<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-K / A
                                (Amendment No. 1)

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

                                       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)

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

1888 CENTURY PARK EAST, SUITE 222              1900 AVENUE OF THE STARS LOS
   ANGELES, CALIFORNIA 90067                  LOS ANGELES, CALIFORNIA 90067
(Address of principal executive           (Former address of principal executive
           offices)                                    offices)
          (Zip code)                                  (Zip code)

Registrant's telephone number, including area code: (310) 552-6800

Securities registered pursuant to Section 12(b) of the Act:

NONE

Securities registered pursuant to Section 12(g) of the Act:

Title of each class                    Name of each exchange on which registered
-------------------                    -----------------------------------------
COMMON STOCK, $0.01
PAR VALUE PER SHARE

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 [ ] No [X]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A or any amendment to
this Form 10-K/A. [ ]

1

<PAGE>

At March 31, 2003, the aggregate market value of voting stock held by
non-affiliates of the registrant was $1,383,585.

At March 31, 2003, 16,653,193 shares of the registrant's common stock were
outstanding.

This Amendment No. 1 has been filed by Simon Worldwide for the purpose of
amending its Annual Report on Form 10-K for the fiscal year ended December 31,
2001 to include reports of independent certified public accountants. Simon
Worldwide amends its Annual Report on Form 10-K from the fiscal year ended
December 31, 2001 as follows:

2

<PAGE>

                                     PART I

ITEM 1. BUSINESS.

GENERAL

In August 2001, the Company experienced the loss of its two largest customers:
McDonald's Corporation ("McDonald's") and, to a lesser extent, Philip Morris
Incorporated ("Philip Morris") (see Loss of Customers, Resulting Events and
Going Concern section below). Since August 2001, the Company has concentrated
its efforts on reducing its costs and settling numerous claims, contractual
obligations and pending litigation. As a result of these efforts the Company has
been able to resolve a significant number of outstanding liabilities that
existed at December 31, 2001 or arose subsequent to that date (See Subsequent
Events footnote to the consolidated financial statements for further details).
As of December 31, 2001, the Company had 136 employees worldwide and as of
December 31, 2002 had reduced its worldwide workforce to 9 employees.

The Company had a stockholders' deficit of $11,497,000 and a loss from
operations $110,255,000 for the year ended December 31, 2001. Subsequent to
December 31, 2001, the Company continued to incur losses in 2002 and continues
to incur losses in 2003 for the general and administrative expenses being
incurred to manage the affairs of the Company and resolve outstanding legal
matters. Management believes it has sufficient capital resources and liquidity
to operate the Company for the foreseeable future. However, as a result of the
loss of these major customers, along with the resulting legal matters discussed
further below, there is substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.

In April 2002, the Company had effectively eliminated a majority of its ongoing
operations and was in the process of disposing all of its assets and settling
its liabilities related to the promotions business. The process is ongoing and
will continue throughout 2003 and possibly into 2004. During the second quarter
of 2002, the discontinued activities of the Company, consisting of revenues,
operating costs, certain general and administrative costs and certain assets and
liabilities associated with the Company's promotions business, will be
classified as discontinued operations for financial reporting purposes. The
Board of Directors of the Company continues to consider various alternative
courses of action for the Company going forward, including possibly acquiring
one or more operating businesses, selling the Company or distributing its net
assets, if any, to shareholders. The decision on which course to take will
depend upon a number of factors including the outcome of the significant
litigation matters in which the Company is involved (See Legal Actions
Associated with the McDonald's Matter). To date, the Board of Directors has made
no decision on which course of action to take.

Until the unanticipated events of August 2001 occurred, Simon Worldwide, a
Delaware corporation that was founded in 1976, had been operating as a
multi-national full-service promotional marketing company, specializing in the
design and development of high-impact promotional products and sales promotions.
The majority of the Company's revenue was derived from the sale of products to
consumer products and services companies seeking to promote their brand names
and corporate identities and build brand loyalty. Net sales to McDonald's and
Philip Morris accounted for 78% and 8%, 65% and 9% and 61% and 9% of total net
sales in 2001, 2000 and 1999, respectively.

Beginning in 1996, the Company grew as a result of a series of acquisitions of
companies engaged in the corporate catalog and advertising specialty segment of
the promotion industry. Certain of these acquired companies operated within the
Company's Corporate Promotions Group ("CPG") and had a history of disappointing
financial results. As a result, the Company sold these businesses in February of
2001 (see 2001 Sale of Business section below).

In 1997, the Company expanded into the consumer promotion arena with its
acquisition of Simon Marketing, Inc. ("Simon Marketing"), a Los Angeles-based
marketing and promotion agency. The

3

<PAGE>

Company conducted its business with McDonald's through its Simon Marketing
subsidiary. Simon Marketing designed and implemented marketing promotions for
McDonald's, which included premiums, games, sweepstakes, events, contests,
coupon offers, sports marketing, licensing and promotional retail items.

In May 2000, Simon Worldwide announced that it would restructure the Company by
integrating and streamlining the operations of its Custom Product and Licensing
group, its division that provided custom designed product for large consumer
promotions, and its CPG division into one product-focused business unit. As a
result of the subsequent February 2001 sale of its integrated CPG business, the
Company implemented a second quarter 2001 restructuring plan with the objective
of restoring consistent profitability through a more rationalized,
cost-efficient business model for the remaining business.

LOSS OF CUSTOMERS, RESULTING EVENTS AND GOING CONCERN

On August 21, 2001, the Company was notified by McDonald's that they were
terminating their approximately 25-year relationship with Simon Marketing as a
result of the arrest of Jerome P. Jacobson ("Mr. Jacobson"), a former employee
of Simon Marketing who subsequently plead guilty to embezzling winning game
pieces from McDonald's promotional games administered by Simon Marketing. No
other Company employee was found or even alleged to have any knowledge of or
complicity in his illegal scheme. The Second Superseding Indictment filed
December 7, 2001 by the U.S. Attorney in the United States District Court for
the Middle District of Florida charged that that Mr. Jacobson "embezzled more
than $20 million worth of high value winning McDonald's promotional game pieces
from his employer, [Simon]". Simon Marketing was identified in the Indictment,
along with McDonald's, as an innocent victim of Mr. Jacobson's fraudulent
scheme. (Also, see section, Legal Actions Associated with the McDonald's Matter,
below.) Further, on August 23, 2001, the Company was notified that its second
largest customer, Philip Morris, was also ending their approximately nine year
relationship with the Company. Net sales to McDonald's and Philip Morris
accounted for 78% and 8%, 65% and 9% and 61% and 9% of total net sales in 2001,
2000 and 1999, respectively. The Company's financial condition, results of
operations and net cash flows have been and will continue to be materially
adversely affected by the loss of the McDonald's and Philip Morris business, as
well as the loss of its other customers. At December 31, 2001, Simon Worldwide
had no customer backlog as compared to $236.9 million of written customer
purchase orders at December 31, 2000. In addition, the absence of business from
McDonald's and Philip Morris has adversely affected the Company's relationship
with and access to foreign manufacturing sources.

As a result of actions taken in the second half of 2001, the Company recorded
third and fourth quarter pre tax charges totaling approximately $80.3 million.
These charges relate principally to the write-down of goodwill attributable to
Simon Marketing ($46.7 million) and to a substantial reduction of its worldwide
infrastructure, including, asset write-downs ($22.4 million), lump-sum severance
costs associated with the termination of approximately 377 employees ($6.3
million), lease cancellations ($1.8 million), legal fees ($1.7 million) and
other costs associated with the McDonald's and Philip Morris matters ($1.4
million).

