Attached files
| file | filename |
|---|---|
| 8-K - SouthPeak Interactive CORP | v185659_8k.htm |
| EX-99.2 - SouthPeak Interactive CORP | v185659_ex99-2.htm |
SouthPeak
Interactive Corporation Reports Fiscal 2010 Third Quarter Financial
Results
SouthPeak
Achieves Break Even and Operating Income of $0.6 Million
MIDLOTHIAN,
Va.—(BUSINESS
WIRE)— SouthPeak Interactive Corporation (OTC Bulletin Board: SOPK), one
of the world’s leading video game publishers, today announced financial results
for the fiscal 2010 third quarter ended March 31, 2010.
Third Quarter Fiscal 2010 Financial
Highlights
|
|
·
|
Net
revenues of $7.5 million, compared with $13.5 million in the comparable
fiscal 2009 period; Net revenues for the nine months ended March 31, 2010
were $34.0 million, compared with $39.0 in the same period in fiscal
2009;
|
|
|
·
|
Resolved
litigation with CDV Software Entertainment A.G., resulting in the reversal
of a $3.2 million reserve that was established and expensed in the second
quarter of fiscal 2010;
|
|
|
·
|
Selling,
general and administrative expenses decreased 31% to $4.0 million,
compared with $5.8 million in the third quarter of fiscal
2009;
|
|
|
·
|
Net
income improved to $192,000, or $0.00 per diluted share, compared with a
net loss of ($692,000), or ($0.02) per diluted share in the comparable
fiscal 2009 period;
|
|
|
·
|
Adjusted
EBITDA1
was $1.2 million, compared with an adjusted EBITDA loss of ($247,000) in
the prior fiscal year period.
|
Third Quarter Fiscal 2010 and Recent
Business Highlights
|
|
·
|
Secured
strategic partnership agreement with Koch Media’s Deep Silver as a
minority shareholder in SouthPeak and shipped first three titles under
exclusive distribution license with Deep Silver’s games in North
America;
|
|
|
·
|
Resolved
litigation with CDV and distribution dispute with Pardox Interactive
AB;
|
|
|
·
|
Acquired
rights to publish Stronghold 3, Firefly Studio’s franchise that has sold
over 5 million units, via retail channels and digital
distribution;
|
|
|
·
|
In
April, achieved record sales from My Baby franchise with over 1 million
units sold in the United States and
Canada;
|
|
|
·
|
Commenced
marketing campaign and established launch date for Two Worlds
II;
|
|
|
·
|
Released
seven titles: Blood Bowl® (Windows PC and Xbox 360®), Crime Scene
(Nintendo DS), Hotel Giant 2 (Windows PC); Risen (Xbox 360); Prison Break
(PS3™, Xbox 360 and Windows PC); DJ Star (Nintendo DS); and Miniclip Sushi
Go Round (Wii and Nintendo DS);
|
|
|
·
|
Introduced
new titles since March: Dementium™ II (Nintendo DS); 3D Dot Game Heroes
(PS3™); and Blood Bowl (PSP®);
|
|
|
·
|
Upcoming
product releases include: Two Worlds II™ (Xbox 360®, PS3 and Windows PC),
Miniclip™ Sushi Go Round (iPhone™); Secret Flirts (Wii and Nintendo DS);
Spectral Force Genesis (Wii and Nintendo DS); Hospital Giant (Wii and
Nintendo DS); Moto Racer (Nintendo DS); Cookie Shop (Nintendo DS); and,
TNA iMPACT! Cross the Line (Nintendo DS, PSP and
PSPgo).
|
“In
conjunction with our previously announced strategy, we limited the number of
titles released for the third quarter to better align our activities with the
current retail environment and broader gaming industry,” said Melanie Mroz, CEO
of SouthPeak. “While this impacted our sales, we believe this conservative
strategy will enable us to more effectively compete among the current market
conditions while continuing to maintain tight control of our expenses. We
continued to reduce our operating expenses and have maintained a tight rein on
our costs, and are delighted to have achieved break-even for the
period.
