SouthPeak Interactive Corporation Reports Fiscal 2011 Second Quarter Financial Results

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.

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™, Nintendo DS™, Nintendo DSi™ 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 [email protected].

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.

Media Contact: Richard Iggo, +1-817-305-0055;

Investor Contact: [email protected]

SOURCE SouthPeak Interactive Corporation