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The following is an excerpt from a 10-Q SEC Filing, filed by CYRK INC on 5/10/2001.
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SIMON WORLDWIDE INC - 10-Q - 20010510 - NOTES_TO_FINANCIAL_STATEMENT

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Basis of Presentation

The accompanying unaudited financial statements have been prepared by the Company 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 generally accepted accounting principles for complete financial statements and should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. In the opinion of management, the accompanying unaudited financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary for fair presentation of the Company's financial position, results of operations and cash flows at the dates and for the periods presented.

The operating results for the three months ended March 31, 2001 are not necessarily indicative of the results to be expected for the full year.

2. Sale of Business

Pursuant to its decision in December 2000, the Company sold its Corporate Promotions Group ("CPG") business on February 15, 2001 to Cyrk Holdings, Inc., formerly known as Rockridge Partners, Inc. ("Rockridge"), an investor group led by Gemini Investors LLC, a Wellesley, Massachusetts-based private equity investment firm, pursuant to a Purchase Agreement entered into as of January 20, 2001 (as amended, the "Purchase Agreement") for approximately $14.0 million which included the assumption of approximately $3.7 million of Company debt. $2.3 million of the purchase price was paid with a 10% per annum five-year subordinated note from Rockridge, with the balance being paid in cash. The 2000 financial statements reflected this transaction and included a pre-tax charge recorded in the fourth quarter of 2000 of $50.1 million due to the loss on the sale of the CPG business, $22.7 million of which was associated with the write-off of goodwill attributable to CPG. This charge had the effect of increasing the 2000 net loss available to common stockholders by approximately $49.0 million or $3.07 per share. Net sales in 2000 attributable to the CPG business were $146.8 million, or 19% of consolidated Company revenues. Net sales in the first quarter of 2001, for the period through February 14, 2001, attributable to the CPG business, were $17.7 million, or 17% of consolidated Company revenues. Net sales in the first quarter of 2000 attributable to the CPG business were $33.6 million, or 19% of consolidated Company revenues.

CPG was engaged in the corporate catalog and specialty advertising segment of the promotions industry. The group was formed as a result of Cyrk's acquisitions of Marketing Incentives, Inc. ("MI") and Tonkin, Inc. ("Tonkin") in 1996 and 1997, respectively.

Pursuant to the Purchase Agreement, Rockridge purchased from the Company
(i) all of the outstanding capital stock of MI and Tonkin, each a wholly-owned subsidiary of the Company, (ii) other certain assets of the Company, including those assets of Cyrk's Danvers and Wakefield, Massachusetts facilities necessary for the operation of the CPG business and (iii) all intellectual property and assumed liabilities of CPG as specified in the Purchase Agreement. Additionally, pursuant to the Purchase Agreement, Cyrk agreed to transfer its name to the buyer upon obtaining all necessary customer, stockholder and stock exchange approvals to change its name. Until such approvals are obtained, the Company will provide the buyer with a non-exclusive, worldwide, royalty-free license to use the name "Cyrk" and any other derivation thereof solely in connection with the Cyrk CPG business. Rockridge extended employment offers to certain former Cyrk employees who had performed various support activities, including accounting, human resources, information technology, legal and other various management functions. There is no material relationship between Rockridge and the Company or any of its affiliates, directors or officers, or any associate thereof, other than the relationship created by the Purchase Agreement and related documents.

The sale of CPG effectively terminated the restructuring effort announced by the Company in May 2000 with respect to the CPG business.

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3. Inventories

Inventories consist of the following (in thousands):

                                     March 31, 2001     December 31, 2000
                                     --------------     -----------------

Raw materials                            $    70             $   178
Work in process                            4,028               3,099
Finished goods                             8,859               6,898
                                         -------             -------
                                         $12,957             $10,175
                                         =======             =======

4. Investments

Current
In December 2000, the Company purchased 1,500,000 shares of a marketable security at $5.25 per share. As of March 31, 2001 and December 31, 2000, these shares are stated at fair value of approximately $13.0 million and $8.0 million, respectively.

