UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-21878

SIMON WORLDWIDE, INC.

(Exact name of registrant as specified in its charter)

DELAWARE		04-3081657
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

18952 MACARTHUR BOULEVARD, IRVINE, CALIFORNIA 92612
(Address of principal executive offices)

(949) 251-4660
(Registrant’s telephone number, including area code)

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 o

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files): Yes þ No o

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 Act): Yes o No þ

At November 7, 2011, 50,611,879 shares of the registrant’s common stock were outstanding.

 

 

SIMON WORLDWIDE, INC.
FORM 10-Q
TABLE OF CONTENTS

		Page
Description		Number
PART I — FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Consolidated Balance Sheets as of September 30, 2011 (unaudited) and December 31, 2010			3
Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2011 and 2010			4
Consolidated Statements of Comprehensive Loss (unaudited) for the three and nine months ended September 30, 2011 and 2010			5
Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2011 and 2010			6
Notes to Condensed Consolidated Financial Statements (unaudited)			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			11
Item 3. Quantitative and Qualitative Disclosures About Market Risk			13
Item 4. Controls and Procedures			13
Item 4T. Controls and Procedures			13
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			14
Item 1A. Risk Factors			14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			14
Item 3. Defaults Upon Senior Securities			14
Item 4. (Removed and Reserved)			14
Item 5. Other Information			14
Item 6. Exhibits			14
SIGNATURE			17
EX-31
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

SIMON WORLDWIDE, INC.

CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

		September 30,				December 31,
		2011				2010
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	9,472			$	10,625
Prepaid expenses and other current assets			40				190
Total current assets			9,512				10,815
Investments			5				66
Other assets			315				409
Total non-current assets			320				475
		$	9,832			$	11,290
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	142			$	135
Accrued expenses and other current liabilities			34				59
Total current liabilities			176				194
Stockholders’ equity:
Common stock, $.01 par value; 100,000,000 shares authorized; 50,611,879 shares issued and outstanding net of 4,002,070 treasury shares at par value at September 30, 2011 and December 31, 2010			506				506
Additional paid-in capital			152,083				152,083
Deficit			(142,935	)			(141,500	)
Accumulated other comprehensive income			2				7
Total stockholders’ equity			9,656				11,096
		$	9,832			$	11,290

See the accompanying Notes to Condensed Consolidated Financial Statements.

SIMON WORLDWIDE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2011				2010				2011				2010
Revenue		$	—			$	—			$	—			$	—
General and administrative expenses			537				392				1,470				1,525
Operating loss from continuing operations			(537	)			(392	)			(1,470	)			(1,525	)
Interest income			5				12				21				42
Investment income			—				—				15				2
Equity in Yucaipa AEC loss			(2	)			(2	)			(2	)			(2	)
Loss from continuing operations before income taxes			(534	)			(382	)			(1,436	)			(1,483	)
Income tax (provision) benefit			—				(4	)			1				(4	)
Net loss from continuing operations			(534	)			(386	)			(1,435	)			(1,487	)
Loss from discontinued operations, net of tax			—				(66	)			—				(93	)
Net loss		$	(534	)		$	(452	)		$	(1,435	)		$	(1,580	)
Loss per share from continuing operations:
Loss per common share — basic and diluted		$	(0.01	)		$	(0.01	)		$	(0.03	)		$	(0.03	)
Weighted average shares outstanding — basic and diluted			50,612				50,612				50,612				52,137
Loss per share from discontinued operations:
Income per common share — basic and diluted		$	—			$	—			$	—			$	—
Weighted average shares outstanding — basic and diluted			50,612				50,612				50,612				52,137
Net loss per share:
Loss per common share — basic and diluted		$	(0.01	)		$	(0.01	)		$	(0.03	)		$	(0.03	)
Weighted average shares outstanding — basic and diluted			50,612				50,612				50,612				52,137

See the accompanying Notes to Condensed Consolidated Financial Statements.

