UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C.
20549




Form 10-Q
 (Mark
      One)þ
              
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934For
      the quarterly period ended March 31, 2009o
              
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934For
      the transition period
      from          to




Commission
File Number 000-51869




SouthPeak
Interactive Corporation


(Exact
Name of Registrant as Specified in Its Charter)




Delaware
                (State
      or other jurisdiction of
                incorporation
      or organization)
              
              20-3290391
                (I.R.S.
      Employer
                Identification
      No.)




2900
Polo Parkway


Midlothian,
Virginia 23113


(804) 378-5100


(Addressincluding zip code, and
telephone number,


including
area code, of principal executive offices)


Not
applicable


(Former
name, former address and former fiscal year, if changed since last
report)


Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.


Yes þ     No  ̈


Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes  ̈     No  ̈


Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):





Large
      accelerated filer o
            Accelerated
      filer o
            Non-accelerated
      filer o
            Smaller
      reporting company þ


(Do not
check if a smaller reporting company)




Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).


Yes o     No þ


As of May
14, 2009, 41,253,100 shares of common stock, par value $0.0001 per share, of the
registrant were outstanding.


TABLE
OF CONTENTS





PART I —
      FINANCIAL INFORMATIONItem
      1.
                  Financial
      Statements
                  2Condensed
      Consolidated Financial Statements (unaudited)
                  2Condensed
      Consolidated Balance Sheets as of March 31, 2009 and June 30, 2008
      (unaudited)
                  2Condensed
      Consolidated Statements of Operations for the three and nine months ended
      March 31, 2009 and 2008 (unaudited)
                  3Condensed
      Consolidated Statements of Cash Flows for the nine months ended March 31,
      2009 and 2008 (unaudited)
                  4Notes
      to Condensed Consolidated Financial Statements
                  5Item
      2.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  19Item
      3.
                  Quantitative
      and Qualitative Disclosures about Market Risk
                  29Item
      4T.
                  Controls
      and Procedures
                  29PART II —
      OTHER INFORMATIONItem
      1.
                  Legal
      Proceedings
                  29Item
      1A.
                  Risk
      Factors
                  30Item
      6.
                  Exhibits
                  31SIGNATURES
                  32




1




PART I




Item 1.Condensed Consolidated Financial
Statements




SOUTHPEAK
INTERACTIVE CORPORATION AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE
SHEETS


(UNAUDITED)




March 31,2009
                                        
                                        
                                        June
      30,2008AssetsCurrent
      assets:Cash
      and cash equivalents
                                        
                                        $
                                        418,673
                                        
                                        
                                        $
                                        4,095,036Restricted
      cash
                                        
                                        
                                        249,428
                                        
                                        
                                        
                                        139,104Accounts
      receivable, net
                                        
                                        
                                        11,544,355
                                        
                                        
                                        
                                        13,665,332Inventories
                                        
                                        
                                        4,538,123
                                        
                                        
                                        
                                        6,538,644Current
      portion of advances on royalties
                                        
                                        
                                        11,121,945
                                        
                                        
                                        
                                        3,321,954Current
      portion of intellectual property licenses
                                        
                                        
                                        1,531,310
                                        
                                        
                                        
                                        133,458Related
      party receivables
                                        
                                        
                                        60,415
                                        
                                        
                                        
                                        48,243Prepaid
      expenses and other current assets
                                        
                                        
                                        1,083,474
                                        
                                        
                                        
                                        1,281,371Total
      current assets
                                        
                                        
                                        30,547,723
                                        
                                        
                                        
                                        29,223,142Property
      and equipment, net
                                        
                                        
                                        2,663,508
                                        
                                        
                                        
                                        1,679,434Advances
      on royalties, net of current portion
                                        
                                        
                                        337,554
                                        
                                        
                                        
                                        1,053,500Intellectual
      property licenses, net of current portion
                                        
                                        
                                        1,137,972
                                        
                                        
                                        
                                        1,311,542Goodwill
                                        
                                        
                                        7,402,837
                                        
                                        
                                        
                                        -Intangible
      assets, net
                                        
                                        
                                        1,129,464
                                        
                                        
                                        
                                        -Other
      assets
                                        
                                        
                                        15,700
                                        
                                        
                                        
                                        12,690Total
      assets
                                        
                                        $
                                        43,234,758
                                        
                                        
                                        $
                                        33,280,308Liabilities
      and Shareholders’ EquityCurrent
      liabilities:Line
      of credit
                                        
                                        $
                                        6,775,870
                                        
                                        
                                        $
                                        4,851,819Current
      maturities of mortgages payable
                                        
                                        
                                        46,431
                                        
                                        
                                        
                                        24,252Accounts
      payable
                                        
                                        
                                        15,740,021
                                        
                                        
                                        
                                        14,254,085Accrued
      royalties
                                        
                                        
                                        457,477
                                        
                                        
                                        
                                        523,013Accrued
      expenses and other current liabilities
                                        
                                        
                                        2,310,763
                                        
                                        
                                        
                                        1,456,915Deferred
      revenues
                                        
                                        
                                        2,849,015
                                        
                                        
                                        
                                        -Due
      to shareholders
                                        
                                        
                                        -
                                        
                                        
                                        
                                        228,998Due
      to related parties
                                        
                                        
                                        92,997
                                        
                                        
                                        
                                        15,658Accrued
      expenses - related party
                                        
                                        
                                        -
                                        
                                        
                                        
                                        4,182Total
      current liabilities
                                        
                                        
                                        28,272,574
                                        
                                        
                                        
                                        21,358,922Mortgages
      payable, net of current maturities
                                        
                                        
                                        1,495,584
                                        
                                        
                                        
                                        1,038,140Total
      liabilities
                                        
                                        
                                        29,768,158
                                        
                                        
                                        
                                        22,397,062Commitments
      and contingencies
                                        
                                        
                                        
                                        
                                        
                                        
                                        -Shareholders’
      equity:Preferred
      stock, $.0001 par value; 5,000,000 shares authorized; no shares
      issued at March 31, 2009 and June 30, 2008
                                        
                                        
                                        
                                        
                                        
                                        
                                        -Series
      A convertible preferred stock, $.0001 par value; 15,000,000 shares
      authorized; 14,563,833 and 12,984,833 shares issued and outstanding at
      March 31, 2009 and June 30, 2008, respectively; aggregate liquidation
      preference of $14,563,833 and $12,984,833 at March 31, 2009 and June 30,
      2008, respectively
                                        
                                        
                                        1,456
                                        
                                        
                                        
                                        1,298Common
      stock, $.0001 par value; 90,000,000 shares authorized; 35,920,100 shares
      issued and outstanding at March 31, 2009 and June 30, 2008
                                        
                                        
                                        3,592
                                        
                                        
                                        
                                        3,592Additional
      paid-in capital
                                        
                                        
                                        24,887,609
                                        
                                        
                                        
                                        20,825,105Accumulated
      deficit
                                        
                                        
                                        (11,035,173
                                        )
                                        
                                        
                                        (9,796,709
                                        )Accumulated
      other comprehensive loss
                                        
                                        
                                        (390,884
                                        )
                                        
                                        
                                        (150,040
                                        )Total
      shareholders’ equity
                                        
                                        
                                        13,466,600
                                        
                                        
                                        
                                        10,883,246Total
      liabilities and shareholders’ equity
                                        
                                        $
                                        43,234,758
                                        
                                        
                                        $
                                        33,280,308





See notes
to condensed consolidated financial statements.




2




SOUTHPEAK
INTERACTIVE CORPORATION AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(UNAUDITED)




For the three months ended
                                                          March 31,
                                                        
                                                        
                                                        For the nine months ended
                                                          March 31,2009
                                                        
                                                        
                                                        2008
                                                        
                                                        
                                                        2009
                                                        
                                                        
                                                        2008Net
      revenues
                                                        
                                                        $
                                                        13,521,907
                                                        
                                                        
                                                        $
                                                        2,223,268
                                                        
                                                        
                                                        $
                                                        39,226,299
                                                        
                                                        
                                                        $
                                                        24,768,846Cost
      of goods sold:Product
      costs
                                                        
                                                        
                                                        5,167,197
                                                        
                                                        
                                                        
                                                        898,308
                                                        
                                                        
                                                        
                                                        17,532,523
                                                        
                                                        
                                                        
                                                        8,701,880Royalties
                                                        
                                                        
                                                        2,374,455
                                                        
                                                        
                                                        
                                                        227,466
                                                        
                                                        
                                                        
                                                        4,675,635
                                                        
                                                        
                                                        
                                                        5,458,509Intellectual
      property licenses
                                                        
                                                        
                                                        1,660
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        113,158
                                                        
                                                        
                                                        
                                                        -Total
      cost of goods sold
                                                        
                                                        
                                                        7,543,312
                                                        
                                                        
                                                        
                                                        1,125,774
                                                        
                                                        
                                                        
                                                        22,321,316
                                                        
                                                        
                                                        
                                                        14,160,389Gross
      profit
                                                        
                                                        
                                                        5,978,595
                                                        
                                                        
                                                        
                                                        1,097,494
                                                        
                                                        
                                                        
                                                        16,904,983
                                                        
                                                        
                                                        
                                                        10,608,457Operating
      expenses:Warehousing
      and distribution
                                                        
                                                        
                                                        524,203
                                                        
                                                        
                                                        
                                                        19,595
                                                        
                                                        
                                                        
                                                        1,000,766
                                                        
                                                        
                                                        
                                                        329,958Sales
      and marketing
                                                        
                                                        
                                                        2,714,026
                                                        
                                                        
                                                        
                                                        303,057
                                                        
                                                        
                                                        
                                                        8,435,630
                                                        
                                                        
                                                        
                                                        3,396,916Restructuring
      costs
                                                        
                                                        
                                                        67,631
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        628,437
                                                        
                                                        
                                                        
                                                        -Transaction
      costs
                                                        
                                                        
                                                        3,671
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        32,346
                                                        
                                                        
                                                        
                                                        -General
      and administrative
                                                        
                                                        
                                                        2,254,600
                                                        
                                                        
                                                        
                                                        659,576
                                                        
                                                        
                                                        
                                                        6,619,616
                                                        
                                                        
                                                        
                                                        2,818,129Total
      operating expenses
                                                        
                                                        
                                                        5,564,131
                                                        
                                                        
                                                        
                                                        982,228
                                                        
                                                        
                                                        
                                                        16,716,795
                                                        
                                                        
                                                        
                                                        6,545,003Operating
      income
                                                        
                                                        
                                                        414,464
                                                        
                                                        
                                                        
                                                        115,266
                                                        
                                                        
                                                        
                                                        188,188
                                                        
                                                        
                                                        
                                                        4,063,454Interest
      expense
                                                        
                                                        
                                                        125,281
                                                        
                                                        
                                                        
                                                        95,148
                                                        
                                                        
                                                        
                                                        284,213
                                                        
                                                        
                                                        
                                                        385,458Net
      income (loss)
                                                        
                                                        
                                                        289,183
                                                        
                                                        
                                                        
                                                        20,118
                                                        
                                                        
                                                        
                                                        (96,025
                                                        )
                                                        
                                                        
                                                        3,677,996Deemed
      dividend related to beneficial conversion feature on Series A convertible
      preferred stock
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        1,142,439
                                                        
                                                        
                                                        
                                                        -Net
      income (loss) attributable to common shareholders
                                                        
                                                        $
                                                        289,183
                                                        
                                                        
                                                        $
                                                        20,118
                                                        
                                                        
                                                        $
                                                        (1,238,464
                                                        )
                                                        
                                                        $
                                                        3,677,996Basic
      earnings (loss) per share:
                                                        
                                                        $
                                                        .01
                                                        
                                                        
                                                        $
                                                        .00
                                                        
                                                        
                                                        $
                                                        (.03
                                                        )
                                                        
                                                        $
                                                        .11Diluted
      earnings (loss) per share:
                                                        
                                                        $
                                                        .01
                                                        
                                                        
                                                        $
                                                        .00
                                                        
                                                        
                                                        $
                                                        (.03
                                                        )
                                                        
                                                        $
                                                        .11Weighted-average
      shares outstanding - basic:
                                                        
                                                        
                                                        35,920,100
                                                        
                                                        
                                                        
                                                        35,000,000
                                                        
                                                        
                                                        
                                                        35,920,100
                                                        
                                                        
                                                        
                                                        35,000,000Dilutive
      effect of common stock equivalents:
                                                        
                                                        
                                                        14,679,333
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        15,947,572
                                                        
                                                        
                                                        
                                                        -Weighted-average
      shares outstanding - diluted:
                                                        
                                                        
                                                        50,599,433
                                                        
                                                        
                                                        
                                                        35,000,000
                                                        
                                                        
                                                        
                                                        51,867,672
                                                        
                                                        
                                                        
                                                        35,000,000




* No
effect is given to dilutive securities for loss periods




See notes
to condensed consolidated financial statements.




