UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
| x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2015
OR
| ¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to
Commission File Number: 0-21878
Simon
Worldwide, Inc.
(Exact name of registrant as specified in its charter)
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| DELAWARE |
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04-3081657 |
| (State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
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 x 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files): Yes x 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):
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| Large accelerated filer |
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Accelerated filer |
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| Non-accelerated filer |
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¨ (Do not check if a smaller reporting company) |
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Smaller reporting company |
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x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act): Yes ¨ No x
At August 7, 2015, 74,501,559 shares of the registrant’s common stock were outstanding.
SIMON WORLDWIDE, INC.
FORM 10-Q
TABLE OF CONTENTS
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| Ex-31.1 |
|
Section 302 Certification of CEO |
| Ex-31.2 |
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Section 302 Certification of CFO |
| Ex-32 |
|
Section 906 Certification of CEO and CFO |
| Ex-101.INS |
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Instance Document |
| Ex-101.SCH |
|
Schema Document |
| Ex-101.CAL |
|
Calculation Linkbase Document |
| Ex-101.DEF |
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Definition Linkbase Document |
| Ex-101.LAB |
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Labels Linkbase Document |
| Ex-101.PRE |
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Presentation Linkbase Document |
2
PART I — FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
SIMON WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
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June 30,
2015 |
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December 31,
2014 |
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(Unaudited) |
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| ASSETS |
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| Current assets: |
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| Cash and cash equivalents |
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$ |
492 |
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$ |
1,042 |
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| Restricted cash |
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36 |
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36 |
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| Related-party receivables |
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18 |
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12 |
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| Prepaid expenses and other current assets |
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53 |
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31 |
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| Total current assets |
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599 |
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1,121 |
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| Other assets |
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207 |
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223 |
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| Total non-current assets |
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207 |
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223 |
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| Total assets |
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$ |
806 |
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$ |
1,344 |
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| LIABILITIES AND STOCKHOLDERS’ EQUITY |
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| Current liabilities: |
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| Accounts payable |
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$ |
46 |
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$ |
103 |
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| Accrued expenses and other current liabilities |
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50 |
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64 |
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| Total current liabilities |
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96 |
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167 |
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| Stockholders’ equity: |
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| Common stock, $.01 par value; 100,000,000 shares authorized; 74,501,559 shares outstanding net of 4,002,070 treasury shares at par
value at June 30, 2015 and December 31, 2014 |
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745 |
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745 |
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| Additional paid-in capital |
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156,064 |
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156,064 |
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| Accumulated Deficit |
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(156,099 |
) |
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(155,623 |
) |
| Accumulated other comprehensive income |
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— |
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(9 |
) |
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| Total stockholders’ equity |
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710 |
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1,177 |
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| Total liabilities and stockholders’ equity |
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$ |
806 |
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$ |
1,344 |
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|
See the accompanying Notes to Condensed Consolidated Financial Statements.
3
SIMON WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in
thousands, except loss per share data)
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For the Three Months |
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For the Six Months |
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Ended June 30, |
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Ended June 30, |
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2015 |
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2014 |
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2015 |
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2014 |
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| Revenue |
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$ |
— |
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$ |
— |
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$ |
— |
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$ |
— |
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| General and administrative expenses |
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239 |
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267 |
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569 |
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559 |
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| Operating loss |
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(239 |
) |
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(267 |
) |
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(569 |
) |
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(559 |
) |
| Other income |
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53 |
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74 |
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105 |
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147 |
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| Equity in losses of Three Lions Entertainment, LLC |
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— |
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(841 |
) |
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— |
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(1,679 |
) |
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| Loss before income taxes |
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(186 |
) |
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(1,034 |
) |
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(464 |
) |
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(2,091 |
) |
| Income tax provision |
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(6 |
) |
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(3 |
) |
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(12 |
) |
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(8 |
) |
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| Net loss |
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$ |
(192 |
) |
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$ |
(1,037 |
) |
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$ |
(476 |
) |
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$ |
(2,099 |
) |
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| Net loss per share – basic and diluted: |
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| Loss per common share |
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$ |
(0.00 |
) |
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$ |
(0.01 |
) |
|
$ |
(0.00 |
) |
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$ |
(0.03 |
) |
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| Weighted average shares outstanding |
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74,502 |
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74,502 |
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74,502 |
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74,502 |
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See the accompanying Notes to Condensed Consolidated Financial Statements.
