Southpeak "successfully resolves" $3m dispute with CDV

Posts net loss of $5.8m for 2010, calls legal expenses 'a significant drain' - but costs down, revenues up from 2009

Publisher Southpeak has announced net losses of $5.8 million in its full-year financial results, which is partially attributable to a recent settlement of its long-running dispute with CDV.

CDV has blamed non-payment by Southpeak for its filing for insolvency in April, claiming to be owed $3.4 million.

CEO Melanie Mroz told investors that "Along with macro-environment factors, our business and bottom line was impacted by increased litigation during the fiscal year.

Excluding the excess legal charges that we incurred based on these disputes, especially with respect to CDV, we would have demonstrated even greater improvement to our bottom line."

She claimed the CDV case was now closed, however. "I am pleased to report that we have successfully resolved our litigation with CDV and distribution dispute with Paradox.

"CDV in particular marked a substantial drain on our resources. Misguided media had a negative impact on our cost structure. We are pleased to put these matters behind us and continue to focus on our business and future growth."

The net figure of $5.8 million is nonetheless a $7.5 million recovery from the loss of $13.3 million recorded for the last financial year.

Net revenues, however, decreased from $47.3 million to $40.3 million, despite an increase in game releases from 18 in fiscal 2009 to 29 this year. Total unit sales grew slightly, from 2.4 to 2.6 million.

The publisher's decreased losses stemmed primarily from a 32 per cent reduction in operating costs, with it again claiming that this would have been lower still were it not for the costs involved in resolving its dispute with bankrupted publisher CDV.

When asked by an investor whether such costs would be recurring, Mroz replied "We certainly don't plan on it, but the litigation costs of $3.2 and 3 million, those were pretty much offset. So those were mainly related to CDV.

"A large amount of that was due to professional fees and legal expenses. "

Southpeak was optimistic about the forthcoming year, however. Said Mroz, "Fiscal 2011 will be a continuation of controlled expense and a carefully managed title release schedule... During fiscal 2010 we introduced our first games for the iPhone, and we see a sizeable opportunity to expand our digital offering to realise even greater margin contributions and increase our return on invested capital.

"With this foundation in place we believe we are well positioned to meet our goals for the 2011 fiscal year to grow our revenue, reduce our costs as a percent of revenue, and demonstrate additional bottom line improvement."

Chairman Terry Phillips pointed to Two Worlds II, Stronghold 3 and Get Fit With Mel B as the publisher's best prospects for 2011.

For the year just gone, Southpeak highlighted Section 8, My Baby Girl, My Baby First Steps, Risen and Prison Break as its primary revenue drivers.

However, Southpeak this year lost rights to the My Baby franchise, with Majesco publishing the next installment. Southpeak continues to dispute this, and admitted that the loss of the series may take its toll.

Following an investor's estimate that My Baby games had contributed $10 to 20 million to 2010's turnover, chairman Terry Phillips responded that "It was a significant part of our revenues that's for sure. I'm not sure it's quite that high of a percentage."

"Now this year we've got a great line-up of other games - we'd certainly like to be able to complement that with the My Baby series, which we feel is our series, so we're still hoping that that can happen."

Southpeak declined to comment at this time on the current status of the dispute with My Baby developer Nobilis.

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