3




SOUTHPEAK
INTERACTIVE CORPORATION AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)




For the
      nine months ended
                                                                    March 31,2009
                                                                  
                                                                  
                                                                  2008Cash flows from
      operating activities:Net
      (loss) income
                                                                  
                                                                  $
                                                                  (96,025
                                                                  )
                                                                  
                                                                  $
                                                                  3,677,996Adjustments
      to reconcile net cash (used in) provided by operating
      activities:Non-cash
      expenses related to the issuance of stock and stock
options
                                                                  
                                                                  
                                                                  461,336
                                                                  
                                                                  
                                                                  
                                                                  —Depreciation
      and amortization
                                                                  
                                                                  
                                                                  286,381
                                                                  
                                                                  
                                                                  
                                                                  62,061Amortization
      of royalties and intellectual property licenses
                                                                  
                                                                  
                                                                  4,344,618
                                                                  
                                                                  
                                                                  
                                                                  5,458,509Change
      in operating assets and liabilities:Accounts
      receivable
                                                                  
                                                                  
                                                                  2,611,851
                                                                  
                                                                  
                                                                  
                                                                  3,150,873Inventories
                                                                  
                                                                  
                                                                  2,157,266
                                                                  
                                                                  
                                                                  
                                                                  500,937Advances
      on royalties
                                                                  
                                                                  
                                                                  (7,875,945
                                                                  )
                                                                  
                                                                  
                                                                  (6,409,201
                                                                  )Intellectual
      property licenses
                                                                  
                                                                  
                                                                  (1,460,000
                                                                  )
                                                                  
                                                                  
                                                                  (491,250
                                                                  )Related
      party receivables
                                                                  
                                                                  
                                                                  (12,172
                                                                  )
                                                                  
                                                                  
                                                                  (8,414
                                                                  )Prepaid
      expenses and other current assets
                                                                  
                                                                  
                                                                  234,266
                                                                  
                                                                  
                                                                  
                                                                  14,997Other
      assets
                                                                  
                                                                  
                                                                  (3,010
                                                                  )
                                                                  
                                                                  
                                                                  —Accounts
      payable
                                                                  
                                                                  
                                                                  (3,958,238
                                                                  )
                                                                  
                                                                  
                                                                  (1,742,605
                                                                  )Accrued
      royalties
                                                                  
                                                                  
                                                                  (738,512
                                                                  )
                                                                  
                                                                  
                                                                  1,734,045Accrued
      expenses and other current liabilities
                                                                  
                                                                  
                                                                  (239,913
                                                                  )
                                                                  
                                                                  
                                                                  (748,927
                                                                  )Deferred
      Revenue
                                                                  
                                                                  
                                                                  (872,885
                                                                  )
                                                                  
                                                                  
                                                                  —Accrued
      expenses - related party
                                                                  
                                                                  
                                                                  (4,182
                                                                  )
                                                                  
                                                                  
                                                                  (650,889
                                                                  )Total
      adjustments
                                                                  
                                                                  
                                                                  (5,069,139
                                                                  )
                                                                  
                                                                  
                                                                  870,136Net
      cash and cash equivalents (used in) provided by operating
      activities
                                                                  
                                                                  
                                                                  (5,165,164
                                                                  )
                                                                  
                                                                  
                                                                  4,548,132Cash
      flows from investing activities:Purchase
      of property and equipment
                                                                  
                                                                  
                                                                  (403,478
                                                                  )
                                                                  
                                                                  
                                                                  (479,335
                                                                  )Cash
      payments to effect acquisition, net of cash required
                                                                  
                                                                  
                                                                  (247,542
                                                                  )
                                                                  
                                                                  
                                                                  —Contingent
      consideration for acquisition
                                                                  
                                                                  
                                                                  (501,815
                                                                  )
                                                                  
                                                                  
                                                                  —Deposits
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  (8,732
                                                                  )Change
      in restricted cash
                                                                  
                                                                  
                                                                  (110,324
                                                                  )
                                                                  
                                                                  
                                                                  —Net
      cash and cash equivalents used in investing activities
                                                                  
                                                                  
                                                                  (1,263,159
                                                                  )
                                                                  
                                                                  
                                                                  (488,067
                                                                  )Cash
      flows from financing activities:Net
      proceeds from (repayments of) line of credit
                                                                  
                                                                  
                                                                  1,924,051
                                                                  
                                                                  
                                                                  
                                                                  (4,822,872
                                                                  )Repayments
      of mortgage notes payable
                                                                  
                                                                  
                                                                  (20,377
                                                                  )
                                                                  
                                                                  
                                                                  —Proceeds
      from issuance of note payable
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  2,000,000Payments
      of amounts due to shareholder
                                                                  
                                                                  
                                                                  (228,998
                                                                  )
                                                                  
                                                                  
                                                                  (277,328
                                                                  )Repayment
      of amounts due to related parties
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  (78,467
                                                                  )Advances from related
      parties
                                                                  
                                                                  
                                                                  77,339
                                                                  
                                                                  
                                                                  
                                                                  38,807Deferred
      acquisition costs
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  (448,360
                                                                  )Proceeds
      from the issuance of Series A convertible preferred stock, net of cash
      offering costs
                                                                  
                                                                  
                                                                  1,240,789
                                                                  
                                                                  
                                                                  
                                                                  —Distribution
      to members
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  (370,000
                                                                  )Net
      cash and cash equivalents provided by (used in) financing
      activities
                                                                  
                                                                  
                                                                  2,992,804
                                                                  
                                                                  
                                                                  
                                                                  (3,958,220
                                                                  )Effect
      of exchange rate changes on cash and cash equivalents
                                                                  
                                                                  
                                                                  (240,844
                                                                  )
                                                                  
                                                                  
                                                                  (328,080
                                                                  )Net
      decrease  in cash and cash equivalents
                                                                  
                                                                  
                                                                  (3,676,363
                                                                  )
                                                                  
                                                                  
                                                                  (226,235
                                                                  )Cash
      and cash equivalents at beginning of period
                                                                  
                                                                  
                                                                  4,095,036
                                                                  
                                                                  
                                                                  
                                                                  510,265Cash
      and cash equivalents at end of period
                                                                  
                                                                  $
                                                                  418,673
                                                                  
                                                                  
                                                                  $
                                                                  284,030Non-cash
      transactions:Purchase
      of building in exchange for note payable
                                                                  
                                                                  $
                                                                  500,000
                                                                  
                                                                  
                                                                  $
                                                                  —




See notes
to condensed consolidated financial statements.




4




SOUTHPEAK
INTERACTIVE CORPORATION AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements


(UNAUDITED)




1. Summary of Significant
Accounting Policies




Business




SouthPeak
Interactive Corporation, a Delaware corporation, (herein after collectively
referred to as the “Company”) is an independent developer and publisher of
interactive entertainment software. The Company develops, markets and publishes
videogames for all leading gaming and entertainment hardware platforms,
including Sony’s PLAYSTATION®3, or PS3, and PlayStation®2, or PS2, computer
entertainment systems; Sony’s PSP® (PlayStation®Portable) system, or PSP;
Microsoft’s Xbox 360® video game and entertainment system, or Xbox 360,
Nintendo’s WiiTM, or Wii, DSTM, or DS, and Game Boy® Advance, or GBA, and for the
PC and Games for Windows®. The Company’s titles span a wide range of categories
and target a variety of consumer demographics ranging from casual players to
hardcore game enthusiasts.




The
Company maintains its operations in the United States and the United Kingdom.
The Company sells its games to retailers and distributors in North America and
United Kingdom, and primarily to distributors in the rest of Europe, Australia,
Asia and Japan.




Business
Combination




On
October 10, 2008, the Company acquired Gone Off Deep, LLC, doing business
as Gamecock Media Group (“Gamecock”), pursuant to a definitive purchase
agreement (see Note 2). Gamecock’s operations were included in the Company’s
financial statements for all periods subsequent to the consummation of the
business combination only.




Basis
of Presentation




The
accompanying unaudited consolidated financial statements as of March 31, 2009
and for the three and nine month periods ended March 31, 2009 and 2008 have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission (“SEC”) and in accordance with generally accepted accounting
principles in the United States of America (“U.S. GAAP”) for interim financial
reporting. Accordingly, they do not include all of the information and footnotes
required by U.S. GAAP. In the opinion of management, all adjustments (all of
which are of a normal, recurring nature) considered for a fair presentation have
been included. Preparing financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses.  The most significant estimates
relate to royalties, licenses, accounts receivable allowances, impairment and
stock-based compensation expense.  Actual results may differ from
these estimates. Interim results are not necessarily indicative of results for a
full fiscal year.




The
accounting policies followed by the Company with respect to unaudited interim
financial statements are consistent with those stated in the Company’s annual
report on Form 10-K. The accompanying June 30, 2008 financial position data were
derived from the Company’s audited financial statements. These unaudited
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and the notes thereto included in the
Company’s annual report on Form 10-K for the year ended June 30, 2008 filed with
the SEC.




Principles
of Consolidation




The
consolidated financial statements include the accounts of SouthPeak Interactive
Corporation, and its wholly-owned subsidiaries, SouthPeak Interactive L.L.C.,
SouthPeak Interactive, Ltd., Vid Sub, LLC, Gone Off Deep, L.L.C. and Gamecock
Media Europe, Ltd.   All intercompany accounts and transactions
have been eliminated in consolidation.




Segment
Reporting




The
Company has one operating segment, a publisher and distributor of interactive
entertainment software for home video consoles, handheld platforms and personal
computers, pursuant to the provisions of Financial Accounting
Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”)
No. 131, “Disclosures about Segments of an Enterprise and Related Information.”
To date, management has not considered discrete geographical or other
information to be relevant for purposes of making decisions about allocations of
resources.




5




SOUTHPEAK
INTERACTIVE CORPORATION AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements


(UNAUDITED)




1. Summary of Significant
Accounting Policies, continued




Allowances
for Returns, Price Protection, and Doubtful Accounts




Management
closely monitors and analyzes the historical performance of the Company’s
various games, the performance of games released by other publishers, and the
anticipated timing of other releases in order to assess future demands of
current and upcoming games. Initial volumes shipped upon title launch and
subsequent reorders are evaluated to ensure that quantities are sufficient
to meet the demands from the retail markets, but at the same time are
controlled to prevent excess inventory in the channel.




The
Company may permit product returns from, or grant price protection to, its
customers under certain conditions. Price protection refers to the circumstances
when the Company elects to decrease the wholesale price of a product based
on the number of products in the retail channel and, when granted
and taken, allows customers a credit against amounts owed by such customers to
the Company with respect to open and/or future invoices. The criteria the
Company’s customers must meet to be granted the right to return products or
price protection include, among other things, compliance with applicable payment
terms, and consistent delivery to the Company of inventory and sell-through
reports. In making the decision to grant price protection to customers, the
Company also considers other factors, including the facilitation of slow-moving
inventory and other market factors.




Management
must estimate the amount of potential future product returns and price
protection related to current period revenues utilizing industry and historical
Company experience, information regarding inventory levels, and the demand and
acceptance of the Company’s games by end consumers. The following factors
are used to estimate the amount of future returns and price protection for a
particular game: historical performance of games in similar genres; historical
performance of the hardware platform; sales force and retail customer feedback;
industry pricing; weeks of on-hand retail channel inventory; absolute quantity
of on-hand retail channel inventory; the game’s recent sell-through history (if
available); marketing trade programs; and competing games. Significant
management judgments and estimates must be made and used in connection with
establishing the allowance for returns and price protection in any accounting
period. Based upon historical experience management believes the estimates are
reasonable. However, actual returns and price protection could vary materially
from management’s allowance estimates due to a number of unpredictable reasons
including, among others, a lack of consumer acceptance of a game, the release in
the same period of a similarly themed game by a competitor, or technological
obsolescence due to the emergence of new hardware platforms. Material
differences may result in the amount and timing of the Company’s revenues for
any period if factors or market conditions change or if management makes
different judgments or utilizes different estimates in determining the
allowances for returns and price protection.




Similarly,
management must make estimates of the uncollectibility of the Company’s accounts
receivable. In estimating the allowance for doubtful accounts, the Company
analyzes the age of current outstanding account balances, historical bad debts,
customer concentrations, customer creditworthiness, current economic trends, and
changes in the Company’s customers’ payment terms and their economic condition.
Any significant changes in any of these criteria would affect management’s
estimates in establishing the allowance for doubtful accounts.




At March
31, 2009 and June 30, 2008, accounts receivable allowances consisted of the
following:




March 31,2009
                      
                      
                      June 30,
                        2008Sales
      returns
                      
                      $
                      157,968
                      
                      
                      $
                      155,652Price
      protection
                      
                      
                      2,315,537
                      
                      
                      
                      823,085Doubtful
      accounts
                      
                      
                      743,980
                      
                      
                      
                      22,169Defective
      items
                      
                      
                      60,026
                      
                      
                      
                      107,559Total
      allowances
                      
                      $
                      3,277,511
                      
                      
                      $
                      1,108,465





Inventories




Inventories
are stated at the lower of cost (first-in, first-out) or market. Management
regularly reviews inventory quantities on hand and in the retail channel and
records a provision for excess or obsolete inventory based on the future
expected demand for the Company’s games. Significant changes in demand for the
Company’s games would impact management’s estimates in establishing the
inventory provision.




6




SOUTHPEAK
INTERACTIVE CORPORATION AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements


(UNAUDITED)




1. Summary of Significant
Accounting Policies, continued




Advances on
Royalties




The
Company utilizes independent software developers to develop its
games in exchange for payments to the developers based upon
certain contract milestones. The Company enters into contracts with the
developers once the game design has been approved by the platform proprietors
and is technologically feasible.  Accordingly, the Company capitalizes
such payments to the developers during development of the games. These payments
are considered non-refundable royalty advances and are applied against the
royalty obligations owed to the developer from future sales of the game. Any
pre-release milestone payments that are not prepayments against future royalties
are expensed to “cost of goods sold - royalties” in the period when the game is
released. Capitalized royalty costs for those games that are cancelled or
abandoned are charged to “cost of goods sold - royalties” in the period of
cancellation.




Beginning
upon the related games release, capitalized royalty costs are amortized to “cost
of goods sold – royalties” based on the ratio of current revenues to total
projected revenues for the specific game, generally resulting in an amortization
period of twelve months or less.




The
Company evaluates the future recoverability of capitalized royalty costs on a
quarterly basis. For games that have been released in prior periods, the primary
evaluation criterion is actual title performance. For games that are scheduled
to be released in future periods, recoverability is evaluated based on the
expected performance of the specific game to which the royalties relate.
Criteria used to evaluate expected game performance include: historical
performance of comparable games developed with comparable technology; orders for
the game prior to its release; and, for any game sequel, estimated performance
based on the performance of the game on which the sequel is based.




Significant
management judgments and estimates are utilized in the assessment of the
recoverability of capitalized royalty costs. In evaluating the recoverability of
capitalized royalty costs, the assessment of expected game performance utilizes
forecasted sales amounts and estimates of additional costs to be incurred. If
revised forecasted or actual game sales are less than, and/or revised forecasted
or actual costs are greater than, the original forecasted amounts utilized in
the initial recoverability analysis, the net realizable value may be lower than
originally estimated in any given quarter, which could result in an impairment
charge. Material differences may result in the amount and timing of charges for
any period if management makes different judgments or utilizes different
estimates in evaluating these qualitative factors.




Intellectual
Property Licenses




Intellectual
property license costs consist of fees paid by the Company to license the use of
trademarks, copyrights, and software used in the development of games. Depending
on the agreement, the Company may use acquired intellectual property in multiple
games over multiple years or for a single game.  When no significant
performance remains with the licensor upon execution of the license agreement,
the Company records an asset and a liability at the contractual amount. The
Company believes that the contractual amount represents the fair value of the
liability. When significant performance remains with the licensor, the Company
records the payments as an asset when paid and as a liability when incurred,
rather than upon execution of the agreement. The Company classifies these
obligations as current liabilities to the extent they are contractually due
within the next twelve months.  Capitalized intellectual property
license costs for those games that are cancelled or abandoned are charged to
“cost of goods sold - intellectual property licenses” in the period of
cancellation.




Beginning
upon the related games release, capitalized intellectual property license costs
are amortized to “cost of sales - intellectual property licenses”
based on the ratio of current revenues for the specific game to total projected
revenues for all games in which the licensed property will be utilized. As
intellectual property license contracts may extend for multiple years, the
amortization of capitalized intellectual property license costs relating to such
contracts may extend beyond one year.