4
SIMON WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
(in
thousands)
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For the Three Months |
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For the Six Months |
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Ended June 30, |
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Ended June 30, |
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2015 |
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2014 |
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2015 |
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2014 |
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| Net loss |
|
$ |
(192 |
) |
|
$ |
(1,037 |
) |
|
$ |
(476 |
) |
|
$ |
(2,099 |
) |
| Other comprehensive gain (loss): |
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| Unrealized gain (loss) on investments net of tax benefit of $6, $1, $6, and $3, respectively |
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8 |
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(1 |
) |
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9 |
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(4 |
) |
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| Other comprehensive gain (loss) |
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8 |
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(1 |
) |
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9 |
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(4 |
) |
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| Comprehensive loss |
|
$ |
(184 |
) |
|
$ |
(1,038 |
) |
|
$ |
(467 |
) |
|
$ |
(2,103 |
) |
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See the accompanying Notes to Condensed Consolidated Financial Statements.
5
SIMON WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in
thousands)
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For the Six Months |
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Ended June 30, |
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2015 |
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|
2014 |
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| Cash flows from operating activities: |
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| Net loss |
|
$ |
(476 |
) |
|
$ |
(2,099 |
) |
| Adjustments to reconcile net loss to net cash used in operating activities: |
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| Equity in loss of Three Lions Entertainment, LLC |
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|
— |
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1,679 |
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| Deferred income taxes |
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|
6 |
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|
3 |
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| Increase (decrease) in cash from changes in working capital items: |
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| Prepaid expenses and other current assets |
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(9 |
) |
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|
59 |
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| Accounts payable |
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(57 |
) |
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(14 |
) |
| Accrued expenses and other current liabilities |
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(14 |
) |
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(5 |
) |
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| Net cash used in operating activities |
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(550 |
) |
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(377 |
) |
| Net cash provided by investing activities |
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— |
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— |
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| Net cash provided by financing activities |
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— |
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— |
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| Net decrease in cash and cash equivalents |
|
|
(550 |
) |
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|
(377 |
) |
| Cash and cash equivalents, beginning of period |
|
|
1,042 |
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|
1,643 |
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| Cash and cash equivalents, end of period |
|
$ |
492 |
|
|
$ |
1,266 |
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| Supplemental disclosure of cash flow information: |
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| Cash paid during the period for: |
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| Income taxes |
|
$ |
1 |
|
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$ |
3 |
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|
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|
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|
See the accompanying Notes to Condensed Consolidated Financial Statements.
6
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, 2014 (“2014 10-K”). Certain prior period amounts were reclassified to conform to current period presentation.
The Company
consolidates all entities that it controls by ownership of a majority voting interest as well any variable interest entities (“VIEs”) for which the Company was the primary beneficiary. The Company eliminates from its financial results all
intercompany transactions, including the intercompany transactions with any consolidated VIEs.
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.
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
Company is managed by the Chief Executive Officer, Greg Mays, and Chief Financial Officer, Anthony Espiritu, together with an acting general counsel. The Board of Directors has considered 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. On March 22, 2013, the Company announced in a current report on Form 8-K that
it, together with Richard Beckman, Joel Katz and OA3, LLC (“OA3”), had entered into the limited liability company agreement (the “LLC Agreement”) of Three Lions Entertainment, LLC (“Three Lions”) on March 18, 2013.
Three Lions business consisted of originating, producing, and monetizing annual television programming for broadcast on network television with a particular emphasis on branded entertainment and special events. Branded entertainment is an
entertainment-based vehicle that is funded by advertisers and is complementary to a brands marketing strategy.
Pursuant to the LLC Agreement, the Company
contributed $3.15 million to Three Lions in exchange for membership units representing 60% of the economic returns of Three Lions, including certain preferences with respect to common holders on operating returns and on a liquidation or sale of
Three Lions. In respect of such previously issued membership units, the Company made a second capital contribution to Three Lions in the amount of $1.85 million on April 26, 2013, and a third and final capital contribution to Three Lions in the
amount of $3.5 million on October 2, 2013. As a result of these transactions, the Company’s business substantially consisted of acting as the majority equityholder of, and holding a membership interest in, Three Lions. The business and
operations of Three Lions were managed and directed by a five person Executive Board, three of whom the Company had the power to designate. The Executive Board governed under majority vote, subject to certain major decisions that required the
unanimous approval of either the members of Three Lions or its Executive Board (“Special Approval”).
The Company was party to a Pledge
Agreement, dated May 7, 2014, with SunTrust Bank (“SunTrust”) wherein the Company pledged all of its equity interests in Three Lions (and all proceeds of such interests) to SunTrust as security for Three Lions’ obligations under
a revolving credit facility that Three Lions obtained from SunTrust. The Company’s pledge of its equity interests in Three Lions terminated only upon the payment in full and termination of Three Lions’ obligations under the revolving
credit facility. Three Lions paid in full the revolving credit facility on December 18, 2014.
