repayments of line of credit (3,830,055) (24,143,833)
Proceeds from inventory
financing 3,528,237 -
Repayments of inventory
financing (3,528,237) -
Repayments of long-term debt (45,671) (40,943)
Net proceeds from (repayments
of) amounts due to
shareholders - (232,440)
Net proceeds from (repayments
of) amounts due to related
parties (2,200) (111,845)
Proceeds from the issuance of
subordinated convertible
promissory notes 7,000,000 -
Payment of debt issuance costs (733,959) -
Repayments of subordinated
convertible promissory notes (450,000) -
Proceeds from the exercise of
common stock warrants 1,668 -
Advances from related parties - -
Proceeds from the issuance of
Series A convertible preferred
stock, net of cash offering
costs - -
--- ---
Net cash (used in) provided by
financing activities 1,939,783 (990,990)
--------- --------
Effect of exchange rate changes
on cash and cash equivalents (391,702) 267,186
-------- -------
Net decrease in cash and cash
equivalents 436,943 (324,893)
Cash and cash equivalents at
beginning of the period 92,893 648,311
------ -------
Cash and cash equivalents at
end of the period $529,836 $323,418
======== ========
Supplemental cash flow
information:
Cash paid during the period for
interest $1,224,851 $383,105
Cash paid during the period for
taxes $ - $ -
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 $(641,332) $ -
Conversion of junior secured
subordinated convertible
promissory note to senior
secured convertible note $500,000 $ -
Issuance of vested restricted
stock $41 $ -
Intellectual property licenses
included in accrued expenses
and other current liabilities $ - $135,000
Contingent purchase price
payment obligation related to
Gamecock acquisition $ - $477,158
Decrease in goodwill with
respect to finalizing purchase
price allocation $ - $55,423
Purchase of vehicle through the
assumption of a note payable $ - $73,459
Advances on royalties paid with
common stock $ - $1,035,000
Purchase of videogame
development contract paid with
common stock $ - $4,000,000
CONTACT: Rob Burman, +44 (0) 203 176 0417
SOURCE SouthPeak Interactive Corporation