SIMON WORLDWIDE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
(in thousands)

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2011				2010				2011				2010
Net loss		$	(534	)		$	(452	)		$	(1,435	)		$	(1,580	)
Other comprehensive loss:
Unrealized (loss) gain on investments			(3	)			8				(5	)			7
Comprehensive loss		$	(537	)		$	(444	)		$	(1,440	)		$	(1,573	)

See the accompanying Notes to Condensed Consolidated Financial Statements.

SIMON WORLDWIDE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)

		For the Nine Months
		Ended September 30,
		2011				2010
Cash flows from operating activities:
Net loss		$	(1,435	)		$	(1,580	)
Less: Loss from discontinued operations			—				(93	)
Loss from continuing operations			(1,435	)			(1,487	)
Adjustments to reconcile net loss to net cash used in operating activities:
Equity in Yucaipa AEC loss			2				2
Gain on sale of investment			(14	)			—
Charge for impaired investment			—				1
Non-cash asset charge			89				2
Increase (decrease) in cash from changes in working capital items:
Prepaid expenses and other current assets			150				111
Accounts payable			7				69
Accrued expenses and other current liabilities			(25	)			5
Cash used by continuing operations			(1,226	)			(1,297	)
Operating activities from discontinued operations			—				(55	)
Net cash used in operating activities			(1,226	)			(1,352	)
Net cash provided by investing activities:
Proceeds from sale of investment			73				—
Cash provided by investing activities			73				—
Cash flows from financing activities:
Payment to reacquire common stock			—				(1,256	)
Cash used in financing activities			—				(1,256	)
Net decrease in cash and cash equivalents			(1,153	)			(2,608	)
Cash and cash equivalents, beginning of period			10,625				14,765
Cash and cash equivalents, end of period		$	9,472			$	12,157
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes		$	3			$	4

See the accompanying Notes to Condensed Consolidated Financial Statements.

SIMON WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by Simon Worldwide, Inc. (the “Company” or “Simon”) pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes in accordance with accounting principles generally accepted in the United States of America for complete financial statements and should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting only of those considered necessary for fair presentation of the Company’s financial position, results of operations, and cash flows at the dates and for the periods presented. Certain prior period amounts have been reclassified to conform with current period presentation.

Prior to August 2001, the Company was a multi-national, full service promotional marketing company. In August 2001, McDonald’s Corporation (“McDonald’s”), the Company’s principal customer, terminated its 25-year relationship with the Company as a result of the embezzlement by a former Company employee of winning game pieces from McDonald’s promotional games administered by the Company. Other customers also terminated their relationships with the Company, resulting in the Company no longer having a business. By April 2002, the Company had effectively eliminated a majority of its ongoing promotions business operations and was in the process of disposing of its assets and settling its liabilities related to the promotions business and defending and pursuing litigation with respect thereto. As a result of these efforts, the Company has been able to resolve a significant number of outstanding liabilities that existed in August 2001 or arose subsequent to that date.

The operating results for the three and nine months ended September 30, 2011, are not necessarily indicative of the results to be expected for the full year.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU No. 2011-05 provides an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. In a single continuous statement, the entity is required to present the components of net income and total net income, the components of other comprehensive income and a total for other comprehensive income, along with the total of comprehensive income in that statement. In the two-statement approach, an entity is required to present components of net income and total net income in the statement of net income. The statement of other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income and a total for other comprehensive income, along with a total for comprehensive income.

Regardless of whether an entity chooses to present comprehensive income in a single continuous statement or in two separate but consecutive statements, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented.

ASU No. 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and should be applied retrospectively. The Company does not expect its adoption will have a material effect on the Company’s consolidated statements of financial position or results of operations.

2. Absence of Operating Business

As a result of the loss of its customers, the Company no longer has any operating business. Since August 2001, the Company has concentrated its efforts on reducing its costs and settling numerous claims, contractual obligations, and pending litigation. By April 2002, the Company had effectively eliminated a majority of its ongoing promotions business operations and was in the process of disposing of its assets and settling its liabilities related to the promotions business and defending and pursuing litigation with respect thereto. In essence, the Company discontinued its promotions business and changed the nature of its operation to focus on its pending litigation and winding down its contracted obligations. As a result of these efforts, the Company has been able to resolve a significant number of outstanding liabilities that existed in August 2001 or arose subsequent to that date. As of September 30, 2011, the Company had reduced its workforce to 4 employees from 136 employees as of December 31, 2001.