7
Due to a confluence of a number of adverse factors, but in particular, a ratings performance well below
expectations on Three Lion’s initial Fashion RocksTM broadcast on September 9, 2014, and the resultant decision to cancel further production on other projects, Three Lions recorded
unanticipated losses. In a meeting held on October 27, 2014, the Executive Board of Three Lions considered and unanimously approved a plan proposed by Three Lions’ management, with the assistance of its advisors, to proceed with the
voluntary liquidation and dissolution of Three Lions in accordance with Delaware law. On January 30, 2015, Three Lions was dissolved with the filing of its Certificate of Cancellation with the state of Delaware. No amounts were distributed to
the Company or to the other members of Three Lions in the liquidation.
With no revenues from operations, the Company closely monitors and controls its
expenditures within a reasonably predictable range. Cash used by operating activities was $.6 million and $.4 million for the six months ended June 30, 2015 and 2014, respectively. The Company incurred losses within its operations in 2014 and
continues to incur losses in 2015 for the general and administrative expenses incurred to manage the affairs of the Company. By utilizing cash available at June 30, 2015 to maintain its scaled back operations, and a short-term funding
commitment from the Company’s largest shareholder, management believes it has sufficient capital resources and liquidity to operate the Company through at least December 31, 2015.
The operating results for the six months ended June 30, 2015, are not necessarily indicative of the results to be expected for the full year.
2. Variable Interest Entity (“VIE”)
CONSOLIDATION OF VARIABLE INTEREST ENTITIES
Under certain criteria as provided for in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 810, “Consolidation,”
the Company may consolidate a partially-owned affiliate. To determine whether to consolidate a partially-owned affiliate, the Company first determines if the entity is a variable interest entity (VIE). An entity is considered to be a VIE if it has
one of the following characteristics: 1) the entity is thinly capitalized; 2) residual equity holders do not control the entity; 3) equity holders are shielded from economic losses or do not participate fully in the entity’s residual economics;
or 4) the entity was established with non-substantive voting. If the entity meets one of these characteristics, the Company then determines if it is the primary beneficiary of the VIE. The party with the power to direct activities of the VIE that
most significantly impact the VIE’s economic performance and the potential to absorb benefits or losses that could be significant to the VIE is considered the primary beneficiary and consolidates the VIE.
Three Lions met the definition of a variable interest entity as the total equity investment at risk in Three Lions was not sufficient to permit Three Lions to
finance its activities without further subordinated financial support by any parties, including the equity holders. Management determined at the date of the Company’s third contribution that the entity was a variable interest entity primarily
based on the equity investment at risk in Three Lions totaling $9.0 million, which consisted of three contributions by the Company of $3.1 million on March 18, 2013, $1.9 million on April 26, 2013, and $3.5 million on October 2, 2013,
and founder contributions of $.5 million, compared to capital in excess of that amount deemed necessary to develop and produce content, market and air the first revenue-generating event on September 9, 2014. The Company’s contributions
total $8.5 million and the founders’ contributions total $.5 million. As the Company did not have sufficient cash on hand to make its third contribution, the Company raised capital through an offering of its common stock to its shareholders.
The Company’s equity interest in Three Lions represented a variable interest in a VIE. Due to certain requirements under the LLC Agreement of Three
Lions, the Company, through its voting rights associated with its LLC units, did not have the sole power to direct the activities of Three Lions that most significantly impacted Three Lion’s economic performance and the obligation to absorb
losses of Three Lions that could potentially be significant to Three Lions or the right to receive benefits from Three Lions that could potentially be significant to Three Lions. Specifically, the Company shared power with the founders who
controlled the common units of Three Lions to approve budgets and business plans and make key business decisions all of which required unanimous consent from all the executive board members. As a result, the Company was not the primary beneficiary
of Three Lions and thus did not consolidate it. However, the Company had significant influence over Three Lions and therefore, accounted for its ownership interest in Three Lions under the equity method of accounting.
Through December 31, 2014, the Company’s total contributions of $8.5 million were reduced by Simon’s absorption of its share of Three
Lions’ operating losses from the period March 18, 2013, through December 31, 2014, which reduced the
8
carrying value of its Three Lions investment to $0. Also, the Company was required to issue a cash collateralized bank letter of credit on April 12, 2013 in the amount of $.2 million with an
expiration date of April 15, 2015, to guarantee payments on an office lease obtained by Three Lions. In connection with the liquidation of Three Lions, the Company lost its cash collateralized bank letter of credit and, accordingly, it has
recorded loss of $.2 million for the year ended December 31, 2014. The Company’s investment, and guarantee, related to Three Lions totaled $8.7 million and represented the Company’s maximum exposures to loss.