In order to induce their continued commitment to provide vital services to the
Company in the wake of the events of August 2001, in the third quarter of 2001
the Company entered into retention arrangements with its Chief Executive
Officer, each of the three non-management members of the Company's Board of
Directors (the "Board") and key members of management of Simon Marketing. As a
further inducement to the Company's directors to continue their service to the
Company, and to provide assurances that the Company will be able to fulfill its
obligations to indemnify directors, officers and agents of the Company and its
subsidiaries ("Indemnitees") under Delaware law and pursuant to various
contractual arrangements, in March 2002 the Company entered into an
Indemnification Trust Agreement ("Agreement") for the benefit of the
Indemnitees. (See notes to consolidated financial statements.) Pursuant to this
Agreement, the Company has deposited a total of $2.7 million with an independent
trustee in order to fund any indemnification amounts owed to an Indemnitee,
which the Company is unable to pay. These arrangements, and the severance
arrangements described below, were negotiated by the Company on an arms-length
basis with the advice of the Company's counsel and other advisors.

4

<PAGE>

In connection with the loss of its customers and pursuant to negotiations that
began in the fourth quarter of 2001, the Company entered into a Termination,
Severance and General Release Agreement ("Agreement") with its Chief Executive
Officer ("CEO") in March 2002. In accordance with the terms of this Agreement,
the CEO's employment with the Company terminated in March 2002 (the CEO remains
on the Company's Board of Directors) and substantially all other agreements,
obligations and rights existing between the CEO and the Company were terminated,
including the CEO's Employment Agreement dated September 1, 1999, as amended,
and his retention agreement dated August 29, 2001. (For additional information
related to the CEO's retention agreement, see the Company's 2001 third quarter
Form 10-Q.) The ongoing operations of the Company and Simon Marketing are being
managed by the Executive Committee of the Board consisting of Messrs. George
Golleher and Anthony Kouba, in consultation with outside financial, accounting,
legal and other advisors. As a result of the foregoing, the Company recorded a
2001 fourth quarter pre-tax charge of $4.6 million, relating principally to the
forgiveness of indebtedness of the CEO to the Company, a lump-sum severance
payment and the write-off of an asset associated with an insurance policy on the
life of the CEO. The Company received a full release from the CEO in connection
with this Agreement, and the Company provided the CEO with a full release.
Additionally, the Agreement called for the CEO to provide consulting services to
the Company for a period of six months after the CEO's employment with the
Company terminated in exchange for a fee of $46,666 per month, plus specified
expenses. See notes to consolidated financial statements and Executive
Compensation.

On August 28, 2001, the Company entered into retention letter agreements with
each of Messrs. Golleher and Kouba and Joseph Bartlett, the non-management
members of the Board, pursuant to which the Company paid each of them a
retention fee of $150,000 in exchange for their agreement to serve as a director
of the Company for at least six months. If a director resigned before the end of
the six-month period, the director would have been required to refund to the
Company the pro rata portion of the retention fee equal to the percentage of the
six-month period not served. Additionally, the Company agreed to compensate
these directors at an hourly rate of $750 for services outside of Board and
committee meetings (for which they are paid $2,000 per meeting in accordance
with existing Company policy). See Directors' Compensation.

In addition, retention agreements were entered into in September and October
2001 with certain key employees which provide for retention payments ranging
from 8% to 100% of their respective salaries conditioned upon continued
employment through specified dates and/or severance payments of up to 100% of
these employee's respective annual salaries should such employees be terminated
within the parameters of their agreements (for example, termination without
cause). In the first quarter of 2002, additional similar agreements were entered
into with certain employees of one of the Company's subsidiaries. The terms of
these agreements were generally consistent with the terms of the employees'
prior retention agreements.

Payments under these agreements have been made at various dates from September
2001 through March 2002. The Company's obligations under these agreements are
approximately $3.1 million. Approximately $1.7 million of these commitments had
been segregated in separate cash accounts in October 2001, in which security
interests had been granted to certain employees, and have been released back to
the Company in 2002 upon making of retention and severance payments to these
applicable employees.

LEGAL ACTIONS ASSOCIATED WITH THE McDONALD'S MATTER

Subsequent to August 21, 2001, numerous consumer class action and representative
action lawsuits (hereafter variously referred to as, "actions", "complaints" or
"lawsuits") have been filed in Illinois, the headquarters of McDonald's, and in
multiple jurisdictions nationwide and in Canada. Plaintiffs in these actions
asserted diverse causes of action, including negligence, breach of contract,
fraud, restitution, unjust enrichment, misrepresentation, false advertising,
breach of warranty, unfair competition and violation of various state consumer
fraud statutes. Complaints filed in federal court in New Jersey also alleged a
pattern of racketeering.

Plaintiffs in many of these actions alleged, among other things, that
defendants, including the Company, its subsidiary Simon Marketing, and
McDonald's, misrepresented that plaintiffs had a chance at winning certain
high-value prizes when in fact the prizes were stolen by Mr. Jacobson.
Plaintiffs seek various forms

5

<PAGE>

of relief, including restitution of monies paid for McDonald's food,
disgorgement of profits, recovery of the "stolen" game prizes, other
compensatory damages, attorney's fees, punitive damages and injunctive relief.

The class and/or representative actions filed in Illinois state court were
consolidated in the Circuit Court of Cook County, Illinois (the "Boland" case).
Numerous class and representative actions filed in California have been
consolidated in California Superior Court for the County of Orange (the
"California Court"). Numerous class and representative actions filed in federal
courts nationwide have been transferred by the Judicial Panel on Multidistrict
Litigation (the "MDL Panel") to the federal district court in Chicago, Illinois
(the "MDL Proceedings"). Numerous of the class and representative actions filed
in state courts other than in Illinois and California were removed to federal
court and transferred by the MDL Panel to the MDL Proceedings.

On April 19, 2002, McDonald's entered into a Stipulation of Settlement (the
"Boland Settlement") with certain plaintiffs in the Boland case pending in the
Circuit Court of Cook County, Illinois (the "Illinois Circuit Court"). The
Boland Settlement purports to settle and release, among other things, all claims
related to the administration, execution and operation of the McDonald's
promotional games, or to "the theft, conversion, misappropriation, seeding,
dissemination, redemption or non-redemption of a winning prize or winning game
piece in any McDonald's Promotional Game," including without limitation claims
brought under the consumer protection statutes or laws of any jurisdiction, that
have been or could or might have been alleged by any class member in any forum
in the United States of America, subject to a right of class members to opt out
on an individual basis, and includes a full release of the Company and Simon
Marketing, as well as their officers, directors, employees, agents, and vendors.
Under the terms of the Boland Settlement, McDonald's agrees to sponsor and run a
"Prize Giveaway" in which a total of fifteen (15) $1 million prizes, payable in
twenty installments of $50,000 per year with no interest, shall be randomly
awarded to persons in attendance at McDonald's restaurants. The Company has been
informed that McDonald's, in its capacity as an additional insured, has tendered
a claim to Simon Marketing's Errors & Omissions insurance carriers, to cover
some or all of the cost of the Boland Settlement, including the cost of running
the "Prize Giveaway," of the prizes themselves, and of attorney's fees to be
paid to plaintiffs' counsel up to an amount of $3 million.