“In
recent months, we have accomplished a great deal. The success of our My Baby
franchise continues to attract users and in April we reached record sales
exceeding one million units. Our overall catalogue sales remain strong, which
speaks to our growing brand appeal and our extensive portfolio of over 60
interactive games. We continue to add to this base by introducing new games and
exciting sequels that provide a solid built-in customer base and attract new
users. Most recently, we significantly strengthened our already robust line-up
with our asset acquisition agreement for FireFly’s Stronghold 3, a franchise
that has sold more than five million copies globally. As one of the most
respected games in its genre, we expect the introduction of this sequel will
bolster our sales through both retail and digital offerings. There remains a
significant unrealized opportunity for our catalogue and new games among digital
channels, and we are increasing our focus on building our portfolio in this
arena to better capitalize on the digital opportunity.”
Terry
Phillips, Chairman of SouthPeak, added, “Review scores for our much anticipated
sequel Dementium II and 3D Dot Game Heroes have been outstanding and we expect
both these games will be among our top contributors in the coming quarters.
Initial traction with our titles released during the March quarter has been
positive and we are especially encouraged by the enthusiastic reception 3D Dot
Game Heroes has received thus far in the U.K.
“We have
a terrific pipeline of games and are building excellent relationships with our
partners, which gain us access to new titles while keeping in line with our
strategy to minimize upfront development expense. We are particularly excited
about the new titles released under our agreement with our strategic partner and
minority stakeholder Koch Media. During the quarter we introduced three popular
titles under this agreement: Risen, Prison Break and DJ Star. Each of these
titles has gotten off to a strong start, and we look forward to expanding our
relationship with Koch. As the exclusive publishing partner of Koch’s Deep
Silver games in North America, we expect to release new titles under this
arrangement in future periods. Strategic agreements such as this and our recent
acquisition of the rights to develop Stronghold 3, significantly enhance our
overall brand and help us to further align with our goals to maximize profit
while maintaining a low cost structure,” Mr. Phillips concluded.
Third Quarter Fiscal 2010 Financial
Summary
For the
third quarter ended March 31, 2010, SouthPeak reported net revenues of $7.5
million, compared with $13.5 million for the third quarter ended March 31, 2009.
The decrease in revenues was primarily due to a decrease in the number of titles
released and fewer units sold for next generation platforms Xbox 360 and PS3,
which sell at a higher MSRP compared with Nintendo DS and Wii.
For the
three months ended March 31, 2010 gross profit decreased to $413,000, or 6% of
revenues, from $5.3 million, or 39% of revenues, for the same period in 2009.
The decrease in gross profit was due primarily to an increase in revenue
contribution from Koch Media titles, which carry lower gross margins than
traditional titles, as well as a decline in units sold for next generation
platforms, which have a higher MSRP, in the three months ended March 31, 2010
versus the prior period.
Total
operating expenses for the third quarter of fiscal 2010 resulted in an income of
$173,000, compared with total operating expenses of $5.9 million for the third
quarter of fiscal 2009. The significant decrease in operating expenses for the
fiscal 2010 period was due primarily to a $3.2 million gain on the
extinguishment of accrued litigation costs associated with the resolution of
SouthPeak’s legal proceedings with CDV Software Entertainment A.G. The decrease
in total operating expense for the fiscal 2010 third quarter was also due to a
69% reduction in sales and marketing expense to $1.0 million and a 38% reduction
in warehousing and distribution expense, due to fewer units shipped and lower
direct spending as a result of releasing fewer titles, respectively, compared
with the fiscal 2009 period.
Net
income for the third quarter of fiscal 2010 was $192,000, or $0.00 per diluted
share based on 53.3 million weighted average shares outstanding, compared with a
net loss of ($692,000), or ($0.04) per share, based on 35.9 million weighted
average shares outstanding in the third quarter of fiscal 2009.