Due to a confluence of a number of adverse factors, but in particular, a ratings performance well below expectations on Three Lion’s initial Fashion
RocksTM broadcast on September 9, 2014, and the resultant decision to cancel further production on other projects, Three Lions recorded unanticipated losses. In a meeting held on
October 27, 2014, the executive board of Three Lions considered and unanimously approved a plan proposed by Three Lions’ management, with the assistance of its advisors, to proceed with the voluntary liquidation and dissolution of Three
Lions in accordance with Delaware law. On January 30, 2015, Three Lions was dissolved with the filing of its Certificate of Cancellation with the state of Delaware. No amounts were distributed to the Company or to the other members of Three
Lions in the liquidation.
3. Long-term Investment
The Company holds an investment in an available-for-sale equity security with a fair value of approximately $19,000 and $15,000 at
June 30, 2015, and December 31, 2014, respectively, which is included in other assets in the accompanying consolidated balance sheets. The cost basis in this available-for-sale security was approximately $19,000 at June 30, 2015, and
December 31, 2014. Total unrealized (losses) gains in accumulated other comprehensive income totaled $0 and $(4,000) at June 30, 2015, and December 31, 2014. This investment is recorded at fair value using quoted prices in active
markets for identical assets or liabilities (Level 1).
4. Loss Per Share Disclosure
The Company calculates its earnings per share in accordance with ASC 260-10, “Earnings Per Share.” There were 74,501,559 weighted
average shares outstanding for the three and six months ended June 30, 2015 and 2014. There were no dilutive shares outstanding during any of the periods.
5. Income Taxes
The Company had a provision for income taxes for the six months ended June 30, 2015 and 2014 that consisted of the following (in
thousands):
|
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|
|
|
|
|
|
| |
|
Six Months Ended |
|
| |
|
June 30, |
|
| |
|
2015 |
|
|
2014 |
|
| Current: |
|
|
|
|
|
|
|
|
| Federal |
|
$ |
— |
|
|
$ |
— |
|
| State |
|
|
6.4 |
|
|
|
5.3 |
|
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|
|
|
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|
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|
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| Total |
|
|
6.4 |
|
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|
5.3 |
|
| Deferred: |
|
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|
|
|
|
|
|
| Federal |
|
|
4.7 |
|
|
|
2.1 |
|
| State |
|
|
0.8 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
| Total |
|
|
5.5 |
|
|
|
2.5 |
|
| Total: |
|
|
|
|
|
|
|
|
| Federal |
|
|
4.7 |
|
|
|
2.1 |
|
| State |
|
|
7.2 |
|
|
|
5.7 |
|
|
|
|
|
|
|
|
|
|
| Total |
|
$ |
11.9 |
|
|
$ |
7.8 |
|
|
|
|
|
|
|
|
|
|
The Company’s provision for income taxes for the six months ended June 30, 2015, included adjustments to reverse federal
and state deferred taxes relating to a prior period totaling approximately $4,700 and $800, respectively. The Company does not consider these adjustments to be material.
9
The Company annually evaluates the positive and negative evidence bearing upon the realizability of its deferred
tax assets. The Company, however, has considered results of current 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
$44.7 million and $38.2 million is required at June 30, 2015, and December 31, 2014, respectively. The tax effects of temporary differences that gave rise to deferred tax assets at June 30, 2015, and December 31, 2014, were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
| |
|
June 30, |
|
|
December 31, |
|
| |
|
2015 |
|
|
2014 |
|
| Deferred tax assets: |
|
|
|
|
|
|
|
|
| Net operating losses |
|
$ |
52,320 |
|
|
$ |
42,579 |
|
| Capital losses |
|
|
361 |
|
|
|
361 |
|
| Accrued expenses |
|
|
22 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
| Total deferred tax assets |
|
|
52,703 |
|
|
|
42,958 |
|
| Valuation allowance |
|
|
(44,654 |
) |
|
|
(38,166 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
8,049 |
|
|
|
4,792 |
|
| Deferred tax liabilities: |
|
|
|
|
|
|
|
|
| State deferreds |
|
|
(8,070 |
) |
|
|
(4,814 |
) |
| Other investment |
|
|
21 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
| Total deferred tax liabilities |
|
|
(8,049 |
) |
|
|
(4,792 |
) |
|
|
|
|
|
|
|
|
|
| Net deferred taxes |
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
As of June 30, 2015, the Company had federal NOLs totaling approximately $84.3 million and post-apportionment state NOLs
totaling approximately $154.5 million. The New York State post-apportionment NOLs included above total $122.7 million. The federal NOLs carry forward for 20 years and begin to expire in 2021 through 2036. The state post-apportioned NOLs are from
various states and begin to expire in 2015 through 2036.