On June 6, 2002, the Illinois Circuit Court issued a preliminary order approving
the Boland Settlement and authorizing notice to the class. On August 28, 2002,
the opt-out period pertaining thereto expired. The Company has been informed
that approximately 250 persons in the United States and Canada purport to have
opted out of the Boland Settlement. Furthermore, actions may move forward in
Canada and in certain of the cases asserting claims not involving the Jacobson
theft. On January 3, 2003, the Illinois Circuit Court issued an order approving
the Boland Settlement and overruling objections thereto. Even if the Boland
Settlement is enforceable to bar claims of persons who have not opted out,
individual claims may be asserted by those persons who are determined to have
properly opted out of the Boland Settlement. Claims may also be asserted in
Canada and by individuals whose claims do not involve the Jacobson theft if a
court were to determine the claim to be distinguishable from and not barred by
the Boland Settlement.

A hearing on motions to dismiss the remaining cases in the MDL Proceedings are
scheduled on April 29, 2003, other than a case originally filed in federal
district court in Kentucky, in which the plaintiff has opted out of the Boland
Settlement. The plaintiff in that case asserts that McDonald's and Simon
Marketing failed to redeem a purported $1,000,000 winning ticket. This case has
been ordered to arbitration.

Actions pending in California Court had been stayed pending a ruling on the
final approval of the Boland Settlement. Certain of the California plaintiffs
purport to have opted out of the Boland Settlement individually and also on
behalf of all California consumers. In its final order approving the Boland
Settlement, the Illinois court rejected the attempt by the California plaintiff
to opt out on behalf of all California consumers. McDonald's and Simon Marketing
have moved in the California Court to have the class and representative claims
dismissed as well as the claims of individuals who have not properly opted out.
A hearing has been scheduled in that motion for April 14, 2003. Even if the
Boland Settlement is enforceable to bar class and representative actions pending
in California, individual claims may go forward as to those plaintiffs, if any,
who are determined to have properly opted out of the Boland Settlement, or

6

<PAGE>

who have asserted claims not involving the Jacobson theft. The Company does not
know which California and non-California claims will go forward notwithstanding
the Boland Settlement.

On or about August 20, 2002, an action was filed against Simon Marketing in
Florida State Court alleging that McDonald's and Simon Marketing deliberately
diverted from seeding in Canada game pieces with high-level winning prizes in
certain McDonald's promotional games. The plaintiffs are Canadian citizens and
seek restitution and damages on a class-wide basis in an unspecified amount.
Simon Marketing and McDonald's removed this action to federal court on September
10, 2002, and the MDL Panel has transferred the case to the MDL Proceedings in
Illinois, where a motion to dismiss will be heard on April 29, 2003. The
plaintiffs in this case did not opt out of the Boland Settlement.

On or about September 13, 2002, an action was filed against Simon Marketing in
Ontario Provincial Court in which the allegations are similar to those made in
the above Florida action. On October 28, 2002, an action was filed against Simon
Marketing in Ontario Provincial Court containing similar allegations. The
plaintiffs in the aforesaid actions seek an aggregate of $110 million in damages
and an accounting on a class-wide basis. Simon Marketing has retained Canadian
local counsel to represent it in these actions. The Company believes that the
plaintiffs in these actions did not opt out of the Boland Settlement. These
actions are in the earliest stages.

On October 23, 2001, the Company and Simon Marketing filed suit against
McDonald's in California Superior Court for the County of Los Angeles. The
complaint alleges, among other things, fraud, defamation and breach of contract
in connection with the termination of Simon Marketing's relationship with
McDonald's.

Also on October 23, 2001, the Company and Simon Marketing were named as
defendants, along with Mr. Jacobson, and certain other individuals unrelated to
the Company or Simon Marketing, in a complaint filed by McDonald's in the United
States District Court for the Northern District of Illinois. The complaint
alleges that Simon Marketing had engaged in fraud, breach of contract, breach of
fiduciary obligations and civil conspiracy and alleges that McDonald's is
entitled to indemnification and damages of an unspecified amount. The federal
lawsuit by McDonald's has been dismissed for lack of federal jurisdiction.
Subsequently, a substantially similar lawsuit was filed by McDonald's in
Illinois state court which the Company has moved to dismiss as a compulsory
counter-claim which must properly be filed in the Company's California state
court action. There has been no ruling on the Company's motion.

The Company is unable to predict the outcome of any or all of the lawsuits
against the Company and their ultimate effects, if any, on the Company's
financial condition, results of operations or net cash flows.

On November 13, 2001, the Company filed suit against Philip Morris in California
Superior Court for the County of Los Angeles, asserting numerous causes of
action arising from Philip Morris' termination of the Company's relationship
with Philip Morris. Subsequently, the Company dismissed the action without
prejudice, so that the Company and Philip Morris could attempt to resolve this
dispute outside of litigation. In 2002, a settlement was reached resulting in a
payment of $1.5 million by Philip Morris to the Company. See Subsequent Events
footnote in the accompanying consolidated financial statements.

In March 2002, Simon Marketing initiated a lawsuit against certain suppliers and
agents of McDonald's in California Superior Court for the County of Los Angeles.
The complaint alleges, among other things, breach of contract and intentional
interference with contractual relations. In July 2002, a stay was granted in the
case on the basis of "forum non conveniens", which would have required the
matter to be refiled in Illinois state court. The Company has filed a writ
appealing such ruling.

On March 29, 2002, Simon Marketing filed a lawsuit against
PricewaterhouseCoopers LLP ("PWC") and two other accounting firms, citing the
accountants' failure to oversee, on behalf of Simon Marketing, various steps in
the distribution of high-value game pieces for certain McDonald's promotional
games. The complaint alleges that this failure allowed the misappropriation of
certain of these high-value game pieces by Mr. Jacobson. The lawsuit, filed in
Los Angeles Superior Court, seeks unspecified actual and punitive damages
resulting from economic injury, loss of income and profit, loss of goodwill,
loss of

7

<PAGE>

reputation, lost interest, and other general and special damages. The
defendants' motion to dismiss for "forum non conveniens" has been denied in the
case and, following demurrers by the defendants, the Company has subsequently
filed a first amended complaint against two firms, PWC and one of the two other
accounting firms named as defendants in the original complaint, KPMG LLP. The
defendants' demurrer to the first amended complaint was sustained in part, and a
second amended complaint was filed. No answer is yet due.

As a result of the above lawsuit, PWC resigned as the Company's independent
public accountants on April 17, 2002. In addition, on April 17, 2002, PWC
withdrew its audit report dated March 26, 2002 filed with the Company's original
2001 Annual Report on Form 10-K. PWC indicated that it believed the lawsuit
resulted in an impairment of its independence in connection with the audit of
the Company's 2001 financial statements. The Company does not believe that PWC's
independence was impaired. On June 6, 2002, the Company engaged BDO Seidman, LLP
as the Company's new independent public accountants. In connection with
obtaining PWC's consent to the inclusion of their audit report dated March 26,
2002 in this Amendment No. 1 on Form 10-K/A to the Company's annual report on
Form 10-K for the year ended December 31, 2001, the Company agreed to indemnify
PWC against any legal costs and expenses incurred by PWC in the successful
defense of any legal action that arises as a result of such inclusion. Such
indemnification will be void if a court finds PWC liable for professional
malpractice. The Company has been informed that in the opinion of the Securities
and Exchange Commission indemnification for liabilities arising under the
Securities Act of 1933 is against public policy and therefore unenforceable. PWC
has provided the Company with a copy of a 1995 letter from the Office of the
Chief Accountant of the Commission which states that, in a similar situation,
his Office would not object to an indemnification agreement of the kind between
the Company and PWC. See Item 9.