Adjusted
EBITDA for the third quarter of fiscal 2010 was $1.2 million, compared with an
adjusted EBITDA loss of ($247,000) in the prior fiscal year period.
The
quarterly report for the period ended March 31, 2010 assumes the company will
continue as a going concern. SouthPeak is currently in the process of
expeditiously resolving its contingencies for amounts significantly less than
currently accrued for in order to reduce aggregate liabilities its balance sheet
on payments terms manageable by the Company. In addition SouthPeak is actively
controlling its cost structure to better align with its revenue stream. While
the Company is committed to pursuing these options and others to address its
viability as a going concern, there can be no assurance that these plans will be
successfully completed; and therefore, there is uncertainty about the Company’s
ability to realize its assets or satisfy its liabilities in the normal course of
business.
Conference Call
SouthPeak
will hold an investment community conference call to discuss its financial
results for the period, its latest game sales and prospects today, Monday, May
17, 2010, at 5:00 p.m. Eastern time.
To
participate in the conference call, please dial (877) 407-8033 in the United
States, or (201) 689-8033 internationally. Investors may also access a live
audio webcast of the conference call on the events page of the Company’s
investor relations website at http://investor.southpeakgames.com/southpeakgames/events.asp.
A replay
of the webcast will be available approximately two hours after the conclusion of
the live call and will remain available for one year following the live event.
An audio replay will be available beginning approximately one hour after the
conclusion of the call and will be made available until May 31, 2010. The audio
replay can be accessed by dialing (877) 660-6853 or (201) 612-7415. When
prompted, enter account number: 286 followed by access ID number
350257.
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 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 adjusted EBITDA as a measure of the Company's operating trends.
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.
|
Third Quarter
|
Year-to-date
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
Net
Income
|
$ | 192,140 | $ | (691,841 | ) | $ | (1,763,145 | ) | $ | (1,077,049 | ) | |||||
|
Depr
& Amort
|
70,219 | 128,604 | 200,191 | 286,380 | ||||||||||||
|
Amort
intellectual property
|
95,893 | 1,660 | 315,103 | 113,158 | ||||||||||||
|
Income
taxes
|
- | - | - | (56,220 | ) | |||||||||||
|
Interest
|
393,404 | 125,281 | 1,201,578 | 284,213 | ||||||||||||
|
EBITDA
|
$ | 751,656 | $ | (436,296 | ) | $ | (46,273 | ) | $ | (449,518 | ) | |||||
|
Restructuring
costs
|
- | 67,631 | - | 628,437 | ||||||||||||
|
Transaction
costs in P&L
|
- | 3,671 | - | 32,346 | ||||||||||||
|
Noncash
stock compensation
|
191,405 | 109,340 | 655,825 | 451,844 | ||||||||||||
|
Registration
statement penalty
|
- | 86,511 | - | 196,511 | ||||||||||||
|
Bad
debt expense
|
11,957 | (77,431 | ) | (23,364 | ) | 461,191 | ||||||||||
|
Value
of securities exchanged in conjunction with GameCock
Purchase
