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SouthPeak Interactive Corporation Reports Fiscal 2011 Second Quarter Financial Results

MIDLOTHIAN, Va. Feb. 17, 2011 December 31, 2010

Second Quarter Fiscal 2011 Financial Highlights

  • $7.5 million $10.1 million
  • $3.3 million $5.3 million
  • ($2.1) million ($0.04) ($2.6) million ($0.06)
  • ($615,000) $1.3 million

Second Quarter Fiscal 2011 and Recent Business Highlights

  • My Baby First Steps
  • Announced a strategic relationship with NVIDIA to pursue mobile and tablet gaming
  • Tap & Teach: The Story of Noah’s Ark
  • Increased catalog sales to approximately 29% of total sales
  • Two Worlds II

My Baby First Steps Melanie Mroz

Terry Phillips Two Worlds II

Second Quarter Fiscal 2011 Financial Summary

December 31, 2010 $7.5 million $10.1 million December 31, 2009 $15.60 to $16.10 December 31, 2009

December 31, 2010 $978,000 $3.2 million December 31, 2010

$3.3 million $5.3 million $974,000 $2.2 million $3.1 million December 31, 2009

($2.1) million ($0.04) ($2.6) million ($0.06)

($615,000) $1.3 million

December 30, 2010

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.

Three Months Ended

December 31,

2010

2009

Net Loss

$ (2,082,835)

$ (2,642,266)

Depr & Amort

67,031

65,095

Amort intellectual property

95,893

99,551

Income taxes

Interest

1,244,436

508,858

EBITDA

$ (675,475)

$ (1,968,762)

Noncash stock compensation

60,681

203,724

Reserve adjustments:

Loss reserved for CDV litigation

3,075,206

Adjusted EBITDA

$ (614,794)

$ 1,310,168

About SouthPeak Interactive Corporation

North America Europe Australia Asia Midlothian, Virginia Grapevine, Texas 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.  

www.southpeakgames.com .

[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.

SOUTHPEAK INTERACTIVE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

For the three months ended

December 31,

For the six months ended

December 31,

2010

2009

2010

2009

Net revenues

$

7,470,053

$

10,063,952

$

8,901,912

$

26,773,601

Cost of goods sold:

   Product costs

3,097,437

5,149,597

3,858,719

8,696,283

   Royalties

3,298,538

1,618,962

3,231,430

6,619,633

   Intellectual property licenses

95,893

99,797

191,786

219,457

       Total cost of goods sold

6,491,868

6,868,356

7,281,935

15,535,373

Gross profit

978,185

3,195,596

1,619,977

11,238,228

Operating expenses (income):

   Warehousing and distribution

282,327

320,723

348,416

607,234

   Sales and marketing

974,498

2,215,620

1,871,169

5,870,676

   General and administrative

2,091,082

2,973,944

4,023,397

6,088,712

   Litigation costs

3,075,206

3,075,206

   Gain on settlement of trade payables

(3,256,489)

(585,122)

(3,256,489)

       Total operating expenses

3,347,907

5,329,004

5,657,860

12,385,339

Loss from operations

(2,369,722)

(2,133,408)

(4,037,883)

(1,147,111)

Other expenses (income):

   Change in fair value of warrant liability

(1,531,323)

(3,062,646)

   Interest and financing costs, net

1,244,436

508,858

2,308,532

808,174

Net loss

(2,082,835)

(2,642,266)

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