OUTLOOK

As a result of the loss of its McDonald's and Philip Morris business, along with
the resulting legal matters as discussed above, there is substantial doubt about
the Company's ability to continue as a going concern. The accompanying financial
statements do not include any adjustments that might result from the outcome of
these uncertainties. The Company has taken significant actions and will continue
to take further action to reduce its cost structure. The Board of Directors of
the Company continues to consider various alternative courses of action for the
Company going forward, including possibly acquiring one or more operating
businesses, selling the Company or distributing its net assets, if any, to
shareholders. The decision on which course to take will depend upon a number of
factors including the outcome of the significant litigation matters in which the
Company is involved (See Legal Actions Associated with the McDonald's Matter).
To date, the Board of Directors has made no decision on which course of action
to take. Management believes it has sufficient capital resources and liquidity
to operate the Company for the foreseeable future.

For additional information related to certain matters discussed in this section,
reference is made to the Company's Reports on Form 8-K dated August 21, 2001,
September 17, 2001, September 21, 2001, October 30, 2001, April 17, 2002 and
June 6, 2002, respectively.

1999 YUCAIPA INVESTMENT

In November 1999, Oversees Toys L.P., an affiliate of the Yucaipa Companies
("Yucaipa"), a Los Angeles-based investment firm, invested $25 million into the
Company in exchange for 25,000 shares of a new series A convertible preferred
stock and a warrant to purchase an additional 15,000 shares of series A
convertible preferred stock. In connection with the investment, which was
approved by Simon Worldwide's stockholders, Simon Worldwide's Board of Directors
was increased to seven and three designees of Yucaipa, including Yucaipa's
managing partner, Ronald W. Burkle, were elected to Simon Worldwide's board and
Mr. Burkle was elected chairman. Mr. Burkle and Erika Paulson, a Yucaipa
representative on the Board of Directors, subsequently resigned from Simon
Worldwide's Board of Directors in August 2001, one day after the Company's
receipt of the notice of termination of Simon Marketing's services by
McDonald's. Additionally, in November 1999, the Company entered into a five year
Management

8

<PAGE>

Agreement with Yucaipa whereby Yucaipa provided Simon Worldwide with management
and consultation services in exchange for a fee of $500,000 per year for a term
of five (5) years which would automatically renew unless either party elected in
advance not to renew in which case under the terms of the agreement, a $2.5
million termination fee was due. On October 17, 2002, the Management Agreement
between the Company and Yucaipa was terminated by agreement between the parties
and a payment was made to Yucaipa of $1.5 million and each party was released
from further obligations thereunder. See Subsequent Events footnote in the
accompanying consolidated financial statements.

2000 RESTRUCTURING

In May 2000, the Company announced that it would implement a plan to restructure
its operations by integrating and streamlining its traditional promotional
products business into one product-focused business unit. As a result of the
restructuring plan, the Company eliminated 85 positions or 7% of its domestic
workforce. The restructuring plan was substantially complete by the end of 2000.

2001 SALE OF BUSINESS

In February 2001, the Company sold its CPG business to Cyrk, Inc. ("Cyrk"),
formerly known as Rockridge Partners, Inc., for approximately $14 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 Cyrk, 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. CPG was engaged in the corporate
catalog and specialty advertising segment of the promotions industry. The group
was formed as a result of the Company's acquisitions of Marketing Incentives,
Inc. and Tonkin, Inc. in 1996 and 1997, respectively. The sale of CPG
effectively completed the restructuring effort announced by the Company in May
2000 with respect to the CPG business. For additional information related to
this transaction, reference is made to the Company's Report on Form 8-K dated
February 15, 2001.

Following the closing of the sale of the CPG business, certain disputes arose
between the Company and Cyrk. In March 2002, the Company entered into a
settlement agreement with Cyrk. Under the settlement agreement: (1) the Company
contributed $500,000 towards the settlement of a lawsuit against the Company and
Cyrk made by a former employee, (2) the Company cancelled the remaining
indebtedness outstanding under Cyrk's subordinated promissory note in favor of
the Company in the original principal amount of $2.3 million, (3) Cyrk agreed to
vacate the Danvers, Massachusetts facility by June 15, 2002 and that lease
terminated as of June 30, 2002, thereby terminating the Company's substantial
lease liability thereunder (see Item 2. Properties below), (4) Cyrk and the
Company each released the other from all known and unknown claims (subject to
limited exceptions) including Cyrk's release of all indemnity claims made
against the Company arising out of its purchase of the CPG business, and (5) a
letter of credit in the amount of $500,000 was provided by Cyrk for the benefit
of the Company to support a portion of a $4.2 million letter of credit provided
by the Company to secure an obligation assumed by Cyrk in connection with Cyrk's
purchase of the CPG business. If Cyrk fails to perform its obligations under
this agreement, or fails to perform and discharge liabilities assumed in
connection with its purchase of the CPG business, then all or a portion of
Cyrk's indebtedness to the Company under the subordinated promissory note may be
reinstated. The Company's 2001 financial statements have been adjusted to
reflect the settlement, and include a pre-tax charge of $2.3 million associated
with the write-off of the subordinated note.

The $4.2 million letter of credit provided by the Company supports Cyrk's
obligations to Winthrop Resources Corporation. This letter of credit is secured,
in part, by $3.7 million of restricted cash of the Company. Cyrk had previously
agreed to indemnify the Company if Winthrop made any draw under this letter of
credit. The letter of credit has an annual expiration until the underlying
obligation is satisfied.

In the fourth quarter of 2002, Cyrk informed the Company that it (1) was
suffering substantial financial difficulties, (2) would not be able to discharge
its obligations secured by the Company's $4.2 million letter of credit and (3)
would be able to obtain a $2.5 million equity infusion if it were able to
decrease Cyrk's

9

<PAGE>

liability for these obligations. As a result, in December 2002, the Company
granted Cyrk an option until April 20, 2003 to pay the Company $1.5 million in
exchange for the Company's agreement to apply its $3.7 million restricted cash
to discharge Cyrk's obligations to Winthrop, with any remainder to be turned
over to Cyrk. The option may only be exercised after the satisfaction of several
conditions, including the Company's confirmation of Cyrk's financial condition,
Cyrk and Simon obtaining all necessary third party consents, Cyrk and its
subsidiaries providing Simon with a full release of all known and unknown
claims, and the Company having no further liability to Winthrop as a guarantor
of Cyrk's obligations. To the extent Cyrk exercises this option, the Company
would incur a loss ranging from between $2.2 million to $3.7 million. At this
time, the Company is unable to assess the likelihood of this event.

2001 RESTRUCTURING

After the February 2001 sale of its CPG business, the Company implemented a
second quarter 2001 restructuring plan to shutdown or consolidate certain
businesses, sell certain assets and liabilities related to its legacy corporate
catalog business in the United Kingdom and eliminate approximately two-thirds
(40 positions) of its Wakefield, Massachusetts corporate office workforce.
Additionally, the Company announced the resignation of its co-chief executive
officer and two other executive officers, including the Company's chief
financial officer. Consequently, the Company announced that all responsibilities
for the chief executive officer position had been consolidated under Allan I.
Brown, who had served as co-chief executive officer since November 1999 and as
the chief executive officer of Simon Marketing since 1975. The restructuring
plan was substantially complete by the end of 2001. For additional information
related to these events, reference is made to the Company's Report on Form 8-K
dated June 15, 2001.