|
245,000 | - | 245,000 | - | ||||||||||||
|
Impairments:
|
||||||||||||||||
|
Advance
royalty impairment
|
- | - | 36,000 | - | ||||||||||||
|
Adjusted
EBITDA
|
$ | 1,200,018 | $ | (246,574 | ) | $ | 867,188 | $ | 1,320,811 | |||||||
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 60 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 BALANCE SHEETS
|
March 31, 2010
|
June 30, 2009
|
|||||||
|
Assets
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 323,418 | $ | 648,311 | ||||
|
Restricted
cash
|
2,400 | 1,245,582 | ||||||
|
Accounts
receivable (net of allowance)
|
4,987,418 | 4,972,417 | ||||||
|
Inventories
|
2,398,887 | 4,459,837 | ||||||
|
Current
portion of advances on royalties
|
7,837,993 | 8,435,415 | ||||||
|
Current
portion of intellectual property licences
|
383,571 | 410,995 | ||||||
|
Related
party receivables
|
62,611 | 33,207 | ||||||
|
Prepaid
expenses and other current assets
|
870,664 | 573,145 | ||||||
|
Total
current assets
|
16,866,962 | 20,778,909 | ||||||
|
Property
and equipment, net
|
2,729,676 | 2,754,139 | ||||||
|
Advances
on royalties, net of current portion
|
5,735,156 | 1,556,820 | ||||||
|
Intellectual
property licenses, net of current portion
|
1,630,179 | 1,917,858 | ||||||
|
Goodwill
|
7,911,800 | 7,490,065 | ||||||
|
Intangible
assets, net
|
20,358 | 43,810 | ||||||
|
Other
assets
|
11,441 | 11,872 | ||||||
|
Total
assets
|
$ | 34,905,572 | $ | 34,553,473 | ||||
|
Liabilities and Shareholders'
Equity
|
||||||||
|
Current
liabilities:
|
||||||||
|
Line
of credit
|
$ | 4,744,191 | $ | 5,349,953 | ||||
|
Current
maturities of mortgage payable
|
64,536 | 50,855 | ||||||
|
Accounts
payable
|
10,958,154 | 19,686,168 | ||||||
|
Accrued
royalties
|
2,892,311 | 414,696 | ||||||
|
Accrued
expenses and other current liabilities
|
5,388,792 | 2,419,100 | ||||||
|
Accrued
lawsuit liability
|
- | - | ||||||
|
Deferred
revenues
|
295,301 | 2,842,640 | ||||||
|
Due
to shareholders
|
- | 232,440 | ||||||
|
Due
to related parties
|
13,200 | 125,045 | ||||||
|
Production
advance payable
|
3,755,104 | - | ||||||
|
Accrued
expenses - related party
|
220,929 | 184,766 | ||||||
|
Total
current liabilities
|
28,332,518 | 31,305,663 | ||||||
|
Long-term
debt, net of current maturities
|
1,557,791 | 1,538,956 | ||||||
|
Total
liabilities
|
29,890,309 | 32,844,619 | ||||||
|
Commitments
and contingencies
|
- | - | ||||||
|
Shareholders'
equity:
|
||||||||
|
Preferred
stock
|
- | - | ||||||
|
Series
A convertible preferred stock
|
5,882 | 4,453 | ||||||
|
Common
stock
|
565 | 595 | ||||||
|
APIC
|
30,011,895 | 25,210,926 | ||||||
|
Accumulated
deficit
|
(24,908,945 | ) | (23,145,800 | ) | ||||
|
Accumulated
other comprehensive income
|
(94,134 | ) | (361,320 | ) | ||||
|
Total
shareholders' equity
|
5,015,263 | 1,708,854 | ||||||
|
Total
liabilities & shareholders' equity
|
$ | 34,905,572 | $ | 34,553,473 | ||||
SOUTHPEAK
INTERACTIVE CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
Nine Months Ended
|
||||||||
|
March 31, 2010
|
March 31, 2009
|
|||||||
|
Net
revenues
|
34,312,441 | 39,213,650 | ||||||
|
Cost
of goods sold:
|
||||||||
|
Product
costs
|
12,474,987 | 17,836,565 | ||||||