With no revenues from operations, the Company closely monitors and controls its expenditures within a reasonably predictable range. Cash used by continuing operating activities was $2.3 million and $2 million in the years ended December 31, 2010 and 2009, respectively. The Company continues to incur losses in 2011 for the general and administrative expenses incurred to manage the affairs of the Company. By utilizing cash available at September 30, 2011 to maintain its scaled back operations, management believes it has sufficient capital resources and liquidity to operate the Company for at least one year.

As of December 31, 2010, the Company has federal net operating loss carryforwards (“NOLs”) of approximately $70.2 million and state NOLs of approximately $46.7 million that may, subject to applicable tax rules, be used to reduce certain income tax obligations in the future. Because of its current lack of operations, the Company has established a valuation allowance for the entire amount of federal and state NOLs as it is unlikely that the Company can realize these deferred tax benefits in the future.

3. Discontinued Operations

The discontinued activities of the Company have been classified as discontinued operations in the accompanying condensed consolidated financial statements. As of September 30, 2011, and December 31, 2010, the Company had no liabilities within its discontinued operations.

In October 2010, the Company settled the remaining liability in its discontinued operations which was a post-employment obligation dating back to the Company’s decision to discontinue its marketing operations. The Company used cash from continuing operations of $0.6 million to satisfy this obligation. The Company had planned to use the cash surrender value (CSV) associated with the post-employment obligation to settle the liability. The terms of the settlement agreement entitle the Company to the CSV in future periods.

The Company had a loss from discontinued operations totaling $66,000 and $93,000 for the three and nine months ended September 30, 2010.

4. Long-term Investments

YUCAIPA AEC ASSOCIATES

At September 30, 2011, the Company held an investment in Yucaipa AEC, a limited liability company that is controlled by The Yucaipa Companies. The Company owns 18.23% of and has significant influence over Yucaipa AEC and, accordingly, accounts for its investment under the equity method.

The carrying value of the Company’s investment in Yucaipa AEC totals approximately $5,000 and $7,000 at September 30, 2011, and December 31, 2010, respectively, and is included in the investments line item in the consolidated balance sheets.

OTHER INVESTMENTS

The Company holds an investment in available-for-sale equity securities with a fair value of approximately $21,000 and $26,000 at September 30, 2011, and December 31, 2010, respectively, which is included in the other assets in the accompanying consolidated balance sheets. The cost basis in our available-for-sale securities was approximately $19,000 at September 30, 2011 and December 31, 2010. Total unrealized gain in accumulated other comprehensive income

approximated $2,000 at September 30, 2011. This investment is recorded at fair value using quoted prices in active markets for identical assets or liabilities (Level 1).

At December 31, 2010, the Company held a cost method investment in the equity securities of a technology related company, which is privately-held, totaling $59,000. During June 2011, the Company redeemed its entire interest in this investment and, accordingly, the balance of such investment at September 30, 2011 is $0.

5. Earnings Per Share

The Company calculates its earnings per share in accordance with ASC 260-10, “Earnings Per Share.” There were 50,611,879 weighted average shares outstanding for the three months ended September 30, 2011 and 2010, and 50,611,879 and 52,136,961 weighted average shares outstanding for the nine months ended September 30, 2011 and 2010, respectively. In addition, there were 55,000 and 60,000 weighted average shares related to stock options exercisable for the three months ended September 30, 2011 and 2010, respectively, and 56,630 and 61,648 weighted average shares related to stock options exercisable for the nine months ended September 30, 2011 and 2010, respectively, that were not included in the computation of diluted earnings per share because to do so would have been antidilutive as the Company has a net loss for each period presented.