ITEM 2. PROPERTIES.

As a consequence of the loss of its two major customers and its resulting
effects (see Item 1 above), including substantial doubt about the Company's
ability to continue as a going concern, the Company has taken action to
significantly reduce its worldwide infrastructure. As such, the Company
eliminated approximately 377 positions worldwide as of the first quarter of 2002
and eliminated an additional 127 positions worldwide by the end of 2002
(totaling 504 positions eliminated to date) and has terminated its global
property commitments.

At December 31, 2001, the Company had leased approximately 47,900 square feet of
office space in Wakefield, Massachusetts under a lease that was to expire in
March 2005 and had an annual base rent of approximately $623,000. During the
first half of 2002, the Company settled its remaining lease obligations for the
Wakefield space, vacated the Wakefield premises and transferred all remaining
Company activity to Los Angeles.

Until February 2001, the Company also leased approximately 120,000 square feet
of warehouse space in Danvers, Massachusetts under the terms of a lease which
was to expire in December 2011 and had an annual base rent of approximately
$460,000. As a result of the CPG sale in February 2001, the buyer became the
primary obligor under this lease; however, the Company remained liable under
this lease to the extent that the buyer did not perform its obligations under
the lease. Pursuant to an agreement entered into in March 2002 among the
Company, the buyer and the landlord, the lease terminated effective June 30,
2002, along with any and all obligations of the Company under the lease.

With the exception of its Los Angeles office, the Company negotiated early
terminations of all its domestic office and distribution facility leases in the
first quarter of 2002. During 2002, Simon Marketing has settled all of its
outstanding remaining real estate lease obligations, except for approximately
$70,000 of unpaid rent. In May 2002, the Company entered into an 18-month lease
agreement for 4,675 square feet of office space in Los Angeles (with a monthly
base rent of approximately $8,600) into which it has relocated its remaining
scaled-down operations.

In addition to its domestic lease facilities, the Company has also consummated
early lease terminations of its Asian and European office and warehouse space.

10

<PAGE>

During 2002,the Company has made aggregate payments totaling approximately $2.9
million related to the early termination of its various worldwide facilities
leases, noted above. See Subsequent Events footnote in the accompanying
consolidated financial statements.

For a summary of the Company's minimum rental commitments under all
noncancelable operating leases as of December 31, 2001, see notes to
consolidated financial statements.

ITEM 3. LEGAL PROCEEDINGS.

LEGAL ACTIONS ASSOCIATED WITH THE McDONALD'S MATTER

Subsequent to August 21, 2001, numerous consumer class action and representative
action lawsuits (hereafter variously referred to as, "actions", "complaints" or
"lawsuits") have been filed in Illinois, the headquarters of McDonald's, and in
multiple jurisdictions nationwide and in Canada. Plaintiffs in these actions
asserted diverse causes of action, including negligence, breach of contract,
fraud, restitution, unjust enrichment, misrepresentation, false advertising,
breach of warranty, unfair competition and violation of various state consumer
fraud statutes. Complaints filed in federal court in New Jersey also alleged a
pattern of racketeering.

Plaintiffs in many of these actions alleged, among other things, that
defendants, including the Company, its subsidiary Simon Marketing, and
McDonald's, misrepresented that plaintiffs had a chance at winning certain
high-value prizes when in fact the prizes were stolen by Mr. Jacobson.
Plaintiffs seek various forms of relief, including restitution of monies paid
for McDonald's food, disgorgement of profits, recovery of the "stolen" game
prizes, other compensatory damages, attorney's fees, punitive damages and
injunctive relief.

The class and/or representative actions filed in Illinois state court were
consolidated in the Circuit Court of Cook County, Illinois (the "Boland" case).
Numerous class and representative actions filed in California have been
consolidated in California Superior Court for the County of Orange (the
"California Court"). Numerous class and representative actions filed in federal
courts nationwide have been transferred by the Judicial Panel on Multidistrict
Litigation (the "MDL Panel") to the federal district court in Chicago, Illinois
(the "MDL Proceedings"). Numerous of the class and representative actions filed
in state courts other than in Illinois and California were removed to federal
court and transferred by the MDL Panel to the MDL Proceedings.

On April 19, 2002, McDonald's entered into a Stipulation of Settlement (the
"Boland Settlement") with certain plaintiffs in the Boland case pending in the
Circuit Court of Cook County, Illinois (the "Illinois Circuit Court"). The
Boland Settlement purports to settle and release, among other things, all claims
related to the administration, execution and operation of the McDonald's
promotional games, or to "the theft, conversion, misappropriation, seeding,
dissemination, redemption or non-redemption of a winning prize or winning game
piece in any McDonald's Promotional Game," including without limitation claims
brought under the consumer protection statutes or laws of any jurisdiction, that
have been or could or might have been alleged by any class member in any forum
in the United States of America, subject to a right of class members to opt out
on an individual basis, and includes a full release of the Company and Simon
Marketing, as well as their officers, directors, employees, agents, and vendors.
Under the terms of the Boland Settlement, McDonald's agrees to sponsor and run a
"Prize Giveaway" in which a total of fifteen (15) $1 million prizes, payable in
twenty installments of $50,000 per year with no interest, shall be randomly
awarded to persons in attendance at McDonald's restaurants. The Company has been
informed that McDonald's, in its capacity as an additional insured, has tendered
a claim to Simon Marketing's Errors & Omissions insurance carriers, to cover
some or all of the cost of the Boland Settlement, including the cost of running
the "Prize Giveaway," of the prizes themselves, and of attorney's fees to be
paid to plaintiffs' counsel up to an amount of $3 million.

On June 6, 2002, the Illinois Circuit Court issued a preliminary order approving
the Boland Settlement and authorizing notice to the class. On August 28, 2002,
the opt-out period pertaining thereto expired. The Company has been informed
that approximately 250 persons in the United States and Canada purport to

11

<PAGE>

have opted out of the Boland Settlement. Furthermore, actions may move forward
in Canada and in certain of the cases asserting claims not involving the
Jacobson theft. On January 3, 2003, the Illinois Circuit Court issued an order
approving the Boland Settlement and overruling objections thereto. The status of
the purported opt outs will be determined as part of the Illinois Circuit
Court's ruling on these motions. Even if the Boland Settlement is approved and
is enforceable to bar claims of persons who have not opted out, individual
claims may be asserted by those persons who are determined to have properly
opted out of the Boland Settlement. Claims may also be asserted in Canada and by
individuals whose claims do not involve the Jacobson theft if a court were to
determine the claim to be distinguishable from and not barred by the Boland
Settlement.

A hearing on motions to dismiss the remaining cases in the MDL Proceedings are
scheduled on April 29, 2003, other than a case originally filed in federal
district court in Kentucky, in which the plaintiff has opted out of the Boland
Settlement. The plaintiff in that case asserts that McDonald's and Simon
Marketing failed to redeem a purported $1,000,000 winning ticket. This case has
been ordered to arbitration.

Actions pending in California Court had been stayed pending a ruling on the
final approval of the Boland Settlement. Certain of the California plaintiffs
purport to have opted out of the Boland Settlement individually and also on
behalf of all California consumers. In its final order approving the Boland
Settlement, the Illinois court rejected the attempt by the California plaintiff
to opt out on behalf of all California consumers. McDonald's and Simon Marketing
have moved in the California Court to have the class and representative claims
dismissed as well as the claims of individuals who have not properly opted out.
A hearing has been scheduled in that motion for April 14, 2003. Even if the
Boland Settlement is approved and is enforceable to bar class and representative
actions pending in California, individual claims may go forward as to those
plaintiffs, if any, who are determined to have properly opted out of the Boland
Settlement, or who have asserted claims not involving the Jacobson theft. The
Company does not know which California and non-California claims will go forward
notwithstanding the Boland Settlement.