|
Royalties
|
9,871,028 | 5,015,222 | ||||||
|
Write
off of acquired game title sequels
|
- | - | ||||||
|
Intellectual
property licenses
|
315,350 | 113,158 | ||||||
|
Total
cost of goods sold
|
22,661,365 | 22,964,945 | ||||||
|
Gross
profit
|
11,651,076 | 16,248,705 | ||||||
|
Operating
expenses:
|
||||||||
|
Warehousing
and distribution
|
934,520 | 1,000,766 | ||||||
|
Sales
and marketing
|
6,858,902 | 9,114,169 | ||||||
|
Gain
on settlement of trade payables
|
(3,252,371 | ) | - | |||||
|
Restructuring
costs
|
- | 628,437 | ||||||
|
Transaction
costs
|
- | 32,346 | ||||||
|
Gain
on Settlement of Lawsuit
|
(3,249,610 | ) | - | |||||
|
Litigation
costs
|
3,075,206 | - | ||||||
|
Gain
on extinguishment of contingent payment
|
(908,210 | ) | - | |||||
|
General
and admninistrative
|
8,754,206 | 6,265,823 | ||||||
|
Total
operating expenses
|
12,212,643 | 17,041,541 | ||||||
|
Operating
Income
|
(561,567 | ) | (792,836 | ) | ||||
|
Interest
expense
|
1,201,578 | 284,213 | ||||||
|
Income
(loss) before income taxes
|
(1,763,145 | ) | (1,077,049 | ) | ||||
|
Income
tax expense
|
- | - | ||||||
|
Net
income (loss)
|
(1,763,145 | ) | (1,077,049 | ) | ||||
|
Deemed
dividend related to beneficial conversion
|
||||||||
|
feature
on Series A convertible preferred stock
|
- | 1,142,439 | ||||||
|
Net
(loss) income attributable to common shareholders
|
(1,763,145 | ) | (2,219,488 | ) | ||||
SOUTHPEAK
INTERACTIVE CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
Three Months Ended
|
||||||||
|
March 31, 2010
|
March 31, 2009
|
|||||||
|
Net
revenues
|
7,538,840 | 13,517,073 | ||||||
|
Cost
of goods sold:
|
||||||||
|
Product
costs
|
3,778,704 | 5,471,239 | ||||||
|
Royalties
|
3,251,395 | 2,714,042 | ||||||
|
Write
off of acquired game title sequels
|
- | - | ||||||
|
Intellectual
property licenses
|
95,893 | 1,660 | ||||||
|
Total
cost of goods sold
|
7,125,992 | 8,186,941 | ||||||
|
Gross
profit
|
412,848 | 5,330,132 | ||||||
|
Operating
expenses:
|
||||||||
|
Warehousing
and distribution
|
327,286 | 524,203 | ||||||
|
Sales
and marketing
|
988,226 | 3,163,630 | ||||||
|
Gain
on settlement of trade payables
|
4,118 | - | ||||||
|
Restructuring
costs
|
- | 67,631 | ||||||
|
Transaction
costs
|
- | 3,671 | ||||||
|
Gain
on Settlement of Lawsuit
|
(3,249,610 | ) | - | |||||
|
Litigation
costs
|
- | - | ||||||
|
Gain
on extinguishment of contingent payment
|
(908,210 | ) | - | |||||
|
General
and admninistrative
|
2,665,494 | 2,137,557 | ||||||
|
Total
operating expenses
|
(172,696 | ) | 5,896,692 | |||||
|
Operating
Income
|
585,544 | (566,560 | ) | |||||
|
Interest
expense
|
393,404 | 125,281 | ||||||
|
Income
(loss) before income taxes
|
192,140 | (691,841 | ) | |||||
|
Income
tax expense
|
||||||||
|
Net
income (loss)
|
192,140 | (691,841 | ) | |||||
|
Deemed
dividend related to beneficial conversion
|
||||||||
|
feature
on Series A convertible preferred stock
|
- | - | ||||||
|
Net
(loss) income attributable to common shareholders
|
192,140 | (691,841 | ) | |||||
Contacts
Investors
The
Piacente Group, Inc.
Brandi
Floberg or Lee Roth
212-481-2050
southpeak@tpg-ir.com
Source:
SouthPeak Interactive Corporation