7




SOUTHPEAK
INTERACTIVE CORPORATION AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements


(UNAUDITED)




1. Summary of Significant
Accounting Policies, continued




The
Company evaluates the future recoverability of capitalized intellectual property
license costs on a quarterly basis. For games that have been released in prior
periods, the primary evaluation criterion is actual title performance. For games
that are scheduled to be released in future periods, recoverability is evaluated
based on the expected performance of the specific games to which the costs
relate or in which the licensed trademark or copyright is to be used. Criteria
used to evaluate expected game performance include: historical performance of
comparable games developed with comparable technology; orders for the game prior
to its release; and, for any game sequel, estimated performance based on the
performance of the game on which the sequel is based.   Further,
as intellectual property licenses may extend for multiple games over multiple
years, the Company also assesses the recoverability of capitalized intellectual
property license costs based on certain qualitative factors, such as the
success of other products and/or entertainment vehicles utilizing the
intellectual property and the continued promotion and exploitation of the
intellectual property.




Significant
management judgments and estimates are utilized in the assessment of the
recoverability of capitalized intellectual property license costs. In evaluating
the recoverability of capitalized intellectual property license costs, the
assessment of expected game performance utilizes forecasted sales amounts and
estimates of additional costs to be incurred. If revised forecasted or actual
game sales are less than, and/or revised forecasted or actual costs are greater
than, the original forecasted amounts utilized in the initial recoverability
analysis, the net realizable value may be lower than originally estimated in any
given quarter, which could result in an impairment charge. Material differences
may result in the amount and timing of charges for any period if management
makes different judgments or utilizes different estimates in evaluating these
qualitative factors.




Assessment
of Impairment of Assets




Current
accounting standards require that the Company assess the recoverability of
purchased intangible assets and other long-lived assets whenever events or
changes in circumstances indicate the remaining value of the assets recorded on
its condensed consolidated balance sheets is potentially impaired. In order to
determine if a potential impairment has occurred, management must make various
assumptions about the estimated fair value of the asset by evaluating future
business prospects and estimated cash flows. For some assets, the Company’s
estimated fair value is dependent upon predicting which of its products will be
successful. This success is dependent upon several factors, which are beyond the
Company’s control, such as which operating platforms will be successful in
the marketplace, market acceptance of the Company’s products and competing
products. Also, the Company’s revenues and earnings are dependent on the
Company’s ability to meet its product release schedules.




SFAS No.
142 “Goodwill and Other Intangible Assets,” requires a two-step approach to
testing goodwill for impairment for each reporting unit. The Company’s reporting
units are determined by the components of its operating segments that constitute
a business for which both (1) discrete financial information is available and
(2) segment information that management regularly reviews for the operating
results of that component. SFAS No. 142 requires that the impairment test be
performed at least annually by applying a fair-value-based test. The first step
measures for impairment by applying fair-value-based tests at the reporting unit
level. The second step (if necessary) measures the amount of impairment by
applying fair-value-based tests to the individual assets and liabilities within
each reporting unit.




To
determine the fair values of the reporting units used in the first step, the
Company uses a combination of the market approach, which utilizes comparable
companies’ data and/or the income approach, or discounted cash flows. Each step
requires management to make judgments and involves the use of significant
estimates and assumptions. These estimates and assumptions include long-term
growth rates and operating margins used to calculate projected future cash
flows, risk-adjusted discount rates based on the Company’s weighted average cost
of capital, future economic and market conditions and determination of
appropriate market comparables. These estimates and assumptions have to be made
for each reporting unit evaluated for impairment. The Company’s estimates for
market growth, its market share and costs are based on historical data,
various internal estimates and certain external sources, and are based on
assumptions that are consistent with the plans and estimates the Company is
using to manage the underlying business. The Company’s business consists of
publishing and distributing interactive entertainment software and content using
both established and emerging intellectual properties and its forecasts for
emerging intellectual properties are based upon internal estimates and external
sources rather than historical information and have an inherently higher risk of
accuracy. If future forecasts are revised, they may indicate or require future
impairment charges. The Company bases its fair value estimates on assumptions it
believes to be reasonable but that are unpredictable and inherently uncertain.
Actual future results may differ from those estimates.




8




SOUTHPEAK
INTERACTIVE CORPORATION AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements


(UNAUDITED)




1. Summary of Significant
Accounting Policies, continued




Revenue
Recognition




The
Company recognizes revenue from the sale of video games upon the transfer of
title and risk of loss to the customer, once performance obligations have been
completed and the following revenue recognition criteria have been met:
persuasive evidence of an arrangement, delivery, fixed and determinable fee, and
probability of collection.  Revenue from the sale of video games is
recognized after deducting the estimated allowance for sales returns and price
protection.




Some of
the Company’s video games provide limited online features at no additional cost
to the consumer. Generally, the Company considers such features to be incidental
to the overall product offering and an inconsequential deliverable. Accordingly,
the Company recognizes revenue related to video games containing these limited
online features upon the transfer of title and risk of loss to the
customer.  In instances where online features or additional
functionality are considered a substantive deliverable in addition to the video
game, the Company takes this into account when applying its revenue recognition
policy.  This evaluation is performed for each video game together
with any online transactions, such as electronic downloads or video game add-ons
when it is released.  When the Company determines that a video game
contains online functionality that constitutes a more-than-inconsequential
separate service deliverable in addition to the video game, principally because
of its importance to game play, the Company considers that its performance
obligations for this game extend beyond the delivery of the game. Fair
value does not exist for the online functionality, as the Company does not
separately charge for this component of the video game. As a result, the Company
recognizes all of the revenue from the sale of the game upon the delivery of the
remaining online functionally In addition, the Company defers the costs of sales
for this game and recognizes the costs upon delivery of the remaining online
functionality. Cost of sales includes: manufacturing costs, software royalties
and amortization, and intellectual property licenses and
amortization.




With
respect to online transactions, such as electronic downloads of games or add-ons
that do not include a more-than-inconsequential separate service deliverable,
revenue is recognized when the fee is paid by the online customer to purchase
online content and the Company is notified by the online retailer that the
product has been downloaded. In addition, persuasive evidence of an arrangement
must exist, collection of the related receivable must be probable and the fee
must be fixed and determinable.




Sales
incentives or other consideration given by the Company to its customers are
accounted for in accordance with Emerging Issues Task Force (“EITF”) Issue No.
01-09, “Accounting for Consideration Given by a Vendor to a Customer (Including
a Reseller of the Vendor’s Products)” (“EITF No. 01-09”).  In
accordance with EITF No. 01-09, sales incentives and other consideration that
are considered adjustments of the selling price of the Company’s games, such as
rebates and product placement fees, are reflected as reductions to
revenue.  Sales incentives and other consideration that represent
costs incurred by the Company for assets or services received, such as the
appearance of games in a customer’s national circular ad, are reflected as sales
and marketing expenses.




Third-party
licensees in Europe distribute Gamecock’s video games under license agreements
with Gamecock. The licensees paid certain minimum, non-refundable, guaranteed
royalties when entering into the licensing agreements. Upon receipt of the
advances, the Company defers their recognition and recognizes the revenues in
subsequent periods as these advances are earned  by the Company. As
the licensees pay additional royalties above and beyond those initially
advanced, the Company recognizes these additional royalties as
revenues.




With
respect to license agreements that provide customers the right to make multiple
copies in exchange for guaranteed amounts, revenue is recognized upon delivery
of a master copy. Per copy royalties on sales that exceed the guarantee are
recognized as earned.  In addition, persuasive evidence of an arrangement
must exist, collection of the related receivable must be probable, and the fee
must be fixed and determinable.




Stock-Based
Compensation




The
Company accounts for stock-based compensation in accordance with SFAS No. 123,
“Share-Based Payment” (“SFAS No. 123R”).  SFAS No. 123R requires
companies to estimate the fair value of share-based payment awards on the
measurement date using an option-pricing model. The value of the portion of the
award that is ultimately expected to vest is recognized as expense over the
requisite service periods in the condensed consolidated statements of
operations.




Stock-based
compensation expense recognized in the condensed consolidated statements of
operations is based on awards ultimately expected to vest and has been reduced
for estimated forfeitures. SFAS No. 123R requires forfeitures to be estimated at
the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.




9




SOUTHPEAK
INTERACTIVE CORPORATION AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements


(UNAUDITED)




1.Summary
of Significant Accounting Policies, continued




The
Company estimates the value of employee stock options on the date of grant using
the Black-Scholes option pricing model. The Company’s determination of fair
value of share-based payment awards on the date of grant using an option-pricing
model is affected by the Company’s stock price as well as assumptions regarding
a number of highly complex and subjective variables. These variables include,
but are not limited to; the expected stock price volatility over the term of the
awards, and actual and projected employee stock option exercise
behaviors.




Earnings
(Loss) Per Common Share




Basic
earnings (loss) per share is computed by dividing net income (loss) available to
common shareholders by the weighted average number of common shares outstanding
for all periods.  Diluted earnings per share is computed by dividing
net income (loss) available to common shareholders by the weighted average
number of common shares outstanding, increased by common stock
equivalents.  Common stock equivalents represent incremental shares
issuable upon exercise of outstanding options and warrants, the conversion of
preferred stock and the vesting of restricted stock. However, potential common
shares are not included in the denominator of the diluted earnings (loss) per
share calculation when inclusion of such shares would be anti-dilutive, such as
in a period in which a net loss is recorded.




Recently
Issued Accounting Pronouncements




On April
9, 2009, the FASB issued the following three Final Staff Positions (“FSPs”)
intended to provide additional application guidance and enhance disclosures
regarding fair value measurements and impairments of securities:




FSP FAS
157-4, “Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly,” provides guidance on how to determine the fair value of
assets and liabilities in an environment where the volume and level of activity
for the asset or liability have significantly decreased and re-emphasizes that
the objective of a fair value measurement remains an exit price.




FSP FAS
107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial
Instruments,” requires companies to disclose the fair value of financial
instruments within interim financial statements, adding to the current
requirement to provide those disclosures annually.




FSP FAS
115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary
Impairments,” modifies the requirements for recognizing
other-than-temporary-impairment on debt securities and significantly changes the
impairment model for such securities. Under FSP FAS 115-2 and 124-2, a security
is considered to be other-than-temporarily impaired if the present value of cash
flows expected to be collected are less than the security’s amortized cost basis
(the difference being defined as the credit loss) or if the fair value of the
security is less than the security’s amortized cost basis and the investor
intends, or more-likely-than-not will be required, to sell the security before
recovery of the security’s amortized cost basis. If an other-than-temporary
impairment exists, the charge to earnings is limited to the amount of credit
loss if the investor does not intend to sell the security, and it is
more-likely-than-not that it will not be required to sell the security, before
recovery of the security’s amortized cost basis. Any remaining difference
between fair value and amortized cost is recognized in other comprehensive
income, net of applicable taxes. Otherwise, the entire difference between fair
value and amortized cost is charged to earnings. The FSP also modifies the
presentation of other-than-temporary impairment losses and increases related
disclosure requirements.




The FSPs
are effective for interim and annual periods ending after June 15, 2009, but
entities may early adopt the FSPs for the interim and annual periods ending
after March 15, 2009. The adoption of these standards is not expected to have a
material impact on the Company’s consolidated results of operations or financial
position.




10




SOUTHPEAK
INTERACTIVE CORPORATION AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements


(UNAUDITED)




2. Acquisition




On
October 10, 2008, the Company acquired Gone Off Deep, LLC, doing business as
Gamecock Media Group (“Gamecock”), pursuant to a definitive purchase agreement
(the “Agreement”) with Vid Agon, LLC (the “Seller”) and Vid Sub, LLC (the
“Member”). The Member is a wholly-owned subsidiary of the Seller and Gamecock is
a wholly-owned subsidiary of the Member.  Pursuant to the terms of the
Agreement, the Company acquired all of the outstanding membership interests of
the Member in exchange for aggregate consideration of 7% of the future revenue
from sales of certain Gamecock games, net of certain distribution fees and
advances, and a warrant to purchase 700,000 shares of the Company’s common
stock.




The
acquisition allows the Company to broaden its portfolio of games by purchasing
games under development. Goodwill arises from the business combination due to
the acquired work force of Gamecock, and the expected synergies from the
acquisition.




The
amount of the contingent purchase price payment obligations (the “Gamecock
Earn-Out”) will be added to the purchase price (i.e. goodwill) when the
contingency is resolved and the payment is made.




The
preliminary purchase price of Gamecock consists of the following
items:




Fair
      value of 700,000 warrants to purchase common stock with an exercise price
      of $1.50 per share based on the closing date of the transaction, October
      10, 2008
                      
                      $
                      1,033,164Transaction
      costs
                      
                      
                      750,000Total
      initial purchase consideration
                      
                      $
                      1,783,164




The fair
value of the stock warrants was determined using the Black-Scholes option
pricing model and the following assumptions: (a) the fair value of the Company’s
common stock of $2.35 per share, which is the closing price as of October 10,
2008, (b) volatility of 57.68%, (c) a risk free interest rate of 2.77%, (d)
an expected term, also the contractual term, of 5.0 years, and (e) an
expected dividend yield of 0.0%.




The
preliminary allocation of the purchase price below was based upon a preliminary
valuation and the Company's estimates and assumptions are subject to change. The
primary areas of those purchase price allocations that are not finalized relate
to certain intangible assets and residual goodwill. Any material adjustments to
this purchase price allocation in future periods will be disclosed. The
preliminary valuation of acquired assets and liabilities performed in part by an
unrelated third-party valuation firm is as follows:




AmountWorking
      capital, excluding inventories
                    
                    $
                    827,287Inventories
                    
                    156,745Other
      current assets
                    
                    36,369Property
      and equipment
                    
                    209,441
  Estimated useful
                            lifeIntangible
      assets:Royalty
      agreements (Advances on royalties)
                          
                          Less
      than 1 year
                          
                          3,317,000Game
      sequels
                          
                          5 –
      12 years
                          
                          1,037,000Non-compete
      agreements
                          
                          Less
      than 1 year
                          
                          200,000Distribution
      agreements
                          
                          3
      years
                          
                          50,000Goodwill
                          
                          Indefinite
                          
                          
                          6,882,133Liabilities
                          
                          
                          
                          
                          (10,932,811
                          )Total
      initial purchase consideration
                          
                          
                          
                          $
                          1,783,164




11




SOUTHPEAK
INTERACTIVE CORPORATION AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements


(UNAUDITED)




2. Acquisition, continued




The
following table presents the gross and net balances, and accumulated
amortization of the components of the Company’s purchased amortizable intangible
assets included in the acquisition as of March 31, 2009:




AccumulatedGross
                    
                    
                    Amortization
                    
                    
                    NetRoyalty
      agreements (Advances on royalties)
                    
                    $
                    3,317,000
                    
                    
                    $
                    (966,750
                    )
                    
                    $
                    2,350,250Intangible
      assets, netGame
      sequels
                    
                    $
                    1,037,000
                    
                    
                    $
                    —
                    
                    
                    $
                    1,037,000Non-compete
      agreements
                    
                    
                    200,000
                    
                    
                    
                    (149,650
                    )
                    
                    
                    50,350Distribution
      agreements
                    
                    
                    50,000
                    
                    
                    
                    (7,885
                    )
                    
                    
                    42,115Total
      intangible assets, net
                    
                    $
                    1,287,000
                    
                    
                    $
                    (157,535
                    )
                    
                    $
                    1,129,465





Intangible
assets and goodwill are expected to be tax deductible. The estimated future
decreases to net income (loss) from the amortization of the finite-lived
intangible assets are the following amounts:




Year ending June
      30,
                    
                    Amount2009
      (remaining three months)
                    
                    $
                    1,125,3842010
                    
                    
                    1,296,0492011
                    
                    
                    16,6662012
                    
                    
                    4,6162013
                    
                    
                    —Thereafter
                    
                    
                    1,037,000





The
following table summarizes the unaudited pro forma information assuming the
business combination had occurred at the beginning of the periods
presented.  This pro forma financial information is for informational
purposes only and does not reflect any operating efficiencies or inefficiencies
which may result from the business combination and therefore is not necessarily
indicative of results that would have been achieved had the businesses been
combined during the periods presented.