On or about August 20, 2002, an action was filed against Simon Marketing in
Florida State Court alleging that McDonald's and Simon Marketing deliberately
diverted from seeding in Canada game pieces with high-level winning prizes in
certain McDonald's promotional games. The plaintiffs are Canadian citizens and
seek restitution and damages on a class-wide basis in an unspecified amount.
Simon Marketing and McDonald's removed this action to federal court on September
10, 2002 and the MDL Panel has transferred the case to the MDL Proceedings in
Illinois, where a motion to dismiss will be heard on April 29, 2003. The
plaintiffs in this case did not opt out of the Boland Settlement.

On or about September 13, 2002, an action was filed against Simon Marketing in
Ontario Provincial Court in which the allegations are similar to those made in
the above Florida action. On October 28, 2002, an action was filed against Simon
Marketing in Ontario Provincial Court containing similar allegations. The
plaintiffs in the aforesaid actions seek an aggregate of $110 million in damages
and an accounting on a class-wide basis. Simon Marketing has retained Canadian
local counsel to represent it in these actions. The Company believes that the
plaintiffs in these actions did not opt out of the Boland Settlement. These
actions are in the earliest stages.

On October 23, 2001, the Company and Simon Marketing filed suit against
McDonald's in California Superior Court for the County of Los Angeles. The
complaint alleges, among other things, fraud, defamation and breach of contract
in connection with the termination of Simon Marketing's relationship with
McDonald's.

Also on October 23, 2001, the Company and Simon Marketing were named as
defendants, along with Mr. Jacobson, and certain other individuals unrelated to
the Company or Simon Marketing, in a complaint filed by McDonald's in the United
States District Court for the Northern District of Illinois. The complaint
alleges that Simon Marketing had engaged in fraud, breach of contract, breach of
fiduciary obligations and civil conspiracy and alleges that McDonald's is
entitled to indemnification and damages of an unspecified amount. The federal
lawsuit by McDonald's has been dismissed for lack of federal jurisdiction.
Subsequently, a substantially similar lawsuit was filed by McDonald's in
Illinois state court which the

12

<PAGE>

Company has moved to dismiss as a compulsory counter-claim which must properly
be filed in the Company's California state court action. There has been no
ruling on the Company's motion.

The Company is unable to predict the outcome of the lawsuits against the Company
and their ultimate effects, if any, on the Company's financial condition,
results of operations or net cash flows.

On November 13, 2001, the Company filed suit against Philip Morris in California
Superior Court for the County of Los Angeles, asserting numerous causes of
action arising from Philip Morris' termination of the Company's relationship
with Philip Morris. Subsequently, the Company dismissed the action without
prejudice, so that the Company and Philip Morris could attempt to resolve this
dispute outside of litigation. During 2002, a settlement was reached resulting
in a payment of $1.5 million by Philip Morris to the Company. See Subsequent
Events footnote in the accompanying consolidated financial statements.

In March 2002, Simon Marketing initiated a lawsuit against certain suppliers and
agents of McDonald's in California Superior Court for the County of Los Angeles.
The complaint alleges, among other things, breach of contract and intentional
interference with contractual relations. In July 2002, a stay was granted in the
case on the basis of "forum non conveniens", which would have required the
matter to be refiled in Illinois state court. The Company has filed a writ
appealing such ruling.

On March 29, 2002, Simon Marketing filed a lawsuit against
PricewaterhouseCoopers LLP ("PWC") and two other accounting firms, citing the
accountants' failure to oversee, on behalf of Simon Marketing, various steps in
the distribution of high-value game pieces for certain McDonald's promotional
games. The complaint alleges that this failure allowed the misappropriation of
certain of these high-value game pieces by Mr. Jacobson. The lawsuit, filed in
Los Angeles Superior Court, seeks unspecified actual and punitive damages
resulting from economic injury, loss of income and profit, loss of goodwill,
loss of reputation, lost interest, and other general and special damages. The
defendants' motion to dismiss for "forum non conveniens" has been denied in the
case and, following demurrers by the defendants, the Company has subsequently
filed a first amended complaint against two firms, PWC and one of the two other
accounting firms named as defendants in the original complaint, KPMG LLP. The
defendants' demurrer to the first amended complaint was sustained in part, and a
second amended complaint was filed. No answer is yet due.

As a result of this lawsuit, PWC resigned as the Company's independent public
accountants on April 17, 2002. In addition, on April 17, 2002, PWC withdrew its
audit report dated March 26, 2002 filed with the Company's original 2001 Annual
Report on Form 10-K. PWC indicated that it believed the lawsuit resulted in an
impairment of its independence in connection with the audit of the Company's
2001 financial statements. The Company does not believe that PWC's independence
was impaired. On June 6, 2002, the Company engaged BDO Seidman LLP as the
Company's new independent public accountants. In connection with obtaining PWC's
consent to the inclusion of their audit report dated March 26, 2002 in this
Amendment No. 1 on Form 10-K/A to the Company's annual report on Form 10-K for
the year ended December 31, 2001, the Company agreed to indemnify PWC against
any legal costs and expenses incurred by PWC in the successful defense of any
legal action that arises as a result of such inclusion. Such indemnification
will be void if a court finds PWC liable for professional malpractice. The
Company has been informed that in the opinion of the Securities and Exchange
Commission indemnification for liabilities arising under the Securities Act of
1933 is against public policy and therefore unenforceable. PWC has provided the
Company with a copy of a 1995 letter from the Office of the Chief Accountant of
the Commission which states that, in a similar situation, his Office would not
object to an indemnification agreement of the kind between the Company and PWC.
See Item 9.

For additional information related to certain matters discussed in this section,
reference is made to the Company's Reports on Form 8-K dated August 21, 2001,
September 17, 2001, September 21, 2001, October 30, 2001, April 17, 2002, and
June 6, 2002, respectively.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

NONE

13

<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Until May 3, 2002, the Company's stock traded on The Nasdaq Stock Market under
the symbol SWWI. On May 3, 2002, Company's stock was delisted from the Nasdaq
Stock Market by Nasdaq due to Simon Worldwide's failure to comply with certain
Nasdaq listing requirements. The following table presents, for the periods
indicated, the high and low sales prices of the Company's common stock as
reported by The Nasdaq Stock Market's National Market.

<TABLE>
<CAPTION>
                               2001                              2000

                     High               Low            High               Low
                     ----               ---            ----               ---
<S>                  <C>               <C>            <C>               <C>
First Quarter        $4.13             $2.00          $13.63            $ 7.00
Second Quarter        2.99              1.72            9.31              4.31
Third Quarter         3.34              0.16            7.50              2.94
Fourth Quarter        0.37              0.09            4.47              1.81
</TABLE>

As of March 31, 2003, the Company had approximately 395 holders of record
(representing approximately 5,500 beneficial owners) of its common stock. The
last reported sale price of the Company's common stock on March 31, 2003 was
$.09.

The Company has never paid cash dividends, other than Series A preferred stock
distributions in 2000 and stockholder distributions of Subchapter S earnings
during 1993 and 1992.