Long-term
The Company has made strategic and venture investments in a portfolio of privately-held companies that are being accounted for under the cost method. These investments are in Internet-related companies that are at varying stages of development, including startups, and are intended to provide the Company with expanded Internet presence, to enhance the Company's position at the leading edge of e-business and to provide venture investment returns. These companies in which the Company has invested are subject to all the risks inherent in the Internet, including their dependency upon the widespread acceptance and use of the Internet as an effective medium for commerce. In addition, these companies are subject to the valuation volatility associated with the investment community and the capital markets. The carrying value of the Company's investments in these Internet-related companies is subject to the aforementioned risks inherent in Internet business.

Each quarter, the Company performs a review of the carrying value of all its investments in these Internet-related companies, and considers such factors as current results, trends and future prospects, capital market conditions and other economic factors. Based on its quarterly review, the Company has recorded a first quarter charge to other expense of $.5 million for an other-than-temporary investment impairment associated with its venture portfolio. While the Company will continue to periodically evaluate its Internet investments, there can be no assurance that its investment strategy will be successful, and thus the Company might not ever realize any benefits from its portfolio of investments.

5. Short-Term Borrowings

In February 2001, the Company's primary domestic line of credit was amended through May 15, 2001 as a result of the sale of the Company's CPG business (see Note 2). Under the amended agreement, the Company has commitments for letter of credit and other borrowings to May 15, 2001 of up to an aggregate amount of $16.2 million. As a result of the CPG sale, the Company is assessing its overall management and organizational structure and in conjunction with this assessment, is reassessing its financing strategy prior to the expiration of its primary domestic facility. The Company is in discussions with a bank to secure a new $21.0 million domestic line of credit facility for the purpose of financing the importation of various products from Asia and for issuing standby letters of credit. The Company expects this facility will be secured by the time its existing facility expires on May 15, 2001.

At March 31, 2001, the Company was contingently liable for letters of credit used to finance the purchase of inventory in the aggregate amount of $2.2 million. Such letters of credit expire at various dates through June 2001.

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6. Restructuring

As a result of its May 2000 restructuring, the Company recorded a net 2000 charge to operations of $5.7 million for involuntary termination costs, asset write-downs and the settlement of lease obligations. The original restructuring charge of nearly $6.4 million was revised downward to $5.7 million as a result of the sale of the CPG business (see Note 2). The restructuring plan was substantially complete by the end of 2000. A summary of activity in the restructuring accrual is as follows (in thousands):

           Balance at January 1, 2000          $    --
           Restructuring provision               6,360
           Employee termination costs
             and other cash payments            (2,858)
           Non-cash asset write-downs           (1,684)
           Accrual reversal                       (625)
                                               -------
           Balance at December 31, 2000          1,193
           Employee termination costs
             and other cash payments              (338)
           Non-cash asset write-downs              (13)
                                               -------
           Balance at March 31, 2001           $   842
                                               =======

7.   Earnings Per Share Disclosure

The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computation for "loss available to common stockholders" and other related disclosures required by Statement of Financial Accounting Standards No. 128, "Earnings per Share" (in thousands, except share data):

                                                     For the Quarters Ended March 31,
                              -----------------------------------------------------------------------------
                                               2001                                      2000
                              -------------------------------------    ------------------------------------
                                 Income       Shares      Per Share      Income         Shares    Per Share
                              (Numerator)  (Denominator)    Amount     (Numerator)  (Denominator)   Amount
                              -----------  -------------  ---------    -----------  ------------- ---------

Basic and diluted EPS:
Net loss                        $(4,219)    16,094,904      $(0.26)      $(668)       15,778,276    $(0.04)
Preferred stock dividends           258                                    250
                                -------     ----------                   -----        ----------
Loss available to common
  stockholders                  $(4,477)    16,094,904      $(0.28)      $(918)       15,778,276    $(0.06)
                                =======     ==========      ======       =====        ==========    ======

For the quarters ended March 31, 2001 and 2000, 3,823,362 and 3,575,918 of convertible preferred stock, common stock equivalents and contingently and non-contingently issuable shares related to acquired companies were not included in the computation of diluted EPS because to do so would have been antidilutive.

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