For the three monthsended
                      March 31,
                    
                    
                    For the nine months ended
                      March 31,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Pro
      forma net revenues
                    
                    $
                    13,521,907
                    
                    
                    $
                    2,777,398
                    
                    
                    $
                    40,027,695
                    
                    
                    $
                    26,288,231Pro
      forma net income (loss)
                    
                    
                    289,183
                    
                    
                    
                    (1,790,601
                    )
                    
                    
                    (34,433,778
                    )
                    
                    
                    (2,494,632
                    )Pro
      forma net income (loss) per share—basic
                    
                    
                    .01
                    
                    
                    
                    (.05
                    )
                    
                    
                    (.96
                    )
                    
                    
                    (.07
                    )Pro
      forma net income (loss) per share—diluted
                    
                    
                    .01
                    
                    
                    
                    (.05
                    )
                    
                    
                    (.96
                    )
                    
                    
                    (.07
                    )





As of
March 31, 2009, a total of $501,815, which may be netted contractually
against adjustments for excess payables, as defined pursuant to the
Agreement, of the Gamecock Earn-Out has been achieved and was included to
goodwill in the consolidated balance sheets.




On
December 4, 2008, the Company acquired the remaining 4% minority interest in
Gamecock in exchange for aggregate consideration of 50,000 warrants to purchase
shares of the Company’s common stock, with an exercise price of $1.50 per
share, exercisable subject to the achievement of certain revenue targets.
The transaction has been accounted for as a purchase and resulted in an increase
to goodwill of $18,889. The fair value of the stock warrants was determined
using the Black-Scholes option pricing model and the following assumptions:
(a) the fair value of the Company’s common stock of $1.10 per share, which is
the closing price as of December 4, 2008, (b) volatility of 63.76%, (c) a risk
free interest rate of 1.51%, (d) an expected term, also the contractual
term, of 3.0 years, and (e) an expected dividend yield of
0.0%.




12




SOUTHPEAK
INTERACTIVE CORPORATION AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements


(UNAUDITED)




3. Fair
Value Measurements




On July
1, 2008, the Company adopted SFAS No 157, “Fair Value Measurements." In February
2008, the FASB issued FSP FAS 157-2, “Effective Date of FASB Statement No. 157”
which defers the implementation for certain non-recurring, nonfinancial assets
and liabilities from fiscal years beginning after November 15, 2007 to fiscal
years beginning after November 15, 2008, which will be the Company’s fiscal year
2010.  Therefore, the Company has adopted the provisions of SFAS No.
157 with respect to its financial assets and liabilities only. The adoption of
SFAS No. 157 did not have a material impact on the Company’s consolidated
results of operations, financial position or cash flows.




SFAS No.
157 defines fair value, establishes a framework for measuring fair value under
generally accepted accounting principles and enhances disclosures about fair
value measurements.  Fair value is defined under SFAS No. 157 as the
price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants on the measurement
date.  Valuation techniques used to measure fair value under SFAS No.
157 must maximize the use of observable inputs and minimize the use of
unobservable inputs. SFAS No. 157 establishes a three-tier hierarchy that draws
a distinction between market participant assumptions based on (1) observable
quoted prices in active markets for identical assets or liabilities (Level 1),
(2) inputs other than quoted prices in active markets that are observable either
directly or indirectly (Level 2), and (3) unobservable inputs that require the
Company to use other valuation techniques to determine fair value (Level
3).




The
following table summarizes the Company’s financial assets measured at fair value
on a recurring basis in accordance with SFAS No. 157 as of March 31,
2009:




Fair Value Measurements at Reporting Date UsingQuoted PricesinActiveMarkets
                                            
                                            
                                            Significantfor Identical
                                            
                                            
                                            Other
                                            
                                            
                                            SignificantFinancial
                                            
                                            
                                            Observable
                                            
                                            
                                            UnobservableInstruments
                                            
                                            
                                            Inputs
                                            
                                            
                                            InputsAs ofMarch 31,2009
                                            
                                            
                                            (Level 1)
                                            
                                            
                                            (Level 2)
                                            
                                            
                                            (Level 3)
                                            
                                            BalanceSheetClassificationAssetsMoney
      market funds
                                            
                                            $
                                            962
                                            
                                            
                                            $
                                            962
                                            
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            —
                                            
                                            Cash and cash
      equivalentsTotal
      assets at fair value
                                            
                                            $
                                            962
                                            
                                            
                                            $
                                            962
                                            
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            —





4. Inventories




At March
31, 2009 and June 30, 2008, inventories consist of the
following:




March 31,
                    2009
                  
                  
                  June 30,
                    2008Finished
      goods
                  
                  $
                  4,300,975
                  
                  
                  $
                  6,239,060Purchased
      parts and components
                  
                  
                  237,148
                  
                  
                  
                  299,584Total
                  
                  $
                  4,538,123
                  
                  
                  $
                  6,538,644




13




SOUTHPEAK INTERACTIVE CORPORATION AND
SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements


(UNAUDITED)




5. Line of
Credit




The
Company has a $7.5 million revolving line of credit facility with a financial
institution that expires on November 30, 2009. The line of credit bears interest
at prime plus 1⁄2%, which was 3.75% and 5.50% at March 31, 2009 and June 30, 2008,
respectively. The financial institution processes payments received on such
accounts receivable as payments on the revolving line of credit. The line is
collateralized by gross accounts receivable of approximately $11,096,000 and
$13,629,000 at March 31, 2009 and June 30, 2008, respectively. The line of
credit is further collateralized by the personal guarantees, and pledge of
personal securities and assets by two Company shareholders. The agreement
contains certain financial and non-financial covenants. At March 31, 2009, the
Company was in compliance with these covenants.




At March
31, 2009 and June 30, 2008, the outstanding line of credit balance was
$6,775,870 and $4,851,819, respectively. As of March 31, 2009 and June 30, 2008,
the Company had $102,721 and $148,181, respectively, available under its credit
facility. For the three months and nine months ended March 31, 2009, interest
expense relating to the line of credit was $68,280 and 153,793, respectively.
For the three months and nine months ended March 31, 2008, interest expense
relating to the line of credit was $0 and $228,317, respectively.




6. Related Party
Transactions




Related
Party Receivables




Related
party receivables consist of short-term advances to employees. No allowance has
been provided due to the short-term nature and recoverability of such
advances.




Due
to Shareholders




The
company has received advances, which are payable on demand, from a shareholder
of the company. Such advances are non-interest bearing and are not
collateralized. At March 31, 2009 and June 30, 2008, the amounts due were $-0-
and $228,998, respectively.





Due
to Related Parties




The
Company receives advances, which are payable on demand, from certain affiliated
entities of a shareholder of the Company. Such advances are non-interest bearing
and are not collateralized. At March 31, 2009 and June 30, 2008, the amounts due
to these entities were $92,997 and $15,658, respectively.




Accrued
Expenses - Related Party




Accrued
expenses due to related parties as of March 31, 2009 and June 30, 2008
consisted of:




As of
                    March 31,2009
                  
                  
                  As of
                    June 30,2008Balance
      at beginning of period
                  
                  $
                  4,182
                  
                  
                  $
                  650,889Expenses
      incurred:Consulting
      fees
                  
                  
                  —
                  
                  
                  
                  920,930Commissions
                  
                  
                  550,429
                  
                  
                  
                  433,370Less:
      amounts paid
                  
                  
                  554,691
                  
                  
                  
                  (2,001,007
                  )Balance
      at end of period
                  
                  $
                  —
                  
                  
                  $
                  4,182




The
Company incurred sales commissions for the marketing and sale of video games
with two affiliates of a shareholder of the Company.  Sales
commissions for the three and nine months ended March 31, 2009 were $277,201 and
$500,327, respectively.  Sales commissions for the three and nine
months ended March 31, 2008 were $44,928 and $430,649,
respectively.  These amounts are included in sales and marketing
expenses in the accompanying condensed consolidated statements of
operations.




The
Company incurred fees for office space and staff services under an informal
arrangement to an entity partially owned by two shareholders of the
Company.  Fees for the three and nine months ended March 31, 2009 were
$27,500 and $72,750, respectively. Fees for the three and nine months ended
March 31, 2008 were $22,626 and $22,626, respectively. These amounts are
included in the general and administrative expenses in the accompanying
condensed consolidated statements of operations.




14




SOUTHPEAK
INTERACTIVE CORPORATION AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements


(UNAUDITED)




6. Related Party
Transactions,continued




The
Company incurred fees for broadband usage to an entity partially owned by
shareholders of the Company.  Broadband usage fees for the three and
nine months ended March 31, 2009 were $25,912 and $67,612, respectively.
Broadband usage fees for the three and nine months ended March 31, 2008 were
$16,850 and $36,850, respectively. These amounts are included in general and
administrative expenses in the accompanying condensed consolidated statements of
operations.




7. Commitments




A summary
of annual minimum contractual obligations and commercial commitments as of March
31, 2009 is as follows:




SoftwareDevelopers
                        
                        
                        Marketing
                        
                        
                        Leases
                        
                        
                        TotalCommitments
      for twelve months ending March 31,2010
                        
                        $
                        9,631,810
                        
                        
                        $
                        74,143
                        
                        
                        $
                        145,131
                        
                        
                        $
                        9,851,0842011
                        
                        
                        463,476
                        
                        
                        
                        —
                        
                        
                        
                        117,631
                        
                        
                        
                        581,1072012
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        35,131
                        
                        
                        
                        35,1312013
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        23,421
                        
                        
                        
                        23,4212014
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Thereafter
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Total
                        
                        $
                        10,095,286
                        
                        
                        $
                        74,143
                        
                        
                        $
                        321,314
                        
                        
                        $
                        10,490,743




8. Stock-based
Compensation




In May
2008, the Company’s Board of Directors and its shareholders approved the 2008
Equity Incentive Compensation Plan (the “2008 Plan”) for the grant of stock
awards to officers, directors, employees and consultants. The 2008 Plan expires
in May 2018. Shares available for future grant as of March 31, 2009
were 3,597,000 under the 2008 Plan.




Stock
awards and shares are generally granted at prices which the Company’s Board of
Directors believes approximates the fair market value of the awards or shares at
the date of grant. Individual grants generally become exercisable ratably over a
period of three years from the date of grant. The contractual terms of the
options range from three to ten years from the date of grant.




The
Company is required to recognize compensation costs for the stock-based payments
to employees, based on the fair value at their grant-date. The fair value is
determined using the Black-Scholes option pricing model. The determination of
fair value is affected by the Company’s stock price and volatility, employee
exercise behavior, and the time for the shares to vest.




The
assumptions used in the Black-Scholes option pricing model to value the
Company’s option grants were as follow:




For the threemonths endedMarch 31, 2009
                                  
                                  
                                  For the ninemonths endedMarch 31, 2009Risk-free
      interest rate
                                  
                                  1.72%
                                  
                                  
                                  1.72-4.01%Weighted-average
      volatility
                                  
                                  65.23%
                                  
                                  
                                  57.56-65.23%Expected
      term
                                  
                                  6
      years
                                  
                                  
                                  5.5-6
      yearsExpected
      dividends
                                  
                                  0.0%
                                  
                                  
                                  0.0%Estimated
      forfeiture rate
                                  
                                  5.0%
                                  
                                  
                                  5.0%




15




SOUTHPEAK
INTERACTIVE CORPORATION AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements


(UNAUDITED)




8. Stock-based
Compensation, continued




The
following table summarizes the stock-based compensation expense resulting from
stock options and restricted stock in the Company’s condensed consolidated
statements of operations:




For the threemonths endedMarch 31, 2009
                  
                  
                  For the ninemonths endedMarch 31, 2009Sales
      and Marketing
                  
                  $
                  —
                  
                  
                  $
                  31,591General
      and administrative
                  
                  
                  118,831
                  
                  
                  
                  429,745Stock-based
      compensation expense
                  
                  $
                  118,831
                  
                  
                  $
                  461,336





As of
March 31, 2009, the Company’s unrecognized stock-based compensation for
stock options and restricted stock issued to employees
and non-employee directors was approximately $973,000 and will be
recognized over a weighted average of 2.2 years.




The
following table summarizes the Company’s stock option activity for the nine
months ended March 31, 2009:




Options
                                                                            
                                                                            
                                                                            Weighted-AverageExercisePrice
                                                                            
                                                                            
                                                                            Weighted-AverageRemainingContractualTerm(in years)
                                                                            
                                                                            
                                                                            AggregateIntrinsicValueOutstanding
      as of June 30, 2008
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            $
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            $
                                                                            —Activity
      for the nine months ended March 31, 2009Granted
                                                                            
                                                                            
                                                                            1,472,000
                                                                            
                                                                            
                                                                            
                                                                            2.01Exercised
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —Forfeited,
      cancelled or expired
                                                                            
                                                                            
                                                                            (90,000
                                                                            )
                                                                            
                                                                            
                                                                            1.69Outstanding
      as of March 31, 2009
                                                                            
                                                                            
                                                                            1,382,000
                                                                            
                                                                            
                                                                            $
                                                                            2.03
                                                                            
                                                                            
                                                                            
                                                                            9.38
                                                                            
                                                                            
                                                                            $
                                                                            —Exercisable
      as of March 31, 2009
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            $
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            $
                                                                            —Exercisable
      and expected to be exercisable
                                                                            
                                                                            
                                                                            1,312,900
                                                                            
                                                                            
                                                                            $
                                                                            2.03
                                                                            
                                                                            
                                                                            
                                                                            9.38
                                                                            
                                                                            
                                                                            $
                                                                            —





The
aggregate intrinsic value represents the total pre-tax intrinsic value based on
the Company’s closing stock price as of March 31, 2009, which would have been
received by the option holders had all option holders exercised their options as
of that date.