On April 26, 2010, the Company purchased 3,589,201 shares of its outstanding common stock from Everest Special Situations Fund L.P., formerly the Company’s second largest shareholder, for $1,256,220. The shares are held by the Company as treasury stock resulting in 50,611,879 shares outstanding at September 30, 2011 and December 31, 2010.

6. Income Taxes

The Company had a current state benefit for income taxes of $0 and $1,000 for the three and nine months ended September 30, 2011, respectively. The Company had a provision for income taxes of $4,000 for the three and nine months ended September 30, 2010.

The Company periodically evaluates the positive and negative evidence bearing upon the realizability of its deferred tax assets. The Company, however, has considered results of operations and concluded that it is more likely than not that the deferred tax assets will not be realizable. As a result, the Company has determined that a valuation allowance of $35.1 million and $34.6 million is required at September 30, 2011, and December 31, 2010, respectively. The increase in valuation allowance is primarily due to an increase in deferred tax assets arising from current year’s net operating losses. The tax effects of temporary differences that gave rise to deferred tax assets as of September 30, 2011, and December 31, 2010, were as follows (in thousands):

		September 30,				December 31,
		2011				2010
Deferred tax assets:
Net operating losses		$	28,568			$	27,989
Capital losses			6,171				6,201
Other asset reserves			2,257				2,261
AMT credit			649				649
Accrued expenses			11				48
Total deferred tax assets			37,656				37,148
Valuation allowance			(35,079	)			(34,604	)
			2,577				2,544
Deferred tax liabilities:
State deferreds			(2,577	)			(2,544	)
Total deferred tax liabilities			(2,577	)			(2,544	)
Net deferred taxes		$	—			$	—

As of December 31, 2010, the Company had federal and state NOLs of approximately $70.2 million and $46.7 million, respectively. The federal NOLs will begin to expire in 2022 through 2031 and the state NOLs begin to expire in 2012 through 2031. In connection with the September, 18, 2008, recapitalization of the Company, the Company completed a review of any potential limitation on the use of its NOLs under Section 382 of the Internal Revenue Code. Because of our current lack of operations, we have established a valuation allowance for the entire amount of federal and state NOLs as it is unlikely that we can realize these deferred tax benefits in the future. Based on such review, the Company does not believe Section 382 of the Internal Revenue Code will adversely impact its ability to use its current net operating losses.

The following is a reconciliation of the statutory federal income tax rate to the actual effective income tax rate for continuing operations:

		September 30,
		2011				2010
Federal tax (benefit) rate			(34.0	)%			(34.0	)%
Increase (decrease) in taxes resulting from:
State income taxes			(5.8	)			(5.8	)
Change in valuation allowance			37.4				37.5
Permanent differences			2.4				2.4
Other			—				0.1
			0.0	%			0.2	%

7. Subsequent Events

The Company has completed an evaluation of all subsequent events through the issuance date of these financial statements, and concluded there were no subsequent events that required recognition or disclosure.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of the financial condition and results of operations of the Company for the three and nine months ended September 30, 2011, as compared to the same periods in the previous year. This discussion should be read in conjunction with the condensed consolidated financial statements of the Company and related Notes included elsewhere in this Form 10-Q.

Forward-Looking Statements and Associated Risks

From time to time, the Company may provide forward-looking information such as forecasts of expected future performance or statements about the Company’s plans and objectives, including certain information provided below. These forward-looking statements are based largely on the Company’s expectations and are subject to a number of risks and uncertainties, certain of which are beyond the Company’s control. The Company wishes to caution readers that actual results may differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company including, without limitation, as a result of factors described in Item 1A. Risk Factors included in the Company’s December 31, 2010, Form 10-K for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995.

General

Prior to August 2001, the Company was a multi-national, full service promotional marketing company. In August 2001, McDonald’s Corporation (“McDonald’s”), the Company’s principal customer, terminated its 25-year relationship with the Company as a result of the embezzlement by a former Company employee of winning game pieces from McDonald’s promotional games administered by the Company. Other customers also terminated their relationships with the Company.