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
SELECTED INCOME                                                For the Years Ended December 31,
STATEMENT DATA:                            2001             2000            1999              1998          1997 (5)
                                           ----             ----            ----              ----          ----
                                                          (In thousands, except per share data)
<S>                                    <C>              <C>              <C>               <C>              <C>
Net Sales                              $324,040         $768,450         $988,844          $757,753         $558,623
Net Income (loss)                      (122,345)(1)      (69,715)(2)       11,136(3)         (3,016)(4)        3,236
Earnings (loss) per
  common share - basic                    (7.50)(1)        (4.43)(2)         0.70(3)          (0.20)(4)         0.26
Earnings (loss) per
  common share - diluted                  (7.50)(1)        (4.43)(2)         0.67(3)          (0.20)(4)         0.25
</TABLE>

14

<PAGE>

<TABLE>
<CAPTION>
                                                                               December 31,
                                                     2001           2000           1999           1998          1997
SELECTED BALANCE                                     ----           ----           ----           ----          ----
STATEMENT DATA:                                                               (In thousands)
<S>                                                <C>            <C>            <C>            <C>           <C>
Working Capital                                    $ 4,572        $ 60,371       $110,823       $ 87,517      $ 61,314
Total assets                                        77,936         252,435        369,148        337,341       313,845
Long-term obligations                                6,785           6,587          9,156         12,099         9,611
Redeemable preferred
  stock                                             26,538          25,500         25,000              -             -
Stockholders' (deficit) equity                     (11,497)        116,176        186,077        177,655       160,353
</TABLE>

(1) Includes $46,671 of pre-tax impairment of intangible asset, $33,644 of
pre-tax charges attributable to loss of significant customers and $20,212 of
pre-tax restructuring and nonrecurring charges. See notes to consolidated
financial statements.

(2) Includes $50,103 of pre-tax loss on sale of business and $6,395 of pre-tax
restructuring and nonrecurring charges. See notes to consolidated financial
statements.

(3) Includes $1,675 of pre-tax nonrecurring charges. See notes to consolidated
financial statements.

(4) Includes $15,288 of pre-tax restructuring and nonrecurring charges.

(5) Includes the results of operations of acquired companies from the
acquisition dates.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

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 the Company's Amended Cautionary Statement for Purposes
of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act
of 1995, filed as Exhibit 99.1 to this Report on Form 10-K / A.

GENERAL

In August 2001, the Company experienced the loss of its two largest customers:
McDonald's Corporation ("McDonald's") and, to a lesser extent, Philip Morris
Incorporated ("Philip Morris") (see Loss of Customers, Resulting Events and
Going Concern section below). Since August 2001, the Company has concentrated
its efforts on reducing its costs and settling numerous claims, contractual
obligations and pending litigation. As a result of these efforts the Company has
been able to resolve a significant number of outstanding liabilities that
existed at December 31, 2001 or arose subsequent to that date (See Subsequent
Events footnote to the consolidated financial statements for further details).
As of December 31, 2001, the Company had 136 employees worldwide and as of
December 31, 2002 had reduced its worldwide workforce to 9 employees.

15

<PAGE>

The Company had a stockholders' deficit of $11,497,000 and a loss from
operations $110,255,000 for the year ended December 31, 2001. Subsequent to
December 31, 2001, the Company continued to incur losses in 2002 and continues
to incur losses in 2003 for the general and administrative expenses being
incurred to manage the affairs of the Company and resolve outstanding legal
matters. Management believes it has sufficient capital resources and liquidity
to operate the Company for the foreseeable future. However, as a result of the
loss of these major customers, along with the resulting legal matters discussed
further below, there is substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.

In April 2002, the Company had effectively eliminated a majority of its ongoing
operations and was in the process of disposing all of its assets and settling
its liabilities related to the promotions business. The process is ongoing and
will continue throughout 2003 and possibly into 2004. During the second quarter
of 2002, the discontinued activities of the Company, consisting of revenues,
operating costs, certain general and administrative costs and certain assets and
liabilities associated with the Company's promotions business, will be
classified as discontinued operations for financial reporting purposes. The
Board of Directors of the Company continues to consider various alternative
courses of action for the Company going forward, including possibly acquiring
one or more operating businesses, selling the Company or distributing its net
assets, if any, to shareholders. The decision on which course to take will
depend upon a number of factors including the outcome of the significant
litigation matters in which the Company is involved (See Legal Actions
Associated with the McDonald's Matter). To date, the Board of Directors has made
no decision on which course of action to take.

Until the unanticipated events of August 2001 occurred, the Company had been
operating as a multi-national full-service promotional marketing company,
specializing in the design and development of high-impact promotional products
and sales promotions. The majority of the Company's revenue was derived from the
sale of products to consumer products and services companies seeking to promote
their brand names and corporate identities and build brand loyalty. Net sales to
McDonald's and Philip Morris accounted for 78% and 8%, 65% and 9% and 61% and 9%
of total net sales in 2001, 2000 and 1999, respectively.

Beginning in 1996, the Company grew as a result of a series of acquisitions of
companies engaged in the corporate catalog and advertising specialty segment of
the promotion industry. Certain of these acquired companies operated within the
Company's Corporate Promotions Group ("CPG") and had a history of disappointing
financial results. As a result, the Company sold these businesses in February of
2001 (see Sale of Business section below).

In 1997, the Company expanded into the consumer promotion arena with its
acquisition of Simon Marketing, Inc. ("Simon Marketing"), a Los Angeles-based
marketing and promotion agency. The Company conducted its business with
McDonald's through its Simon Marketing subsidiary. Simon Marketing designed and
implemented marketing promotions for McDonald's, which included premiums, games,
sweepstakes, events, contests, coupon offers, sports marketing, licensing and
promotional retail items.

LOSS OF CUSTOMERS, RESULTING EVENTS AND GOING CONCERN

On August 21, 2001, the Company was notified by McDonald's that they were
terminating their approximately 25-year relationship with Simon Marketing as a
result of the arrest of Jerome P. Jacobson ("Mr. Jacobson"), a former employee
of Simon Marketing who subsequently plead guilty to embezzling winning game
pieces from McDonald's promotional games administered by Simon Marketing. No
other Company employee was found or even alleged to have any knowledge of or
complicity in his illegal scheme. The Second Superseding Indictment filed
December 7, 2001 by the U.S. Attorney in the United States District Court for
the Middle District of Florida charged that Mr. Jacobson "embezzled more than
$20 million worth of high value winning McDonald's promotional game pieces from
his employer, [Simon]". Simon Marketing was identified in the Indictment, along
with McDonald's, as an innocent victim of Mr. Jacobson's fraudulent scheme.
(Also, see section, Legal Actions Associated with the McDonald's

16

<PAGE>

Matter, below.) Further, on August 23, 2001, the Company was notified that its
second largest customer, Philip Morris, was also ending their approximately nine
year relationship with the Company. Net sales to McDonald's and Philip Morris
accounted for 78% and 8%, 65% and 9% and 61% and 9% of total net sales in 2001,
2000 and 1999, respectively. The Company's financial condition, results of
operations and net cash flows have been and will continue to be materially
adversely affected by the loss of the McDonald's and Philip Morris business, as
well as the loss of its other customers. In addition, the absence of business
from McDonald's and Philip Morris has adversely affected the Company's
relationship with and access to foreign manufacturing sources.

At December 31, 2001, the Company had no customer backlog as compared to $236.9
million of written customer purchase orders at December 31, 2000.