The
following table summarizes the Company’s restricted stock activity for the nine
months ended March 31, 2009:




Options
                        
                        
                        Weighted-AverageExercisePriceOutstanding
      as of June 30, 2008
                        
                        
                        —
                        
                        
                        $
                        —Activity
      for the nine months ended March 31, 2009Granted
                        
                        
                        123,000
                        
                        
                        
                        2.15Vested
                        
                        
                        —
                        
                        
                        
                        —Forfeited,
      cancelled or expired
                        
                        
                        (7,500
                        )
                        
                        
                        2.30Outstanding
      as of March 31, 2009
                        
                        
                        115,500
                        
                        
                        $
                        2.14Vested
      as of March 31, 2009
                        
                        
                        —
                        
                        
                        
                        —




16




SOUTHPEAK
INTERACTIVE CORPORATION AND SUBSIDIARIES


Notes
to Consolidated Financial Statements


(UNAUDITED)




9. Contingencies




The
Company was obligated to file a registration statement with the SEC covering the
resale of the shares of its common stock issued upon conversion of the Series A
preferred stock and the exercise of Class Y warrants within 30 days following
the Company’s filing of its Form 10-K for the fiscal year in 2008 but no later
than January 15, 2009. The Company filed a registration statement on Form S-1
with the SEC, however, the registration statement was not declared effective by
the SEC within the prescribed time period.




Since the
registration statement was not declared effective by the SEC within the
prescribed time period, the Company is obligated to make pro rata payments to
each holder of Series A preferred stock in an amount equal to .5% of the
aggregate amount invested by such holder of Series A preferred stock for each 30
day period (or portion thereof) for which no registration statement is
effective. In accordance with FSP EITF No. 00-19-2, “Accounting for Registration
Payment Arrangements”, the Company has recognized liquidating damages and
interest totaling $86,511 for the three months ended March 31, 2009 and $196,511
for the nine months ended March 31, 2009.




10. Income
Taxes




The
Company accounts for income taxes under the asset and liability method, which
requires, among other things, that deferred income taxes be provided for
temporary differences between the tax bases of the Company’s assets and
liabilities and their financial statement reported amounts. In addition,
deferred tax assets are recorded for the future benefit of utilizing net
operating losses, and temporary differences.




The
Company records a valuation allowance to reduce its deferred tax assets to the
amount the Company believes is more likely than not to be
realized.  Because of the uncertainty of the realization of the
deferred tax assets, the Company has recorded a full valuation allowance against
its domestic and foreign net deferred tax assets.




11. Restructuring




The
Company has implemented an organizational restructuring as a result of the
acquisition described in Note 2. This organizational restructuring is to
integrate different operations to create a streamlined organization within the
Company.




The
primary goals of the organizational restructuring were to rationalize the title
portfolio and consolidate certain corporate functions so as to realize the
synergies of the acquisition.




17




SOUTHPEAK
INTERACTIVE CORPORATION AND SUBSIDIARIES


Notes
to Condensed Consolidated Financial Statements


(UNAUDITED)




11. Restructuring,
continued




Since the
consummation of the acquisition, the Company has commenced the organizational
restructuring activities, focusing first on North American and European staff as
well as redundant premises.  The Company has communicated to the North
America and United Kingdom redundant employees and ceased use of certain offices
under operating lease agreements. The following table details the amount of
restructuring reserves included in accrued expenses and other current
liabilities in the condensed consolidated balance sheet at March 31,
2009:




FacilitiesSeverance(1)
                        
                        
                        Costs(1)
                        
                        
                        TotalRestructuring
      charges (charges to expenses)
                        
                        $
                        560,707
                        
                        
                        $
                        67,730
                        
                        
                        $
                        628,437Utilization
      (cash paid or otherwise settled) (2)
                        
                        
                        (469,045
                        )
                        
                        
                        (67,730
                        )
                        
                        
                        (536,775
                        )Balance
      at March 31, 2009
                        
                        $
                        91,662
                        
                        
                        $
                        -
                        
                        
                        $
                        91,662




(1)
            Accounted
      for in accordance with SFAS No. 146, “Accounting for Costs Associated with
      Exit or Disposal Activities” (“SFAS No.
146”).




(2)
            Utilization
      represents the amount of cash paid to settle restructuring liabilities
      incurred ($469,045 of severance and $67,730 of facility
      costs).




12.
Property




On
January 30, 2009, the Company purchased a 3,746 square foot office building in
Grapevine, Texas for $625,000.  Acquisition costs for the property
were funded with new mortgage debt totaling $500,000.  Principal and
interest are payable in monthly installments of $3,439 beginning February 28,
2009 and continuing until January 28, 2014 when the entire balance of principal
and accrued interest is due and payable.  The interest rate on the
mortgage adjusts daily to prime plus 1.0%.  The mortgage is secured by
the land and building. One of the Company’s stockholders has personally
guaranteed the mortgage note.




13. Contingencies




On March
12, 2009, the Company, Gamecock, SouthPeak Interactive, Ltd. and Gamecock Media
Europe, Ltd. were served with a complaint by a videogame distributor alleging
various breach of contract and other claims related to a publishing and
distribution agreement, or the Distribution
Agreement, entered into between Gamecock Media Europe, Ltd. and the distributor
in January 2008. CDV is seeking the return of $4,590,000 in videogame
development advances, an injunction against the Company and its subsidiaries,
€362,508 and £95,228 in specified damages, further damages to be assessed, and
discretionary interest and costs.  Additionally, Gamecock Media
Europe, Ltd. filed a counterclaim against the distributor for $700,000 and
€177,078.28 and discretionary interest and costs, resulting from videogame sales
and the achievement of a milestone under the Distribution
Agreement.  This matter has a hearing scheduled in the United Kingdom
in June 2009. On October 27, 2008, a
third party developer demanded arbitration with Gamecock claiming breach of
contract resulting from the Gamcock’s lack of payment upon the developer’s
achievement of certain milestones. Mediation was held in February without both
parties agreeing to a settlement. The Company’s management currently believes
that resolution of these matters will not have a material adverse effect on the
Company’s consolidated financial position or consolidated results of operations.
However, legal issues are subject to inherent uncertainties and there exists the
possibility that the ultimate resolution of these issues could have a material
adverse effect on the Company’s consolidated financial position and the
consolidated results of operations in the period in which any such effect is
recorded.





14.
Mortgage Note
Payable




On January 30, 2009, the Company
purchased a 3,746 square foot office building in Grapevine, Texas for
$625,000.  Acquisition costs for the property were funded with new
mortgage debt totaling $500,000.  Principal and interest are payable
in monthly installments of $3,439 beginning February 28, 2009 and continuing
until January 28, 2014 when the entire balance of principal and accrued interest
is due and payable.  The interest rate on the mortgage adjusts daily
to prime plus 1.0%.  The mortgage is secured by the land and building.
One of the Company’s stockholders has personally guaranteed the mortgage
note.


15.
Subsequent
Events
  Subsequent to March 31,
2009 and as of May 14, 2009, holders of 5,210,000 shares of Series A Preferred
Stock have elected to convert to 5,210,000 shares of common
stock.





18




We
maintain operations in the United States and in the United Kingdom. For the nine
months ended March 31, 2009 and 2008, international operations contributed
approximately 14% and 21%, respectively, to consolidated net revenues. We sell
our videogames directly to retailers and distributors in North America and
United Kingdom. In the rest of Europe, Asia and Australia, we primarily sell our
videogames directly to distributors. We operate in one business segment,
interactive videogame publishing.




Third
Quarter 2009 Releases




We
released the following videogames in the three month period ended March 31,
2009:




Title
                              
                              Platform
                              
                              Date
      ReleasedBig
      Bang Mini
                              
                              NDS
                              
                              1/21/09X-Blades
                              
                              PC,
      PS3, X360
                              
                              2/10/09Penumbra
      Collection
                              
                              PC
                              
                              2/17/09Mushroom
      Men (EU)
                              
                              NDS,
      Wii
                              
                              3/27/09




Consolidated
Financial Statements




Our
consolidated financial statements include the accounts of SouthPeak Interactive
Corporation and its subsidiaries SouthPeak Interactive, L.L.C., SouthPeak
Interactive, Ltd., Vid Sub, LLC, Gone Off Deep, LLC and Gamecock Media Europe
Ltd.  All intercompany accounts and transactions have been eliminated
in consolidation.




The
following are the primary components of our consolidated statements of
operations:




Net
Revenues. Our revenue is derived from publishing and selling
videogames. We work with independent developers and/or development studios to
develop proprietary videogames and also license rights to properties from third
parties. We focus on providing high quality videogames that command prices that
are similar to those obtained by our major competitors in the front-line/premium
videogame market ($39.95 to $59.95), that are featured prominently “on the
shelf” of major retailers, and not on focusing on lower-priced “value games,”
that generally are found in “budget game bins” in retail outlets (usually priced
between $9.99 and $14.99).However,
as our products mature we will take advantage of opportunities to sell older
games at value prices to selected retailers.The future growth of our
revenues is dependent upon our ability to continue providing highly desirable,
high quality videogames to the market.




Cost of Goods
Sold.  Cost
of goods sold consists of royalty payments to third party developers, license
fees to videogame manufacturers, intellectual property costs for items such as
trademarked characters and game engines, and manufacturing costs of the
videogame discs, cartridges or similar media. Proprietary console manufacturers
approve and manufacture each videogame for their platform. They charge their
license fee for each videogame based on the expected retail sales price of the
videogame. Such license fee is paid by us based on the number of videogames
manufactured. Should some of the videogames ultimately not be sold, or the sales
price to the retailer be reduced by us through price protection, no adjustment
is made by the proprietary console manufacturer in the license fee originally
charged. Therefore, because of the terms of these license fees, we may have an
increase in the cost of goods as a percent of net revenue should we fail to sell
a number of copies of a videogame for which a license has been paid, or if the
price to the retailer is reduced.




We
utilize third-parties to develop our videogames on a royalty payment basis. We
enter into contracts with third party developers once the videogame design has
been approved by the platform proprietors and is technologically
feasible. Specifically, payments to third-party developers are made when
certain contract milestones are reached, and these payments are capitalized.
These payments are considered non-refundable royalty advances and are applied
against the royalty obligations owing to the third-party developer from the
sales of the videogame. To the extent these prepaid royalties are sales
performance related, the royalties are expensed against projected sales revenue
at the time a videogame is released and charged to costs of goods sold. Any
pre-release milestone payments that are not prepayments against future royalties
are expensed when a videogame is released and then charged to costs of goods
sold. Capitalized costs for videogames that are cancelled or abandoned prior to
product release are charged to “cost of goods sold - royalties” in the period of
cancellation.




Gross Profit. Our gross
profit is positively impacted by our strategy of using cost-efficient, external
third party developers to develop our videogames, rather than directly employing
videogame developers or maintaining a costly development studio. Additionally,
we are often able to attract high quality developers willing to work for
lower costs because of the creative flexibility and focused attention provided
by us. Gross profits are positively impacted by titles that perform better
than our budgeted forecasts, since manufacturing, royalties and licensing
costs are faster recovered and economies of scale occur as the incremental
sales of a videogame produce greater profitability. In addition since we utilize
a variety of third-party developers, our royalty payments and obligations are
different for each title thereby impacting our gross profit. Gross profits are
negatively impacted by costs written off from abandoned projects, videogames
that do not meet our sales expectations, and by videogames that require more
significant royalty payments to developers.




20




Warehousing and Distribution
Expenses. Our warehousing and distribution expenses primarily consist of
costs associated with warehousing, order fulfillment, and shipping. Because we
use third-party warehousing and order fulfillment companies in the United States
and in Europe, the expansion of our product offerings and escalating sales will
increase our expenditures for warehousing and distribution in proportion to our
increased sales.




Sales and Marketing Expenses.
Sales and marketing expenses consist of advertising, marketing and promotion
expenses, and commissions to external sales representatives. The largest
component of this expense relates to certain customer marketing allowances. As
the number of newly published videogames increases, advertising, marketing and
promotion expenses are expected to rise accordingly. We recognize advertising,
marketing and promotion expenses as incurred, except for production costs
associated with media advertising, which are deferred and charged to expense
when the related ad is run for the first time. We also engage in cooperative
marketing with some of our retail channel partners. We accrue marketing and
sales incentive costs when revenue is recognized and such amounts are included
in sales and marketing expense when an identifiable benefit to us can be
reasonably estimated; otherwise, the incentives are recognized as a reduction to
net revenues. Such marketing is offered to our retail channel partners based on
a single sales transaction, as a credit on their accounts receivable balance,
and would include items such as contributing to newspaper circular ads and in
store banners and displays.




General and Administrative
Expenses. General and administrative expenses primarily represent
personnel-related costs, including corporate executive and support staff,
general office expenses, consulting and professional fees, and various other
expenses. Personnel-related costs represent the largest component of general and
administrative expenses. We expect that our personnel costs will increase as the
business continues to grow. We expect to incur additional increased costs for
personnel and consultants as a result of becoming a publicly traded company
which requires compliance and adherence to new regulations for corporate
governance and accounting. Depreciation expense also is included in general and
administrative expenses.




Interest and Financing Costs.
Interest and financing costs are attributable to SouthPeak’s line of credit and
financing arrangements that are used to fund development of videogames with
third parties, which often takes 12-24 months. Additionally, such costs are used
to finance the accounts receivables prior to payment by customers.




Critical
Accounting Policies and Estimates




This
discussion and analysis of our financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these consolidated financial statements requires estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities.
Estimates were based on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
could differ materially from these estimates under different assumptions or
conditions.




We have
identified the policies below as critical to our business operations and the
understanding of our financial results. The impact and any associated risks
related to these policies on our business operations is discussed throughout
management’s discussion and analysis of financial condition and results of
operations where such policies affect our reported and expected financial
results.




In Item 7
(“Management’s Discussion and Analysis of Financial Condition and Results of
Operations”) of our Annual Report on Form 10-K for the year ended June 30, 2008,
which was filed with the SEC on October 6, 2008 (the “Annual Report”), we
included a discussion of the most significant accounting policies and estimates
used in the preparation of our financial statements. There has been no material
change in the policies and estimates used in the preparation of our financial
statements since the filing of our Annual Report.




Allowances for Returns, Price
Protection, and Doubtful Accounts.Management closely
monitors and analyzes the historical performance of our  various
games, the performance of games released by other publishers, and the
anticipated timing of other releases in order to assess future demands of
current and upcoming games. Initial volumes shipped upon title launch and
subsequent reorders are evaluated to ensure that quantities are sufficient to
meet the demands from the retail markets, but at the same time are controlled to
prevent excess inventory in the channel.




