SouthPeak Interactive’s Q1 Hurt By Court Battle with Nobilis, CEO Says
SouthPeak Interactive “faced a significant setback” in Q1 ended Sept. 30 as the videogame publisher released no new titles and wasn’t able to release My Baby games and other titles due to an ongoing court battle with French publisher Nobilis, CEO Melanie Mroz said in a Monday earnings call. SouthPeak swung to a $1.2 million loss, 2 cents per share, from a $687,000 profit, 1 cent, in Q1 last year. Revenue tumbled to $1.4 million from $16.7 million.
SouthPeak planned to release games including My Baby 3 in Q1, but couldn’t after Nobilis “wrongfully terminated” a contract the companies signed, Mroz said. SouthPeak sued Nobilis in September in the Lyon, France, Commercial Court, claiming its licensing and distribution arrangements were wrongfully terminated by Nobilis, SouthPeak said in a 10-Q filing at the SEC. SouthPeak also claimed that Nobilis’s granting of the rights for My Baby 3 to SouthPeak’s more widely known U.S. rival Majesco Entertainment was “unlawful.” In October, SouthPeak received a temporary summary judgment in its favor, granting it the rights to “resume production” on My Baby First Steps, the rights to My Baby sequels, various catalog titles and about 14 other games, Mroz said. A final judgment is scheduled for Dec. 2, and SouthPeak was “hopeful” the summary judgment will be upheld, she said. But SouthPeak said in the 10-Q that the companies “are in settlement negotiations."
SouthPeak also said in the 10-Q that Mroz and its chairman, Terry Phillips, received Wells Notices from the SEC on Sept. 3 advising them that the SEC staff recommended that the SEC institute a cease and desist proceeding against the publisher and Mroz for alleged securities violations, and bring a civil injunction against Phillips for “abiding and abetting” those violations. SouthPeak was also informed that the SEC staff planned to recommend that the SEC seek a civil penalty against Phillips. The alleged violations resulted from “the facts underlying” SouthPeak’s need to file an amended quarterly report for Q3 ended March 31, 2009, the publisher said.
The publisher “expects to draw on” its factoring deal this fiscal year “as necessary to help alleviate liquidity problems,” SouthPeak also said in the 10-Q. But the company warned it “can give no assurances that funds will be available to settle current liabilities as they become due,” and “failure to obtain additional financing could jeopardize the company’s ability to continue as a going concern."
GameStop was SouthPeak’s largest customer in Q1, accounting for 27 percent of the publisher’s revenue, up from 15 percent in Q1 last year when the retailer was its No. 2 customer, the publisher said in the 10-Q. Target became its No. 2 customer, representing 15 percent of SouthPeak’s Q1 revenue. Russian game maker 1C Company was No. 3, accounting for 14 percent of revenue, while Wal-Mart slipped from No. 1 in Q1 last year, with 20 percent of revenue, to No. 4, with 10 percent of revenue.
Most of SouthPeak’s Q1 marketing costs “were associated with costs for promoting” its sequel titles for Two Worlds II and preliminary PR activities for Stronghold 3, Mroz said. “Given the success of earlier installments of both games we expect these releases to gain even more robust market penetration,” she said. The publisher also shipped its first title for Sony’s new PlayStation Move motion-control system, Get Fit with Mel B, Mroz said. The company expects that game “to be a top contributor to our future sales,” she said. The company also has a deal with Nvidia “to bring games to their new phones and tablets,” she said. The chip maker’s “new Droid platform technology is a significant step forward in our strategy to broaden our digital offerings,” she said. The company is also introducing its first interactive educational game, Tap and Teach: The Story of Noah’s Ark, this month, she said. That’s “another area where we believe we can grow our business with new games that complement and expand our extensive portfolio,” she said.