The Company also has pre-apportionment NOLs from New York City totaling $112.6 million as of
June 30, 2015. Since the Company has no revenue-generating operations in New York City and none are expected in the future, management has determined that none of the NOLs should be recognized. If the Company were to commence operations in New
York City in future years, the realizability of the NOLs and related deferred tax assets will be assessed at such time. The NOLs from New York City carry forward for 20 years and begin to expire in 2021 through 2036.
The federal and state NOLs may be subject to certain limitations under Section 382 of the Internal Revenue Code, which could significantly restrict the
Company’s ability to use the NOLs to offset taxable income in subsequent years. The Company completed a review of any potential limitation on the use of its net operating losses under Section 382 on August 9, 2008, and an update to
this review on June 7, 2013. Based on such reviews, the Company does not believe Section 382 of the Internal Revenue Code will adversely impact its ability to use its current net operating losses to offset future taxable income, if any.
10
The following is a reconciliation of the statutory federal income tax rate to the actual effective income tax
rate:
|
|
|
|
|
|
|
|
|
| |
|
June 30, |
|
| |
|
2015 |
|
|
2014 |
|
| 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 |
|
|
(38.1 |
) |
|
|
(34.6 |
) |
| Permanent differences |
|
|
(1.7 |
) |
|
|
(5.3 |
) |
| Minimum tax |
|
|
(2.6 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(2.6 |
)% |
|
|
(0.3 |
)% |
|
|
|
|
|
|
|
|
|
6. Related-Party Transactions
The Company earned $0 and $37,500 during the three and six months ended June 30, 2015, respectively, and $37,500 and $75,000 during the
three and six months ended June 30, 2014, respectively, from Three Lions, a VIE of the Company, related to accounting services. There was approximately $17,000 for amounts earned from Three Lions in accounts receivable at December 31,
2014. Since, on January 30, 2015, Three Lions was dissolved with the filing of its Certificate of Cancellation with the state of Delaware, there was no amount in accounts receivable from Three Lions at June 30, 2015.
The Company also earned $36,000 and $72,000 during the three and six months ended June 30, 2015, respectively, and during the three and six months ended
June 30, 2014, respectively, from Wild Oats Marketing, LLC, a company controlled by the Company’s largest shareholder, related to accounting and administrative services. Of these amounts, $12,000 was in accounts receivable at June 30,
2015 and December 31, 2014.
Beginning in January 2015, the Company began providing accounting services to VodkaCo, LLC, (“VodkaCo) another
company controlled by the Company’s largest shareholder. The Company earned approximately $18,000 and $34,000 from this arrangement during the three and six months ended June 30, 2015, respectively. At June 30, 2015, the Company had
$6,000 in accounts receivable from VodkaCo.
Although the Company’s board members received no compensation for their services during the three and
six months ended June 30, 2015 and during the three and six months ended June 30, 2014, the Company had a payable accrued totaling approximately $15,000 at June 30, 2015, and December 31, 2014, due to its board members for
services rendered prior to the Company’s decision in August 2012 to suspend their compensation arrangements.
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 six months ended June 30, 2015, as
compared to the same period 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 2014 10-K, and below in Part II
– Other Information, for purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995.
11
General
Prior to August 2001, Simon Worldwide, Inc. (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 Company is managed by the Chief Executive Officer, Greg Mays, and Chief Financial Officer, Anthony Espiritu, together with an acting general counsel. The
Board of Directors has considered 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. On March 22, 2013, the Company announced in a current report on Form 8-K that it, together with Richard Beckman, Joel Katz and OA3, LLC (“OA3”), had entered into the limited liability company agreement (the “LLC
Agreement”) of Three Lions Entertainment, LLC (“Three Lions”) on March 18, 2013.