21




We may
permit product returns from, or grant price protection to, our customers
under certain conditions. Price protection refers to the circumstances when we
elect to decrease the wholesale price of a product by a certain amount and, when
granted and applicable, allows customers a credit against amounts owed by such
customers to us with respect to open and/or future invoices. The conditions that
our customers must meet to be granted the right to return products or price
protection include, among other things, compliance with applicable payment
terms, and consistent delivery to the Company of inventory and sell-through
reports. We may also consider other factors, including the facilitation of
slow-moving inventory and other market factors. Management must make
estimates of potential future product returns and price protection related to
current period revenues. Management estimates the amount of future returns and
price protection for current period revenues utilizing historical experience and
information regarding inventory levels and the demand and acceptance of
our games by the end consumer. The following factors are used to estimate
the amount of future returns and price protection for a particular game:
historical performance of games in similar genres; historical performance of the
hardware platform; sales force and retail customer feedback; industry pricing;
weeks of on-hand retail channel inventory; absolute quantity of on-hand retail
channel inventory; the game’s recent sell-through history (if available);
marketing trade programs; and competing games. Significant management judgments
and estimates must be made and used in connection with establishing the
allowance for returns and price protection in any accounting period. Based upon
historical experience management believes the estimates are reasonable.
However, actual returns and price protection could vary materially from
management’s allowance estimates due to a number of reasons including, among
others, a lack of consumer acceptance of a game, the release in the same period
of a similarly themed game by a competitor, or technological obsolescence due to
the emergence of new hardware platforms. Material differences may result in the
amount and timing of our revenues for any period if factors or market conditions
change or if management makes different judgments or utilizes different
estimates in determining the allowances for returns and price
protection.




Management
must make estimates of the uncollectibility of our accounts receivable. In
estimating the allowance for doubtful accounts, we analyzes the age of current
outstanding account balances, historical bad debts, customer concentrations,
customer creditworthiness, current economic trends, and changes in our
customers’ payment terms and their economic condition. Any significant changes
in any of these criteria would affect management’s estimates in establishing the
allowance for doubtful accounts.




Inventories.Inventories
are stated at the lower of cost (first-in, first-out) or market. Management
regularly reviews inventory quantities on hand and in the retail channel and
records a provision for excess or obsolete inventory based on the future
expected demand for our games. Significant changes in demand for our games would
impact management’s estimates in establishing the inventory
provision.




Advances on
Royalties.We utilizes independent software developers to develop
our games and makes payments to the developers based upon certain contract
milestones. We enter into contracts with the developers once the game design has
been approved by the platform proprietors and is technologically
feasible.  Accordingly, we capitalize such payments to the developers
during development of the games. These payments are considered non-refundable
royalty advances and are applied against the royalty obligations owed to the
developer from future sales of the game. Any pre-release milestone payments that
are not prepayments against future royalties are expensed to “cost of goods sold
- royalties” in the period when the game is released. Capitalized royalty costs
for those games that are cancelled or abandoned are charged to “cost of goods
sold - royalties” in the period of cancellation.




Beginning
upon the related games release, capitalized royalty costs are amortized to “cost
of goods sold – royalties” based on the ratio of current revenues to total
projected revenues for the specific game, generally resulting in an amortization
period of six months or less.




We
evaluate the future recoverability of capitalized royalty costs on a quarterly
basis. For games that have been released in prior periods, the primary
evaluation criterion is actual title performance. For games that are scheduled
to be released in future periods, recoverability is evaluated based on the
expected performance of the specific game to which the royalties relate.
Criteria used to evaluate expected game performance include: historical
performance of comparable games developed with comparable technology; orders for
the game prior to its release; and, for any game sequel, estimated performance
based on the performance of the game on which the sequel is based.




Significant
management judgments and estimates are utilized in the assessment of the
recoverability of capitalized royalty costs. In evaluating the recoverability of
capitalized royalty costs, the assessment of expected game performance utilizes
forecasted sales amounts and estimates of additional costs to be incurred. If
revised forecasted or actual game sales are less than, and/or revised forecasted
or actual costs are greater than, the original forecasted amounts utilized in
the initial recoverability analysis, the net realizable value may be lower than
originally estimated in any given quarter, which could result in an impairment
charge. Material differences may result in the amount and timing of charges for
any period if management makes different judgments or utilizes different
estimates in evaluating these qualitative factors.




Intellectual Property
Licenses.Intellectual property
license costs consist of fees paid by us to license the use of trademarks,
copyrights, and software used in the development of games. Depending on the
agreement, we may use acquired intellectual property in multiple games over
multiple years or for a single game.  When no significant performance
remains with the licensor upon execution of the license agreement, we record an
asset and a liability at the contractual amount. We believe that the contractual
amount represents the fair value of the liability. When significant performance
remains with the licensor, we record the payments as an asset when paid and as a
liability when incurred, rather than upon execution of the agreement. We
classify these obligations as current liabilities to the extent they are
contractually due within the next twelve months.  Capitalized
intellectual property license costs for those games that are cancelled or
abandoned are charged to “cost of goods sold - intellectual property licenses”
in the period of cancellation.




22




Beginning
upon the related games release, capitalized intellectual property license costs
are amortized to “cost of sales - intellectual property licenses” based on the
ratio of current revenues for the specific game to total projected revenues for
all games in which the licensed property will be utilized. As intellectual
property license contracts may extend for multiple years, the amortization of
capitalized intellectual property license costs relating to such contracts may
extend beyond one year.




We
evaluate the future recoverability of capitalized intellectual property license
costs on a quarterly basis. For games that have been released in prior periods,
the primary evaluation criterion is actual title performance. For games that are
scheduled to be released in future periods, recoverability is evaluated based on
the expected performance of the specific games to which the costs relate or in
which the licensed trademark or copyright is to be used. Criteria used to
evaluate expected game performance include: historical performance of comparable
games developed with comparable technology; orders for the game prior to its
release; and, for any game sequel, estimated performance based on the
performance of the game on which the sequel is based.   Further,
as intellectual property licenses may extend for multiple games over multiple
years, we also assess the recoverability of capitalized intellectual property
license costs based on certain qualitative factors, such as the success of other
products and/or entertainment vehicles utilizing the intellectual property and
the rights holder’s continued promotion and exploitation of the intellectual
property.




Significant
management judgments and estimates are utilized in the assessment of the
recoverability of capitalized intellectual property license costs. In evaluating
the recoverability of capitalized intellectual property license costs, the
assessment of expected game performance utilizes forecasted sales amounts and
estimates of additional costs to be incurred. If revised forecasted or actual
game sales are less than, and/or revised forecasted or actual costs are greater
than, the original forecasted amounts utilized in the initial recoverability
analysis, the net realizable value may be lower than originally estimated in any
given quarter, which could result in an impairment charge. Material differences
may result in the amount and timing of charges for any period if management
makes different judgments or utilizes different estimates in evaluating these
qualitative factors.




Revenue Recognition. We
recognize revenue from the sale of video games upon the transfer of title and
risk of loss to the customer, once performance obligations have been completed
and following revenue recognition criteria have been met: persuasive evidence of
an arrangement, delivery, fixed and determinable fee and  probability
of collection.  Revenue from the sale of video games is
recognized after deducting the estimated allowance for sales returns and price
protection.




Some of
our video games provide limited online features at no additional cost to the
consumer. Generally, we consider such features to be incidental to the overall
product offering and an inconsequential deliverable. Accordingly, we recognize
revenue related to video games containing these limited online features upon the
transfer of title and risk of loss to the customer.  In instances
where online features or additional functionality are considered a substantive
deliverable in addition to the video game, we take this into account when
applying our revenue recognition policy.  This evaluation is performed
for each video game together with any online transactions, such as electronic
downloads or video game add-ons when it is released.  When we
determine that a video game contains online functionality that constitutes a
more-than-inconsequential separate service deliverable in addition to the video
game, principally because of its importance to game play, we consider that its
performance obligations for this game extend beyond the delivery of the
game. Fair value does not exist for the online functionality, as we do
not separately charge for this component of the video game. As a result, we
recognize all of the revenue from the sale of the game upon the delivery of the
remaining online functionality. In addition, we defer the costs of sales for
this game and recognize the costs upon delivery of the remaining online
functionality. Cost of sales includes: manufacturing costs, software royalties
and amortization, and intellectual property licenses.




With
respect to online transactions, such as electronic downloads of games or add-ons
that do not include a more-than-inconsequential separate service deliverable,
revenue is recognized when the fee is paid by the online customer to purchase
online content and we are notified by the online retailer that the product has
been downloaded. In addition, persuasive evidence of an arrangement must exist,
collection of the related receivable must be probable and the fee is fixed and
determinable.




Sales
incentives or other consideration given by us to our customers are accounted for
in accordance with Emerging Issues Task Force (“EITF”) Issue No. 01-09,
“Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor’s Products)” (“EITF No.
01-09”).  In accordance with EITF No. 01-09, sales incentives and
other consideration that are considered adjustments of the selling price of our
games, such as rebates and product placement fees, are reflected as reductions
to revenue.  Sales incentives and other consideration that represent
costs incurred by us  for assets or services received, such as the
appearance of games in a customer’s national circular ad, are reflected as sales
and marketing expenses.




Third-party
licensees in Europe distribute Gamecock’s video games under license agreements
with Gamecock. The licensees paid certain minimum, non-refundable, guaranteed
royalties when entering into the licensing agreements. Upon receipt of
the advances, we defer their recognition and recognize the revenues in
subsequent periods as these advances are recouped by the company. As the
licensees pay additional royalties above and beyond those initially advanced, we
recognize these additional royalties as revenues.




23




With
respect to license agreements that provide customers the right to make multiple
copies in exchange for guaranteed amounts, revenue is recognized upon delivery
of a master copy. Per copy royalties on sales that exceed the guarantee are
recognized as earned.  In addition, persuasive evidence of an arrangement
must exist, collection of the related receivable must be probable and the
fee is fixed and determinable.




Stock-Based
Compensation.We account for
stock-based compensation in accordance with SFAS No. 123 (revised 2004),
“Share-Based Payment” (“SFAS No. 123R”).  SFAS No. 123R requires
companies to estimate the fair value of share-based payment awards on the
measurement date using an option-pricing model. The value of the portion of the
award that is ultimately expected to vest is recognized as expense over the
requisite service periods in the consolidated statements of
operations.




Stock-based
compensation expense recognized in the consolidated statements of operations is
based on awards ultimately expected to vest and has been reduced for estimated
forfeitures. SFAS No. 123R requires forfeitures to be estimated at the time of
grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates.




We
estimate the value of employee stock options on the date of grant using the
Black-Scholes option pricing model. Our determination of fair value of
share-based payment awards on the date of grant using an option-pricing model is
affected by our stock price as well as assumptions regarding a number of highly
complex and subjective variables. These variables include, but are not limited
to; the expected stock price volatility over the term of the awards, and actual
and projected employee stock option exercise behaviors.




Amortizable Intangible
Assets.Intangible assets
subject to amortization are carried at cost less accumulated amortization.
Amortizable intangible assets consist of game sequels, non-compete agreements
and distribution agreements. Intangible assets subject to amortization are
amortized over the estimated useful life in proportion to the pattern in which
the economic benefits are consumed, which for some intangibles assets are
approximated by using the straight-line method. Long-lived assets including
amortizable intangible assets are reviewed for impairment in accordance with
Statement of Financial Accounting Standards No. 144, “Accounting for the
Impairment or Disposal of Long-lived Assets” (“SFAS No. 144”) whenever
events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. Determination of recoverability is based on an
estimate of undiscounted future cash flows resulting from the use of the asset
and its eventual disposition. Measurement of any impairment loss for long-lived
assets and amortizable intangible assets is based on the amount by which the
carrying value exceeds the fair value of the asset.




Business Combinations. We
estimate the fair value of assets acquired, and liabilities assumed in a
business combination. Our assessment of the estimated fair value of each of
these can have a material effect on our reported results as intangible assets
are amortized over various lives. Furthermore, a change in the estimated fair
value of an asset or liability often has a direct impact on the amount to
recognize as goodwill, an asset that is not amortized. Often determining the
fair value of these assets and liabilities assumed requires an assessment of
expected use of the asset, the expected future cash flows related to the asset,
and the expected cost to extinguish the liability. Such estimates are inherently
difficult and subjective and can have a material impact on our financial
statements.




Assessment of Impairment of
Goodwill.
SFAS No. 142 “Goodwill and Other Intangible Assets,” requires a two-step
approach to testing goodwill for impairment for each reporting unit. Our
reporting units are determined by the components of our operating segments that
constitute a business for which both (1) discrete financial information is
available and (2) segment information that management regularly reviews for the
operating results of that component. SFAS No. 142 requires that the impairment
test be performed at least annually by applying a fair-value-based test. The
first step measures for impairment by applying fair-value-based tests at the
reporting unit level. The second step (if necessary) measures the amount of
impairment by applying fair-value-based tests to the individual assets and
liabilities within each reporting unit.




To
determine the fair values of the reporting units used in the first step, we use
a combination of the market approach, which utilizes comparable companies’ data
and/or the income approach, or discounted cash flows. Each step requires us to
make judgments and involves the use of significant estimates and assumptions.
These estimates and assumptions include long-term growth rates and operating
margins used to calculate projected future cash flows, risk-adjusted discount
rates based on our weighted average cost of capital, future economic and market
conditions and determination of appropriate market comparables. These estimates
and assumptions have to be made for each reporting unit evaluated for
impairment. Our estimates for market growth, our market share and costs are
based on historical data, various internal estimates and certain external
sources, and are based on assumptions that are consistent with the plans and
estimates we are using to manage the underlying business. Our business consists
of publishing and distributing interactive entertainment software and content
using both established and emerging intellectual properties and our forecasts
for emerging intellectual properties are based upon internal estimates and
external sources rather than historical information and have an inherently
higher risk of accuracy. If future forecasts are revised, they may indicate or
require future impairment charges. We base our fair value estimates on
assumptions we believe to be reasonable but that are unpredictable and
inherently uncertain. Actual future results may differ from those
estimates.




