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SouthPeak revenues down $15m

But publisher still in profit, as disputed My Baby deal sees court-ordered renewal

Publisher Southpeak has revealed its latest financial report – showing reduced sales but still exhibiting a gross profit of $0.6 million, down from $8 million last year.

The figures, covering the three months ending 30 September, come alongside the statement that Southpeak has ended its dispute with My Baby developer Nobilis, which sued Southpeak for non-payment and moved the series to a new publisher, Majesco.

Southpeak then sued Majesco for unlawfully adopting the series but has now been awarded a summary judgement which will entitle them to publish the next game in the My Baby series, My Baby First Steps.

"Our sales for the period were largely impacted by our ongoing legal proceedings with Nobilis which caused us not to release any new titles for the quarter or remanufacture our catalogue of titles under this contract," said Southpeak CEO Melanie Mroz.

"I'm pleased to report that in October we received a summary judgement granting us the right to resume production of My Baby First Steps and reinstate the contract with Nobilis, which includes the rights for My Baby sequels, catalogue titles and 14 additional games.

"We have since resumed manufacturing titles under this contract in order to address the remainder of the holiday selling season. We are hopeful that the summary judgement will be upheld at the final ruling scheduled for December 2."

Despite the difficult conditions of business, Southpeak posted net revenues of $1.4 million, down from $16.7 million in the first quarter of fiscal 2010, and a before interest, tax and amortization profit of $24,000, down from $1.2 million in the first quarter of fiscal 2010. Gross profit was $0.6 million – down from $8 million in Q1 fiscal 2010.

"We simultaneously remain focused on advancing our complementary growth opportunities, continuing to control costs and releasing a prudent selection of titles for the holiday season. For the first quarter, we posted an EBITDA profit and maintained exceptionally low expenses as our revenues for the quarter reflect select catalogue title sales only," wrote Mroz in an accompanying statement.

"The bulk of our marketing costs for the period were associated with costs for promoting our sequel titles for Two Worlds II and preliminary public relations activities for StrongHold 3. Given the success of earlier instalments of both games we expect these releases to gain even more robust market penetration. "

The report also makes clear that the company has "Resolved all litigation disputes with CDV Software Entertainment A.G", which filed for liquidation in April, citing non-payment by Southpeak as the cause and seizing assets from Southpeak to pay some of the debt.

CDV had also reported that it was considering seizing the profits from sales of the forthcoming Two Worlds II in order to settle more of the balance, but an out of court agreement 'alleviated Southpeak of all alleged financial obligation to CDV' earlier this month. The exact costs of this are unknown, but apparently hit Southpeak hard.

Executives are now confident of a recovery, however, with new titles and platform opportunities already in motion.

"We have now shipped our first title for the next generation PlayStation Move platform, Get Fit with Mel B, which we expect to be a top contributor to our future sales. Our digital strategy and entering other existing high growth markets where we can gain immediate traction remain a core focus for propelling our growth in fiscal 2011," Mroz told investors.

"We are particularly excited about our strategic partnership with NVIDIA to bring games to their new phones and tablets. NVIDIA's new Droid platform technology is a significant step forward in our strategy to broaden our digital offerings. Also in November, we announced the release of our title Tap and Teach: The Story of Noah's Ark. This marks our first title to address the interactive educational gaming sector, another area where we believe we can grow our business with new games that complement and expand our extensive portfolio."

A full copy of the company's financial report is available here.

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