Pursuant to the LLC Agreement, the Company
contributed $3.15 million to Three Lions in exchange for membership units representing 60% of the economic returns of Three Lions, including certain preferences with respect to common holders on operating returns and on a liquidation or sale of
Three Lions. In respect of such previously issued membership units, the Company made a second capital contribution to Three Lions in the amount of $1.85 million on April 26, 2013, and a third and final capital contribution to Three Lions in the
amount of $3.5 million on October 2, 2013. As a result of these transactions, the Company’s business substantially consisted of acting as the majority equityholder of, and holding a membership interest in, Three Lions. The business and
operations of Three Lions were managed and directed by a five person Executive Board, three of whom the Company had the power to designate. The Executive Board governed under majority vote, subject to certain major decisions that required the
unanimous approval of either the members of Three Lions or its Executive Board (“Special Approval”).
The Company was party to a Pledge
Agreement, dated May 7, 2014, with SunTrust Bank (“SunTrust”) wherein the Company pledged all of its equity interests in Three Lions (and all proceeds of such interests) to SunTrust as security for Three Lions’ obligations under
a revolving credit facility that Three Lions obtained from SunTrust. The Company’s pledge of its equity interests in Three Lions terminated only upon the payment in full and termination of Three Lions’ obligations under the revolving
credit facility. Three Lions paid in full the revolving credit facility on December 18, 2014.
Due to a confluence of a number of adverse factors,
but in particular, a ratings performance well below expectations on Three Lion’s initial Fashion RocksTM broadcast on September 9, 2014, and the resultant decision to cancel further
production on other projects, Three Lions recorded unanticipated losses. In a meeting held on October 27, 2014, the Executive Board of Three Lions considered and unanimously approved a plan proposed by Three Lions’ management, with the
assistance of its advisors, to proceed with the voluntary liquidation and dissolution of Three Lions in accordance with Delaware law. On January 30, 2015, Three Lions was dissolved with the filing of its Certificate of Cancellation with the
state of Delaware. No amounts were distributed to the Company or to the other members of Three Lions in the liquidation.
Outlook
The Company has not had an operating business since 2002. Since 2002, its Board of Directors has considered various alternative courses of action, including
possibly acquiring or combining with one or more operating businesses, and has reviewed and analyzed a number of proposed transactions. In March 2013, the Company invested its remaining cash assets in the acquisition of a majority economic interest
in Three Lions, a start-up television production company with a particular emphasis on branded entertainment and special events. In October 2013, the Company consummated a $5 million rights offering of its common stock to its existing shareholders
to fund its remaining $3.5 million capital contribution to Three Lions and to provide working capital for the Company until Three Lions was projected to be able to provide it with distributions to help pay its operating costs. As a result of these
transactions, since March 2013, the Company’s business had consisted almost entirely of acting as the majority equityholder of, and holding a membership interest in, Three Lions.
12
Three Lions held its initial Fashion RocksTM broadcast on
September 9, 2014 and experienced a ratings performance well below expectations. As a result of the poor ratings and sponsorship revenue that fell well short of projections, Three Lions recorded unanticipated losses of $7.5 million in
connection with the broadcast. Three Lions sought out new financing sources to provide the necessary funding for Three Lions next production, but was not successful and unable to secure a new source of working capital. In a meeting held on
October 27, 2014, and after reviewing financial information and projections provided by Three Lions and its advisors, the Executive Board of Three Lions considered and unanimously approved a plan proposed by Three Lions’ management, with
the assistance of its advisors, to proceed with the voluntary liquidation and dissolution of Three Lions in accordance with Delaware law. On January 30, 2015, Three Lions was dissolved with the filing of its Certificate of Cancellation with the
state of Delaware. No amounts were distributed to the Company or to the other members of Three Lions in the liquidation.
Accordingly, the Company has
suffered the loss of its entire $8.5 million capital investment in Three Lions. The Company also lost its $199,583 cash collateralized bank letter of credit that it provided to support payments on an office lease obtained by Three Lions, and the
Company incurred additional legal and other professional fees and associated costs in connection with Three Lions’ liquidation totaling approximately $30,000. These losses have had and will continue to have a material adverse effect on the
Company’s business, financial condition, results of operations and prospects.
The Company’s investment in Three Lions constituted its primary
asset on its financial statement and it has no other assets with the potential of generating positive cash flow. Considering the Company’s current cash position of $0.5 million at June 30, 2015, its average historical spending to support
continuing operations, and a short-term funding commitment from its largest shareholder, the Company’s management believes it has sufficient capital resources and liquidity to continue to operate in a manner consistent with its recent
operations through at least December 31, 2015. However, given the Company’s lack of an operating business or other revenue generating opportunities, the Company’s management believes that it will deplete its remaining cash resources
in a little over six months. There can be no assurances that the Company will be able to secure financing or an operating business before its remaining cash is depleted. To the extent that the Company is unable to identify and obtain an alternate
source of funds, it will likely be forced to liquidate.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2015, Compared to Three Months Ended June 30, 2014
The Company generated no revenue or gross profits during the three months ended June 30, 2015 and 2014.