As a result of the loss of its customers, the Company no longer has any operating business. Since August 2001, the Company has concentrated its efforts on reducing its costs and settling numerous claims, contractual obligations, and pending litigation. By April 2002, the Company had effectively eliminated a majority of its ongoing promotions business operations and was in the process of disposing of its assets and settling its liabilities related to the promotions business and defending and pursuing litigation with respect thereto. In essence, the Company discontinued its promotions business and changed the nature of its operation to focus on its pending litigation and winding down its contracted obligations. As a result of these efforts, the Company has been able to resolve a significant number of outstanding liabilities that existed in August 2001 or arose subsequent to that date. As of September 30, 2011, the Company had reduced its workforce to 4 employees from 136 employees as of December 31, 2001. The Company is currently managed by the Chief Executive Officer and principal financial officer, Greg Mays, and an acting general counsel.

Outlook

The lack of any operating revenue has had and will continue to have a substantial adverse impact on the Company’s cash position. The Company incurred losses within its continuing operations in 2010 and continues to incur losses in 2011 for the general and administrative expenses incurred to manage the affairs of the Company. Inasmuch as the Company no longer generates operating income, the source of current and future working capital is expected to be cash on hand and proceeds from the sale of certain long-term investments. Management believes it has sufficient capital resources and liquidity to operate the Company for at least one year.

The Board of Directors continues to consider various alternative courses of action for the Company, including possibly acquiring or combining with one or more operating businesses. The Board of Directors has reviewed and analyzed a number of proposed transactions and will continue to do so until it can determine a course of action going forward to best benefit all shareholders. The Company cannot predict when the Board of Directors will have developed a proposed course of action or whether any such course of action will be successful. Considering our current cash position of $9.5 million at September 30, 2011 and our average spending to support continuing operations, management believes it has sufficient capital resources and liquidity to operate the Company for at least one year.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2011, Compared to Three Months Ended September 30, 2010

The Company generated no sales or gross profits in continuing operations during the three months ended September 30, 2011 and 2010.

General and administrative expenses totaled $.5 million during the three months ended September 30, 2011, compared to $.4 million during the same period of the prior year. The increase is primarily due to a reduction in value of a cash surrender value related asset associated with a post-employment obligation of a former employee.

Nine Months Ended September 30, 2011, Compared to Nine Months Ended September 30, 2010

The Company generated no sales or gross profits during the nine months ended September 30, 2011 and 2010.

General and administrative expenses totaled $1.5 million during the nine months ended September 30, 2011, and $1.5 million during the same period of the prior year. Although there was a decrease of $.1 million in legal fees from the prior period, this was offset by an increase in general and administrative expenses due to a reduction in value of a cash surrender value related asset associated with a post-employment obligation of a former employee.

RESULTS OF DISCONTINUED OPERATIONS

Three Months Ended September 30, 2011, Compared to Three Months Ended September 30, 2010

The Company had no discontinued operations during the three months ended September 30, 2011 but did incur a loss of $66,000 from discontinued operations during the three months ended September 30, 2010.

The Company generated no sales or gross profits in discontinued operations during the three months ended September 30, 2010.

General and administrative expenses totaled $66,000 during the three months ended September 30, 2010, which related to charges for a post-employment obligation.

Nine Months Ended September 30, 2011, Compared to Nine Months Ended September 30, 2010

The Company had no discontinued operations during the nine months ended September 30, 2011 but did incur a loss of $93,000 from discontinued operations during the nine months ended September 30, 2010.

The Company generated no sales or gross profits during the nine months ended September 30, 2010.

General and administrative expenses totaled $93,000 during the nine months ended September 30, 2010, which related to charges for a post-employment obligation.

LIQUIDITY AND CAPITAL RESOURCES

Working capital was $9.3 million and $10.6 million at September 30, 2011, and December 31, 2010, respectively.

Net cash used in operating activities during the nine months ended September 30, 2011, totaled $1.2 million primarily due to a loss from continuing operations of $1.4 million partially offset by a net change in working capital items. Net cash used in operating activities from continuing operations during the nine months ended September 30, 2010, totaled $1.3 million primarily due to a loss from continuing operations of $1.5 million partially offset by a net change in working capital items.