24




Consolidated
Results of Operations
  The
following table sets forth our results of operations expressed as a percentage
of net revenues:
  For
      the three months ended
                                March
      31,
                              
                              
                              For
      the nine months ended
                                March
      31,2009
                              
                              
                              2008
                              
                              
                              2009
                              
                              
                              2008Net
      revenues
                              
                              
                              100.0
                              %
                              
                              
                              100.0
                              %
                              
                              
                              100.0
                              %
                              
                              
                              100.0
                              %Cost
      of goods sold:Product
      costs
                              
                              
                              38.2
                              %
                              
                              
                              40.4
                              %
                              
                              
                              44.7
                              %
                              
                              
                              35.1
                              %Royalties
                              
                              
                              17.6
                              %
                              
                              
                              10.2
                              %
                              
                              
                              11.9
                              %
                              
                              
                              22.0
                              %Intellectual
      property licenses
                              
                              
                              0.0
                              %
                              
                              
                              0.0
                              %
                              
                              
                              0.3
                              %
                              
                              
                              0.0
                              %Total
      cost of goods sold
                              
                              
                              55.8
                              %
                              
                              
                              50.6
                              %
                              
                              
                              56.9
                              %
                              
                              
                              57.2
                              %Gross
      profit
                              
                              
                              44.2
                              %
                              
                              
                              49.4
                              %
                              
                              
                              43.1
                              %
                              
                              
                              42.8
                              %Operating
      expenses:Warehousing
      and distribution
                              
                              
                              3.9
                              %
                              
                              
                              0.9
                              %
                              
                              
                              2.6
                              %
                              
                              
                              1.3
                              %Sales
      and marketing
                              
                              
                              20.1
                              %
                              
                              
                              13.6
                              %
                              
                              
                              21.5
                              %
                              
                              
                              13.7
                              %Restructuring
      costs
                              
                              
                              0.5
                              %
                              
                              
                              0.0
                              %
                              
                              
                              1.6
                              %
                              
                              
                              0.0
                              %Transaction
      costs
                              
                              
                              0.0
                              %
                              
                              
                              0.0
                              %
                              
                              
                              0.1
                              %
                              
                              
                              0.0
                              %General
      and administrative
                              
                              
                              16.7
                              %
                              
                              
                              29.7
                              %
                              
                              
                              16.9
                              %
                              
                              
                              11.4
                              %Total
      operating expenses
                              
                              
                              41.1
                              %
                              
                              
                              44.2
                              %
                              
                              
                              42.6
                              %
                              
                              
                              26.4
                              %Operating
      income
                              
                              
                              3.1
                              %
                              
                              
                              5.2
                              %
                              
                              
                              0.5
                              %
                              
                              
                              16.4
                              %Interest
      expense
                              
                              
                              0.9
                              %
                              
                              
                              4.3
                              %
                              
                              
                              0.7
                              %
                              
                              
                              1.6
                              %Net
      income (loss)
                              
                              
                              2.1
                              %
                              
                              
                              0.9
                              %
                              
                              
                              (0.2)
                              %
                              
                              
                              14.8
                              %Deemed
      dividend related to beneficial conversion feature on Series A convertible
      preferred stock
                              
                              
                              0.0
                              %
                              
                              
                              0.0
                              %
                              
                              
                              2.9
                              %
                              
                              
                              0.0
                              %Net
      income (loss) attributable to common shareholders
                              
                              
                              2.1
                              %
                              
                              
                              0.9
                              %
                              
                              
                              (3.2)
                              %
                              
                              
                              14.8
                              %
 
 Three
Months Ended March 31, 2009 and 2008
  Net Revenues.  Net
revenues for the three months ended March 31, 2009 were $13,521,907, an increase
of $11,298,639, or 508%, from net revenues of $2,223,268 for the comparable
period in 2008.  The increase in net revenues was primarily driven by
several new releases during the quarter, including Big Bang Mini and
X-Blades.  For the three months ended March 31, 2009, the
number of videogame units sold increased to approximately 711,000 units, an
increase of 497,000 from units sold for the comparable period in
2008.  Average net revenue per videogame unit sold increased 83%, from
$10.39 to $19.01 for the three month periods ended March 31, 2008 and 2009,
respectively. This average increase in price is mainly due to the large
number of games released in this quarter and the pricing structure of different
hardware platforms as compared to the comparable period last
year.
  Cost of Goods
Sold.  Cost of goods sold for the three months ended March 31,
2009 increased to $7,543,312, up $6,417,538, or 570%, from $1,125,774 for the
comparable period in 2008.  The cost of royalty expense for the three
months ended March 31, 2009 increased 944% from the cost of royalty expense for
the three months ended March 31, 2008.  The increase is due to the
additional units sold compared to the same period in 2008, and as a result of
lower or no royalty costs for some of the games sold for the quarter ended March
31, 2008.
  Gross Profit.  For
the three month periods ended March 31, 2009 and 2008, gross profit increased to
$5,978,595 from $1,097,494, or 445%, and gross profit margin decreased to
approximately 44.2% from 49.4%. The decrease in gross profit is largely due to
an increase in royalty expense.
  25
  Warehousing and Distribution
Expenses. For the three months ended March 31, 2009 and 2008,
warehousing and distribution expenses were $524,203 and $19,595, respectively,
resulting in an increase of 2,576%. This increase is due to an increase in units
shipped and units currently being held at our third party warehouse when
compared to the prior comparable period and as a result of a large number of
product sales to customers that were picked up  by the customer from
the manufacturer or drop-shipped from the manufacturer directly to the customer,
resulting in no third party warehouse costs during the comparable prior period.
As a percentage of net revenues, warehousing and distribution costs were 3.9% of
net revenues, compared to 0.9% in the same period in 2008.
  Sales and Marketing
Expenses.  For the three months ended March 31, 2009, sales and
marketing expenses increased 796% to $2,714,026 from $303,057 for the comparable
period in 2008. This increase is primarily due to larger average marketing
expenses for games released in 2009 and the anticipated higher volume of
different video game titles released 2009.  Sales and marketing costs vary
on a videogame by videogame basis depending on market conditions and consumer
demand, and do not necessarily increase or decrease proportionate to sales
volumes.  For the quarter ended March 31, 2009, we incurred $355,419
in marketing costs for future game releases which are included in marketing
expenses.
  General and Administrative
Expenses.   For the three months ended March 31, 2009, general
and administrative expenses increased 242% to $2,254,600 from $659,576 for the
comparable period in 2008. Salaries and wages included in general and
administrative expenses increased from $402,541 for the three months ended March
31, 2008 to $1,118,231 for the three months ended March 31, 2009, an increase of
178%. Professional fees increased 2702% from $7,651 for the three months ended
March 31, 2008 to $214,389 for the three months ended March 31, 2009 as a result
of increased costs associated with being a public company. Travel and
entertainment expenses were $90,397 for the three months ended March 31, 2008,
increasing 68% to $150,743 for the three months ended March 31, 2009. General
and administrative expenses as a percentage of net revenues decreased, to 16.7%
for the three months ended March 31, 2009 from 29.7% for the same period in
fiscal year 2008 as we realized economies of scale. In addition, for
the three months ended March 31, 2009, general and administrative expenses
include a $118,831 charge for noncash compensation related to employee stock
options and restricted stock.  It is anticipated that staffing will
continue to increase, partly to comply with financial and accounting reporting
requirements of a public company. In addition it is expected, as additional
sales territories are added and more videogames are offered for sale, that sales
will increase. It is anticipated that staffing will increase to support the
increased sales volume.
  Restructuring Costs: For
the three months ended March 31, 2009, we incurred $67,631 in restructuring
costs related to the Gamecock acquisition.  These primarily consist of
salaries and severance for Gamecock employees who separated from service
after the Gamecock acquisition as part of a restructuring of Gamecock's
operations and rent expense for the Gamecock offices that have
closed.
  Transaction Costs.  For
the three months ended March 31, 2009, we incurred $3,671 in costs related to
the acquisition of Gamecock. These costs relate to internal costs for travel and
other expenses related to the acquisition of Gamecock.
  Operating Income.  
For the three months ended March 31, 2009, our operating income was
$414,464 versus an operating income of $115,267 in the prior year period.
The increase in operating income is principally due to the volume of videogame
units sold in the quarter compared to the quarter ended March 31,
2008.  For the three months ended March 31, 2009, operating income as
a percentage of net revenue was 3.1% versus 5.2% for the prior year’s comparable
period.
  Interest and Financing
Costs.   For the three months ended March 31, 2009, interest
and financing costs increased to $125,281 from $95,148 for the prior year period
due to a increased in average borrowings as a result of the increase in working
capital needed in 2009.
  Net Income. For the
three months ended March 31, 2009, we generated net income of $289,183 as
compared to a net income of $20,118 in the same period of the prior
year.
  Nine
Months Ended March 31, 2009 and 2008
  Net Revenues.  Net
revenues for the nine months ended March 31, 2009 were $39,226,299, an increase
of $14,457,452, or 58%, from net revenues of $24,768,846 for the comparable
period in 2008.  The increase in net revenues was primarily driven by
the increased volume of units sold.  For the nine months ended March
31, 2009, the number of videogame units sold increased to approximately
2,023,000 units, a 987,000 unit increase from 1,036,000 units sold for the
comparable period in 2008.  Average net revenue per videogame unit
sold decreased 19%, from $23.90 to $19.39 for the nine month periods ended March
31, 2008 and 2009, respectively. This decrease is due to a higher
volume of Nintendo DS games sold in the period which have a lower sales
price than Xbox 360 or Playstation 3 games. This is also attributed to our
sales of Two
Worlds on the next generation Xbox 360 platform in the prior
comparable period and an increase in sales of “value/catalog games” which sell
at a lower price per unit.
  26
  Cost of Goods
Sold.  Cost of goods sold for the nine months ended March 31,
2009 increased to $22,321,316, up $8,160,927, or 58%, from $14,160,389 for the
comparable period in 2008.  The cost of royalty expense for the nine
months ended March 31, 2009 decreased 14% from the cost of royalty expense for
the nine months ended March 31, 2008.  The decrease is a result of the
successful launch of Two
Worlds on the Xbox 360 platform in 2008 which the high profit margin
resulted in increased royalty expense to the third party game
developer.
  Gross Profit.  For
the nine month periods ended March 31, 2009 and 2008, gross profit increased to
$16,904,983 from $10,608,457, or 59%, and gross profit margin increased slightly
to approximately 43.1% from 42.8%.  The increase in gross profit is
largely due to an increase in net revenue.  Our gross profit margins
have generally increased during each year of our operations due to deeper
engagement in the creative process of publishing videogames over
time.
  Warehousing and Distribution
Expenses. For the nine months ended March 31, 2009 and 2008,
warehousing and distribution expenses were $1,000,766 and $329,958,
respectively, resulting in an increase of 203%. This increase is due primarily
to an increase in units shipped and units currently being held at our third
party warehouse as compared to the prior comparable period.
  Sales and Marketing
Expenses.  For the nine months ended March 31, 2009, sales and
marketing expenses increased 148% to $8,435,630 from $3,396,916 for the
comparable period in 2008. This increase is primarily due to the increased
number of titles in fiscal year 2009 when compared to 2008.  Sales and
marketing costs vary on a videogame by videogame basis depending on market
conditions and consumer demand, and do not necessarily increase or decrease
proportionate to sales volumes.  For the nine months ended
March 31, 2009, we incurred $724,528 in marketing costs for future game releases
which are included in marketing expenses.  Included in sales and
marketing expenses for the nine months ended March 31, 2009 is a noncash charge
of $31,591 for stock options granted to vendors during the period.
  General and Administrative
Expenses.   For the nine months ended March 31, 2009, general
and administrative expenses increased 135% to $6,619,616 from $2,818,129 for the
comparable period in 2008. Wages included in general and administrative expenses
increased from $842,138 for the nine months ended March 31, 2008 to $2,890,784
for the nine months ended March 31, 2009, an increase of 243%. In addition to
employees, for the comparable prior period ending March 31, 2008 a consulting
fee was incurred by us in payment for staff related expenses, occupancy costs,
telephones and communications expenses, and office supplies. Consulting fee
totaled $1,072,878 for the nine months ended March 31, 2008 and $-0- for the
nine months ended March 31, 2009.  Professional fees increased 588%
from $131,225 for the nine months ended March 31, 2008 to $902,709 for the nine
months ended March 31, 2009 as a result of the Gamecock acquisition and
increased costs associated with being a public company. Travel and entertainment
expenses were $337,854 for the nine months ended March 31, 2008, increasing 7%
to $360,242 for the nine months ended March 31, 2009. General and administrative
expenses as a percentage of net revenues increased, to approximately 16.9% for
the nine months ended March 31, 2009 from 11.4% for the same period in fiscal
year 2008.  In addition, for the nine months ended March 31, 2009,
general and administrative expenses include a $429,745 charge for noncash
compensation related to employee stock options and restricted
stock.
  It is
anticipated that staffing will increase, partly to comply with financial and
accounting reporting requirements of a public company. In addition it is
expected, as additional sales territories are added and more videogames are
offered for sale, that sales will increase. It is anticipated that staffing will
increase to support the increased sales volume.
  Restructuring Costs: For
the nine months ended March 31, 2009, we incurred $628,437 in restructuring
costs related to the Gamecock acquisition. These primarily consist of
salaries and severance for Gamecock employees who separated from service after
the Gamecock acquisition as part of restructuring Gamecock's operations and rent
expense for the Gamecock office space that is no longer in use.
  Transaction Costs.  For
the nine months ended March 31, 2009, we incurred $32,346 in costs related to
the Gamecock acquisition. These costs included professional fees to accounting
firms, law firms and advisors and travel expenses related to the Gamecock
acquisition.
  Operating Income.  
For the nine months ended March 31, 2009, our operating income was $188,188
versus operating income of $4,063,454 in the prior year period, which was a
result of the successful launch of Two Worlds. For the nine
months ended March 31, 2009, operating income as a percentage of net revenue was
0.5%.
  Interest and Financing
Costs.   For the nine months ended March 31, 2009, interest and
financing costs decreased to $284,213 from $385,458 for the prior year period
due to a decrease in average borrowings as a result of the increase in working
capital provided by the sale of preferred stock in 2008.  Also, the
interest rate on the line of credit decreased in 2008.
  27
  Net Income
(Loss).   For the nine months ended March 31, 2009, we
generated a net loss of $96,025 as compared to net income of $3,677,996 in the
same period of the prior year.
  Quarterly
Operating Results Not Meaningful
  Our
quarterly net revenues and operating results have varied widely in the past and
can be expected to vary in the future, due to numerous factors, several of which
are not under our control. These factors include the timing of our release of
new titles, the popularity of both new titles and titles released in prior
periods, changes in the mix of titles with varying gross margins, the timing of
customer orders and fluctuations in consumer demand for gaming platforms.
Accordingly, our management believes that quarter-to-quarter comparisons of our
operating results are not meaningful.
  Liquidity
and Capital Resources
  Historically,
we have met our capital needs through our operating activities, our line of
credit and, prior to the acquisition of SouthPeak by the Company, loans from
related parties and our stockholders. Our cash and cash equivalents were
$418,673 at March 31, 2009 and $4,095,036  at June 30, 2008. Our cash
is and was used principally for working capital purposes, including milestone
payments for advanced  royalties to third party
developers.
  We expect
continued volatility in the use and availability of cash due to fluctuations in
receivables collections and quarterly working capital needs necessary to finance
our business and growth objectives. During the fourth quarter of fiscal year
2008 and the first quarter of 2009, we sold preferred stock which provided
additional liquidity to fund our continued growth through investment in
videogame development. As of March 31, 2009, our operating activities combined
with the preferred stock sold funded our working capital needs.
  Although
there can be no assurance, our management believes that there will be sufficient
capital resources from our operations, our line of credit and the sale of
securities to finance our requirements for development, production, marketing,
the purchases of equipment, and the acquisition of intellectual property rights
for future products for at least the next 12 months. Furthermore, as a result of
the GSPAC acquisition of SouthPeak by the Company, SouthPeak has enhanced its
ability to finance future operations and future growth through access to the
public securities markets.
  Line of Credit. SouthPeak has
a revolving loan due to a financial institution, with a maximum outstanding
amount of $7.5 million at March 31, 2009. The loan bears interest at prime plus
1⁄2%, which was 3.75% at March 31, 2009. The outstanding loan amount cannot exceed
65% of eligible accounts receivable from North American operations. Payments
received on such accounts are processed by the financial institution as payments
on the revolving loan. The line is collateralized by gross accounts receivable
of approximately $11,096,000 at March 31, 2009. The line of credit is further
collateralized by the personal guarantees, and pledge of personal securities and
assets, by two of our stockholders. The note contains certain financial and
non-financial covenants, and at March 31, 2009, we were in compliance with the
covenants.
  At March
31, 2009 and June 30, 2008, the outstanding line of credit balance
was $6,775,870 and $4,851,819, respectively, and the remaining
available under the line of credit amounted to $102,721 and $148,181,
respectively. In the future, we may elect to increase the maximum outstanding
amount on the line of credit as our business grows and our gross margins
continue improving in the ordinary course of business. Our management believes
that the line of credit will be renewed and potentially expanded in the
normal course of business.
  Cash Flows. We expect
that we will make significant expenditures relating to advances on royalties to
third-party developers to fund our continued growth. Cash flows from operations
are affected by our ability to release successful titles. Though many of these
titles have substantial royalty advances and marketing expenditures, once a
title recovers these costs, incremental net revenues typically will directly and
positively impact cash flows.
  For the
nine months ended March 31, 2009, we had net cash used in operating activities
of $5,165,164 compared to a net cash flow of $4,548,132 for the nine months
ended March 31, 2008. Although there is a large decrease in net income between
the periods, there are other factors that have led to the negative cash flow
from operations, which include a large amount of inventory on hand at March 31,
2009, large accounts receivable balances as a result of sales for both periods,
large amounts expended for royalty advances, and the pay-off of certain Gamecock
liabilities incurred prior to the acquisition. The largest increase in cash
provided by operating activities for the nine months ended March 31, 2009 was a
decrease in accounts receivable of $2,611,851. The largest expenditures of cash
for the period include third party developer payments and manufacturing costs
for videogame units. Generally, when new videogames are launched, there is a
large amount of payables and receivables on the books to account for the cost of
manufacturing the videogames, and from the large sales volume.
  28
  Cash used
in investing activities for the nine months ended March 31, 2009 and 2008 was
$1,263,159 and $488,067, respectively. The cash used in investing activities for
both periods primarily related to the purchase of office and computer equipment
and the Gamecock acquisition for the nine months ended March 31,
2009.
  During
the nine months ended March 31, 2009, financing activities resulted in net cash
provided of $2,992,804 and during the nine months ended March 31, 2008,
financing activities resulted in net cash used of $3,958,220. For the nine
months ended March 31, 2009, available cash for the period went in part to pay
down the line of credit. Conversely, for the nine month period ended March 31,
2008, we had additional borrowings on the line of credit to fund cash needs for
the launch of Two
Worlds on the Xbox 360 platform.
  We are
able to meet a substantial portion of our capital needs through operating cash
flows, our line of credit and the sale of additional preferred stock.
Additionally, as our gross profit margins increase our operating cash flows are
expected to contribute more towards our capital needs in the future. The
Gamecock acquisition caused a short-term strain on our cash flows, as we met
certain obligations resulting from the Gamecock acquisition.  We
expect the revenue derived from Gamecock videogames will provide sufficient cash
flow in 2009 and 2010 to offset this strain.  Although there can be no
assurances, our management believes that we have sufficient capital resources
from our operations, our line of credit, and the sale of preferred stock to
finance our operations and growth.
  Item 3.Quantitative and Qualitative
Disclosures about Market Risk
  For
quantitative and qualitative disclosures about market risk, see Item 7A,
“Quantitative and Qualitative Disclosures About Market Risk,” of our annual
report on Form 10-K for the year ended June 30, 2008. Our exposures to
market risk have not changed materially since June 30, 2008.
  Item 4T.Controls and
Procedures
  Evaluation
of Disclosure Controls and Procedures
  Based on
the evaluation of our disclosure controls and procedures (as defined in the
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”)), our Chief Executive Officer and our Chief
Financial Officer have concluded that our disclosure controls and procedures
were effective to ensure that the information required to be disclosed by us in
this quarterly report on Form 10-Q was recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission’s rules and Form 10-Q and that such information required to be
disclosed was accumulated and communicated to management, including our Chief
Executive Officer and our Chief Financial Officer, to allow timely decisions
regarding required disclosure
  Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures or our internal
controls will prevent all errors and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, have been detected.  Our management, including our Chief
Executive Officer and Chief Financial Officer, has concluded that our disclosure
controls and procedures are designed to provide reasonable assurance of
achieving their objectives.
  Changes
in Internal Controls
  There
were no changes in our internal controls over financial reporting that occurred
during the quarter covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.
  PART II
  Item 1.Legal
Proceedings
  On March
12, 2009, the Company, Gamecock, SouthPeak Interactive, Ltd. and Gamecock Media
Europe, Ltd. were served with a complaint by CDV Software Entertainment A.G., or
CDV, alleging various breach of contract and other claims related to a
publishing and distribution agreement, or the Distribution Agreement, entered
into between Gamecock Media Europe, Ltd. and CDV in January 2008.  CDV
is seeking the return of $4,590,000 in videogame development advances, an
injunction against the Company and its subsidiaries, €362,508 and £95,228 in
specified damages, further damages to be assessed, and discretionary interest
and costs.  The Company and its subsidiaries intend to vigorously
defend all claims and have filed answers to the
complaint.  Additionally, Gamecock Media Europe, Ltd. filed a
counterclaim against CDV for $700,000 and €177,078.28 and discretionary interest
and costs, resulting from videogame sales and the achievement of a milestone
under the Distribution Agreement.
 