General and administrative expenses totaled $.2 million during the three months ended June 30, 2015, compared to $.3 million during the three months
ended June 30, 2014. The decrease is primarily due to a decrease in professional fees.
Other income totaled $53,000 during the three months ended
June 30, 2015, compared to $74,000 during the three months ended June 30, 2014. The change is primarily due to the liquidation and dissolution of Three Lions for which the Company was providing accounting services totaling $36,000 in the
prior period. This decrease was partially offset by $18,000 earned in the current period for accounting services the Company began providing in January 2015 to a company controlled by an affiliate of the Company’s largest shareholder. This
arrangement and a second arrangement where the Company provides limited accounting and administrative services to another company controlled by an affiliate of the Company’s largest shareholder entail providing these services through an
undetermined end date, including payments totaling approximately $54,000 expected for the third quarter. The Company does not consider these arrangements to be part of its recurring operations.
Equity in the losses of Three Lions decreased from $.8 million during the three months ended June 30, 2014, to $0 during the three months ended
June 30, 2015. The decrease is due to the voluntary liquidation and dissolution of Three Lions in accordance with Delaware law. In a meeting held on October 27, 2014, and after reviewing financial information and projections provided by
Three Lions and its advisors, the Executive Board of Three Lions considered and unanimously approved a plan proposed by Three Lions’ management, with the assistance of its advisors, to proceed with the voluntary liquidation and dissolution of
Three Lions in accordance with Delaware law. On January 30, 2015, Three Lions was dissolved with the filing of its Certificate of Cancellation with the state of Delaware.
13
Six Months Ended June 30, 2015, Compared to Six Months Ended June 30, 2014
The Company generated no revenue or gross profits during the six months ended June 30, 2015 and 2014.
General and administrative expenses totaled $.6 million during the six months ended June 30, 2015, which is consistent with the $.6 million during the
six months ended June 30, 2014.
Other income totaled $105,000 during the six months ended June 30, 2015, compared to $147,000 during the six
months ended June 30, 2014. The decrease is primarily due to the liquidation and dissolution of Three Lions for which the Company was providing accounting services totaling $72,000 in the prior period. This decrease was partially offset by
approximately $34,000 earned in the current period for accounting services the Company began providing in January 2015 to a company controlled by an affiliate of the Company’s largest shareholder. This arrangement and a second arrangement where
the Company provides limited accounting and administrative services to another company controlled by an affiliate of the Company’s largest shareholder entail providing these services through an undetermined end date, including payments totaling
approximately $54,000 expected for the third quarter. The Company does not consider these arrangements to be part of its recurring operations.
Equity in
the losses of Three Lions decreased from $1.7 million during the six months ended June 30, 2014, to $0 during the six months ended June 30, 2015. The decrease is due to the voluntary liquidation and dissolution of Three Lions in accordance
with Delaware law. In a meeting held on October 27, 2014, and after reviewing financial information and projections provided by Three Lions and its advisors, the Executive Board of Three Lions considered and unanimously approved a plan proposed
by Three Lions’ management, with the assistance of its advisors, to proceed with the voluntary liquidation and dissolution of Three Lions in accordance with Delaware law. On January 30, 2015, Three Lions was dissolved with the filing of
its Certificate of Cancellation with the state of Delaware.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $.5 million and $1.5 million at June 30, 2015, and June 30, 2014, respectively.
Net cash used in operating activities during the six months ended June 30, 2015, totaled $.6 million primarily due to a net loss of $.5 million and a net
change in working capital items. Net cash used in operating activities during the six months ended June 30, 2014 totaled $.4 million primarily due to a net loss of $2.1 million partially offset by equity in the losses of Three Lions of $1.7
million.
There were no investing activities during the six months ended June 30, 2015 and 2014.
There were no financing activities during the six months ended June 30, 2015 and 2014.
At June 30, 2015, the Company had a letter of credit to support the Company’s periodic payroll obligations totaling approximately $36,000 and it is
considered restricted.