Net cash received from investing activities during the nine months ended September 30, 2011, totaled $73,000 which was due to the sale of one of the Company’s equity investments. There were no investing activities during the nine months ended September 30, 2010.

There were no financing activities during the nine months ended September 30, 2011. There were cash outflows from financing activities of $1.3 million during the nine months ended September 30, 2010, as the Company purchased 3,589,201

shares of its outstanding common stock from Everest Special Situations Fund L.P., formerly the Company’s second largest shareholder, for $1,256,220, on April 26, 2010. The shares are held by the Company as treasury stock.

The Company has a letter of credit totaling approximately $36,000 at September 30, 2011, which supports the Company’s periodic payroll obligations and is considered restricted.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The disclosure required by this Item is not material to the Company because the Company does not currently have any exposure to market rate sensitive instruments, as defined in this Item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of September 30, 2011, the Company evaluated the effectiveness and design and operation of its disclosure controls and procedures. The Company’s disclosure controls and procedures are the controls and other procedures that the Company designed to ensure that it records, processes, summarizes, and reports in a timely manner the information that it must disclose in reports that the Company files with or submits to the Securities and Exchange Commission. Greg Mays, the principal executive and principal financial officer of the Company, reviewed and participated in this evaluation. Based on this evaluation, the principal executive and principal financial officer of the Company concluded that the Company’s disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that occurred during the quarter ended June 30, 2011, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 4T. CONTROLS AND PROCEDURES

Not applicable.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable.

Item 1A. Risk Factors

In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A: Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010, which could materially affect our business, financial condition or future results. The risk factors described in our Annual Report on Form 10-K remain applicable to our business, subject to the changes and the addition of the new risk factors set forth below. The risks described below and in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. (Removed and Reserved)

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit
Number		Description
2.1(4)		Securities Purchase Agreement dated September 1, 1999, between the Registrant and Overseas Toys, L.P.
2.2(6)		Purchase Agreement between the Company and Rockridge Partners, Inc., dated January 20, 2001, as amended by Amendment No. 1 to the Purchase Agreement, dated February 15, 2001
2.3(7)		March 12, 2002, Letter Agreement between Cyrk and Simon, as amended by Letter Agreement dated as of March 22, 2002
2.4(7)		Mutual Release Agreement between Cyrk and Simon
2.5(8)		Letter Agreement Between Cyrk and Simon, dated December 20, 2002
2.6(10)		Settlement Agreement and Mutual General Release between Cyrk and Simon dated January 31, 2006
2.7(10)		Subordinated Promissory Note in the principal amount of $1,410,000 from Cyrk to Simon dated January 31, 2006
3.1(11)		Restated Certificate of Incorporation of the Registrant
3.2(10)		Amended and Restated By-laws of the Registrant, effective March 27, 2006
4.1(1)		Specimen certificate representing Common Stock

Exhibit
Number		Description
10.1(2)(3)		1993 Omnibus Stock Plan, as amended
10.10(5)		Registration Rights Agreement between the Company and Overseas Toys, L.P.
10.18(6)		Subordinated Promissory Note by Rockridge Partners, Inc. in favor of the Company dated February 15, 2001
10.28(9)		February 7, 2003, letter agreement with Greg Mays regarding 2002 and 2003 compensation
10.29(9)		May 30, 2003, Executive Services Agreements with Joseph Bartlett, Allan Brown, Gregory Mays, and Terrence Wallock
10.30(10)		May 3, 2004, Amendment No. 1 to Executive Services Agreements with Messrs. Bartlett and Brown, (replaces previously filed copies of these amendments)
10.31(10)		March 27, 2006, Amendment No. 2 to Wallock Executive Services Agreement
10.32(10)		March 27, 2006, New Executive Services Agreement with Mr. Mays
31		Certifications pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 (the “Exchange Act”), filed herewith
32		Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes- Oxley Act of 2002, filed herewith
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURE

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.