 Other
than the foregoing, we are not currently subject to any material legal
proceedings. From time to time, however, we are named as a defendant in legal
actions arising from our normal business activities. Although we cannot
accurately predict the amount of our liability, if any, that could arise with
respect to legal actions currently pending against us, we do not expect that any
such liability will have a material adverse effect on our financial positions,
operating results or cash flows.  We believe that we have obtained
adequate insurance coverage, rights to indemnification, or where appropriate,
have established reserves in connection with these legal
proceedings.
   29
  Item 1A.Risk Factors
  We
operate in a rapidly changing environment that involves a number of risks, some
of which are beyond our control. This discussion highlights some of the risks
which may affect future operating results. These are the risks and uncertainties
we believe are most important for you to consider. Additional risks and
uncertainties not presently known to us, which we currently deem immaterial or
which are similar to those faced by other companies in our industry or business
in general, may also impair our business operations. If any of the following
risks or uncertainties actually occurs, our business, financial condition and
operating results would likely suffer.
  “Item 1A.
Risk Factors” of our annual report on Form 10-K for the year ended June 30,
2008 includes a discussion of our risk factors. The information presented below
updates, and should be read in conjunction with, the risk factors and
information disclosed in our annual report on Form 10-K for the year ended
June 30, 2008. Except as presented below, there have been no material changes
from the risk factors described in our annual report on Form 10-K for the
year ended June 30, 2008.
  We
may be subject to claims for rescission or damages from our stockholders because
we did not dissolve following our failure to complete a business combination
within the specified time period.
  The
prospectus issued in connection with our initial public offering stated that if
we did not complete a business combination within 18 months after the completion
of our initial public offering, or within 24 months if certain extension
criteria were satisfied, we would liquidate our trust account, cancel our Class
B common stock, dissolve and distribute any remaining assets to the holders of
our common stock. Our continued existence is inconsistent with the disclosure
contained in our initial public offering prospectus and the interpretation of
our certificate of incorporation adhered to by our board of directors prior to
April 25, 2008. For a discussion of our continued corporate existence, see
“Business- Information related to the Acquisition” beginning on page 41 of
amendment no. 4 to our registration statement on Form S-1 filed with the
Securities and Exchange Commission, or SEC, on April 1, 2009.
  Because
we did not dissolve following our failure to complete a business combination
within the specified time period, some of our stockholders may have securities
law claims against us for rescission (under which a successful claimant would
have the right to receive the total amount paid for his or her securities
pursuant to an allegedly deficient prospectus, plus interest and less any income
earned on the securities, in exchange for surrender of the securities) or
damages (compensation for loss on an investment caused by alleged material
misrepresentations or omissions in the sale of the security). In general, a
claim for rescission must be made by a person who purchased shares pursuant to a
defective prospectus or other representation, and within the applicable statute
of limitations period. A successful claimant for damages under federal or state
law could be awarded an amount to compensate for the decrease in value of his or
her shares caused by the alleged violation (including, possibly, punitive
damages), together with interest, while retaining the shares.  We
cannot predict whether stockholders will bring such claims, how many might bring
them or the extent to which they might be successful.
  We
may be subject to discipline pursuant to Section 14 of the Securities Exchange
Act of 1934 based on our failure to file a proxy statement with the SEC and to
provide proper stockholder notice for the filing of our certificate of
designation or the amendment to our certificate of incorporation.
  Pursuant
to Section 14 of the Securities Exchange Act of 1934, we are required to furnish
a publicly-filed preliminary and/or definitive written proxy statement to any
stockholder whose vote shall be solicited in connection with any proposed
corporate action requiring a stockholder vote. We are also required to file such
proxy statements with the SEC.  Certain exemptions may apply which
allow us to furnish stockholders with an information statement, as opposed to a
proxy statement, which must also be filed with the SEC.
  We were
required to notify our stockholders and file an information statement prior to
filing our certificate of designations and the amendment to our certificate of
incorporation with the State of Delaware in May 2008.  Although such
actions were approved by the holders of the majority of our outstanding shares
such actions should not have been effectuated without the filing of the
information statement. Because we failed to file such information statement in a
timely manner, we may be subject to discipline by the SEC as a result of our
violation of Section 14 of the Securities and Exchange Act.
  We
may not be able to realize the benefits we anticipate from the acquisition of
Gamecock Media Group.
  We
acquired Gamecock in October 2008 with the expectation that the acquisition
would both grow and enhance our product pipeline. We may not realize these
benefits, as rapidly as, or to the extent, anticipated by our management.
Operations and costs incurred in connection with the integration of Gamecock
with our operating subsidiary could have an adverse effect on our business,
financial condition and operating results. If these risks materialize, our stock
price could be materially adversely affected. The acquisition, as with all
acquisitions, involves numerous risks, including:
  ·
              difficulties
      in integrating operations, technologies, products and personnel of
      Gamecock;
  30
  ·
              diversion
      of financial and management resources from existing
      operations;
  ·
              potential
      loss of key employees of Gamecock;
  ·
              integrating
      personnel with diverse business and cultural
  backgrounds;
  ·
              preserving
      the development, distribution, marketing and other important relationships
      of Gamecock; and
  ·
              inability
      to generate sufficient revenue and cost savings to offset acquisition
      costs.
  The
acquisition of Gamecock may also cause us to:
  ·
              make
      large and immediate one-time write-offs and restructuring and other
      related expenses;
  ·
              become
      subject to litigation; and
  ·
              create
      goodwill or other intangible assets that could result in significant
      impairment charges and/or amortization
expense.
  As a
result, if we fail to properly execute and integrate the Gamecock acquisition,
the acquisition may result in our not achieving its anticipated benefits. As a
result, our business and prospects may be seriously harmed.
  If
we incur unanticipated levels of returns of our videogames from customers, or
price concessions granted to them, our operating results could significantly
suffer.
  We are
exposed to the risk that customers will return our products, or seek to secure
price concessions for any bulk orders. Our distribution arrangements with our
customers generally do not give them the right to return videogames to us or to
cancel firm orders. However, when demand for our offerings falls below
expectations, we can sometimes accept product returns for stock balancing and
negotiate accommodations to customers in order to maintain healthy relationships
with them as well as continued access to their sales channels. These
accommodations include negotiation of price discounts and credits against future
orders, referred to as price concessions. The estimated reserve for returns and
price concessions is based on our managements evaluation of expected sales,
potential markdown allowances based on historical experience, market acceptance
of products produced, retailer inventory levels, budgeted customer allowances
and the nature of the videogame and existing commitments to
customers.
  While we
believe that we can reliably estimate future returns and price concessions, we
cannot predict with certainty whether existing reserves will be sufficient to
offset any accommodations we will actually provide, nor can we predict the
amount or nature of accommodations that we will provide in the future.
Furthermore, the continued granting of substantial price protection and other
allowances may require us to raise additional funds for our operating
requirements, but there is no assurance that such funds will be available to us
on acceptable terms, if at all. In addition, the license fees we pay Sony,
Microsoft and Nintendo are non-refundable and cannot be recovered when
videogames are returned. Ultimately, if our return rates and price concessions
for published videogames materially exceed our reserves, our operating results
may be adversely affected.
  Item 6.Exhibits
  ExhibitNumber
                
                Exhibit3.1(1)
                
                Amended
      and Restated Certificate of Incorporation.3.2(1)
                
                Amended
      and Restated Bylaws.31.1*
                
                Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) and
      Rule 15d-14(a), promulgated under the Securities Exchange Act of
      1934, as amended.31.2*
                
                Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) and
      Rule 15d-14(a), promulgated under the Securities Act of 1934, as
      amended.32.1*
                
                Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to
      18 U.S.C. Section 1350, as adopted pursuant to Section 906
      of the Sarbanes-Oxley Act of
2002.
 
 *
              Filed
      herewith
 
 (1)
              Incorporated
      by reference to an exhibit to the Current Report on Form 8-K of the
      Registrant filed with the Securities and Exchange Commission on May 15,
      2008.
  31
  SIGNATURES
  Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
  SOUTHPEAK
      INTERACTIVE CORPORATIONBy:
                    /s/ Melanie
      MrozMelanie
      Mroz
                      President
      and Chief Executive Officer
                      (Principal
      Executive
Officer)
  By:
                    /s/ Andrea
      Gail JonesAndrea
      Gail Jones
                      Chief
      Financial Officer
                      (Principal
      Financial and Accounting
Officer)
  Date: May
15, 2009
  32
  INDEX
TO EXHIBITS
  ExhibitNumber
                
                Exhibit3.1(1)
                
                Amended
      and Restated Certificate of Incorporation.3.2(1)
                
                Amended
      and Restated Bylaws.31.1*
                
                Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) and
      Rule 15d-14(a), promulgated under the Securities Exchange Act of
      1934, as amended.31.2*
                
                Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) and
      Rule 15d-14(a), promulgated under the Securities Act of 1934, as
      amended.32.1*
                
                Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to
      18 U.S.C. Section 1350, as adopted pursuant to Section 906
      of the Sarbanes-Oxley Act of
2002.
  
 *
              Filed
      herewith
 
 (1)
              Incorporated
      by reference to an exhibit to the Current Report on Form 8-K of the
      Registrant filed with the Securities and Exchange Commission on May 15,
      2008.