Due to a confluence of a number of adverse factors, but in particular, a ratings performance well below expectations on Three
Lion’s initial Fashion RocksTM broadcast on September 9, 2014, and the resultant decision to cancel further production on other projects, Three Lions recorded unanticipated losses. In a
meeting held on October 27, 2014, the Executive Board of Three Lions considered and unanimously approved a plan proposed by Three Lions’ management, with the assistance of its advisors, to proceed with the voluntary liquidation and
dissolution of Three Lions in accordance with Delaware law. On January 30, 2015, Three Lions was dissolved with the filing of its Certificate of Cancellation with the state of Delaware. No amounts were distributed to the Company or to the other
members of Three Lions in the liquidation.
With no revenues from operations, the Company closely monitors and controls its expenditures within a
reasonably predictable range. Cash used by operating activities was $.6 million and $.4 million for the six months ended June 30, 2015 and 2014, respectively. The Company incurred losses within its operations in 2014 and continues to incur
losses in 2015 for the general and administrative expenses incurred to manage the affairs of the Company. By utilizing cash available at June 30, 2015, to maintain its scaled back operations and a short-term funding commitment from the
Company’s largest shareholder, management believes it has sufficient capital resources and liquidity to operate the Company through at least December 31, 2015.
14
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
June 30, 2015, 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
officer, and Anthony Espiritu, the principal financial officer of the Company, reviewed and participated in this evaluation. Based on this evaluation, the principal executive and principal financial officers 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, 2015, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
15
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 1A. Risk
Factors
In addition to the other information set forth in this report and in our other reports and statements that we file with the SEC, including our
quarterly reports on Form 10-Q, careful consideration should be given to the factors discussed in Part I, “Item 1A. Risk Factors” in our 2014 10-K, which could materially affect our business, financial condition and future results. We are
not aware of any material changes from the risk factors set forth in our 2014 10-K.
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other
Information
None.
Item 6. Exhibits
|
|
|
| Exhibit
Number |
|
Description
|
|
|
| 31.1 |
|
Certification of Greg Mays pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 (the “Exchange Act”), filed herewith |
|
|
| 31.2 |
|
Certification of Anthony Espiritu 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, furnished herewith |
|
|
| 101.INS |
|
XBRL Instance Document |
|
|
| 101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
|
| 101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
| 101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
| 101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
| 101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
16
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.
|
|
|
|
|
|
|
| Date: August 14, 2015 |
|
|
|
|
|
SIMON WORLDWIDE, INC. |
|
|
|
|
|
|
|
|
|
|
/s/ Greg Mays |
|
|
|
|
|
|
Greg Mays |
|
|
|
|
|
|
Chief Executive Officer |
|
|
|
|
|
|
(duly authorized signatory) |
|
|
|
|
| Date: August 14, 2015 |
|
|
|
|
|
SIMON WORLDWIDE, INC. |
|
|
|
|
|
|
|
|
|
|
/s/ Anthony Espiritu |
|
|
|
|
|
|
Anthony Espiritu |
|
|
|
|
|
|
Principal Financial Officer |
|
|
|
|
|
|
(duly authorized signatory) |
17
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Greg Mays, certify that:
1. I have reviewed this Quarterly
Report on Form 10-Q of Simon Worldwide, Inc. (the “Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. I am responsible for
establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15a-15(f)) for the
Registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being
prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report my conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the
Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over
financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Registrant’s
auditors and the audit committee of the Registrant’s Board of Directors (or persons performing the equivalent functions):
a. All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
Registrant’s internal control over financial reporting.
|
|
|
| Date: August 14, 2015 |
|
/s/ Greg Mays |
|
|
Greg Mays |
|
|
Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Anthony Espiritu, certify that:
1. I have reviewed this
Quarterly Report on Form 10-Q of Simon Worldwide, Inc. (the “Registrant”);
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. I am responsible for
establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15a-15(f)) for the
Registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being
prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report my conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the
Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over
financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Registrant’s
auditors and the audit committee of the Registrant’s Board of Directors (or persons performing the equivalent functions):
a. All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
Registrant’s internal control over financial reporting.
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| Date: August 14, 2015 |
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/s/ Anthony Espiritu |
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Anthony Espiritu |
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Principal Financial Officer |
EXHIBIT 32
CERTIFICATION PURSUANT TO SECTION 13a-14(b)
OF THE SECURITIES EXCHANGE ACT OF 1934 AND 18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Simon Worldwide, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2015, as filed
with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned officer of the Company, certifies, pursuant to Section 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C Section 1350,
that, to the best of the officer’s knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
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| Date: August 14, 2015 |
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/s/ Greg Mays |
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Greg Mays |
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Chief Executive Officer |
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/s/ Anthony Espiritu |
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Anthony Espiritu |
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Principal Financial Officer |
Simon Worldwide (GM) (USOTC:SWWI)
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