As a result of actions taken in the second half of 2001, the Company recorded
third and fourth quarter pre tax charges totaling approximately $80.3 million.
These charges relate principally to the write-down of goodwill attributable to
Simon Marketing ($46.7 million) and to a substantial reduction of its worldwide
Infrastructure, including, asset write-downs ($22.4 million), lump-sum severance
costs associated with the termination of approximately 377 employees ($6.3
million), lease cancellations ($1.8 million), legal fees ($1.7 million) and
other costs associated with the McDonald's and Philip Morris matters ($1.4
million).

In order to induce their continued commitment to provide vital services to the
Company in the wake of the events of August 2001, in the third quarter of 2001
the Company entered into retention arrangements with its Chief Executive
Officer, each of the three non-management members of the Company's Board of
Directors (the "Board") and key members of management of Simon Marketing. As a
further inducement to the Company's directors to continue their service to the
Company, and to provide assurances that the Company will be able to fulfill its
obligations to indemnify directors, officers and agents of the Company and its
subsidiaries ("Indemnitees") under Delaware law and pursuant to various
contractual arrangements, in March 2002 the Company entered into an
Indemnification Trust Agreement ("Agreement") for the benefit of the
Indemnitees. (See notes to consolidated financial statements.) Pursuant to this
Agreement, the Company has deposited a total of $2.7 million with an independent
trustee in order to fund any indemnification amounts owed to an Indemnitee,
which the Company is unable to pay. These arrangements, and the severance
arrangements described below, were negotiated by the Company on an arms-length
basis with the advice of the Company's counsel and other advisors.

In connection with the loss of its customers and pursuant to negotiations that
began in the fourth quarter of 2001, the Company entered into a Termination,
Severance and General Release Agreement ("Agreement") with its Chief Executive
Officer ("CEO") in March 2002. In accordance with the terms of this Agreement,
the CEO's employment with the Company terminated in March 2002 (the CEO remains
on the Company's Board of Directors) and substantially all other agreements,
obligations and rights existing between the CEO and the Company were terminated,
including the CEO's Employment Agreement dated September 1, 1999, as amended,
and his retention agreement dated August 29, 2001. (For additional information
related to the CEO's retention agreement, see the Company's 2001 third quarter
Form 10-Q.) The ongoing operations of the Company and Simon Marketing are being
managed by the Executive Committee of the Board consisting of Messrs. George
Golleher and Anthony Kouba, in consultation with outside financial, accounting,
legal and other advisors. As a result of the foregoing, the Company recorded a
2001 fourth quarter pre-tax charge of $4.6 million, relating principally to the
forgiveness of indebtedness of the CEO to the Company, a lump-sum severance
payment and the write-off of an asset associated with an insurance policy on the
life of the CEO. The Company received a full release from the CEO in connection
with this Agreement, and the Company provided the CEO with a full release.
Additionally, the Agreement called for the CEO to provide consulting services to
the Company for a period of six months after the CEO's employment with the
Company terminated in exchange for a fee of $46,666 per month, plus specified
expenses. See notes to consolidated financial statements and Executive
Compensation.

On August 28, 2001, the Company entered into retention letter agreements with
each of Messrs. Golleher and Kouba and Joseph Bartlett, the non-management
members of the Board, pursuant to which the Company paid each of them a
retention fee of $150,000 in exchange for their agreement to serve as a director
of the Company for at least six months. If a director resigned before the end of
the six-month

17

<PAGE>

period, the director would have been required to refund to the Company the pro
rata portion of the retention fee equal to the percentage of the six-month
period not served. Additionally, the Company agreed to compensate these
directors at an hourly rate of $750 for services outside of Board and committee
meetings (for which they are paid $2,000 per meeting in accordance with existing
Company policy). See Directors' Compensation.

In addition, retention agreements were entered into in September and October
2001 with certain key employees which provide for retention payments ranging
from 8% to 100% of their respective salaries conditioned upon continued
employment through specified dates and/or severance payments of up to 100% of
these employee's respective annual salaries should such employees be terminated
within the parameters of their agreements (for example, termination without
cause). In the first quarter of 2002, additional similar agreements were entered
into with certain employees of one of the Company's subsidiaries. The terms of
these agreements were generally consistent with the terms of the employees'
prior retention agreements. Payments under these agreements have been made at
various dates from September 2001 through March 2002. The Company's obligations
under these agreements are approximately $3.1 million. Approximately $1.7
million of these commitments had been segregated in separate cash accounts in
October 2001, in which security interests had been granted to certain employees,
and have been released back to the Company in 2002 upon making of retention and
severance payments to these applicable employees.

LEGAL ACTIONS ASSOCIATED WITH THE MCDONALD'S MATTER

Subsequent to August 21, 2001, numerous consumer class action and representative
action lawsuits (hereafter variously referred to as, "actions", "complaints" or
"lawsuits") have been filed in Illinois, the headquarters of McDonald's, and in
multiple jurisdictions nationwide and in Canada. Plaintiffs in these actions
asserted diverse causes of action, including negligence, breach of contract,
fraud, restitution, unjust enrichment, misrepresentation, false advertising,
breach of warranty, unfair competition and violation of various state consumer
fraud statutes. Complaints filed in federal court in New Jersey also alleged a
pattern of racketeering.

Plaintiffs in many of these actions alleged, among other things, that
defendants, including the Company, its subsidiary Simon Marketing, and
McDonald's, misrepresented that plaintiffs had a chance at winning certain
high-value prizes when in fact the prizes were stolen by Mr. Jacobson.
Plaintiffs seek various forms of relief, including restitution of monies paid
for McDonald's food, disgorgement of profits, recovery of the "stolen" game
prizes, other compensatory damages, attorney's fees, punitive damages and
injunctive relief.

The class and/or representative actions filed in Illinois state court were
consolidated in the Circuit Court of Cook County, Illinois (the "Boland" case).
Numerous class and representative actions filed in California have been
consolidated in California Superior Court for the County of Orange (the
"California Court"). Numerous class and representative actions filed in federal
courts nationwide have been transferred by the Judicial Panel on Multidistrict
Litigation (the "MDL Panel") to the federal district court in Chicago, Illinois
(the "MDL Proceedings"). Numerous of the class and representative actions filed
in state courts other than in Illinois and California were removed to federal
court and transferred by the MDL Panel to the MDL Proceedings.

On April 19, 2002, McDonald's entered into a Stipulation of Settlement (the
"Boland Settlement") with certain plaintiffs in the Boland case pending in the
Circuit Court of Cook County, Illinois (the "Illinois Circuit Court"). The
Boland Settlement purports to settle and release, among other things, all claims
related to the administration, execution and operation of the McDonald's
promotional games, or to "the theft, conversion, misappropriation, seeding,
dissemination, redemption or non-redemption of a winning prize or winning game
piece in any McDonald's Promotional Game," including without limitation claims
brought under the consumer protection statutes or laws of any jurisdiction, that
have been or could or might have been alleged by any class member in any forum
in the United States of America, subject to a right of class members to opt out
on an individual basis, and includes a full release of the Company and Simon
Marketing, as well as their officers, directors, employees, agents, and vendors.
Under the terms of the Boland Settlement, McDonald's agrees to sponsor and run a
"Prize Giveaway" in which a total of fifteen (15) $1 million prizes, payable in
twenty installments of $50,000 per year with no interest, shall be

18

<PAGE>

randomly awarded to persons in attendance at McDonald's restaurants. The Company
has been informed that McDonald's, in its capacity as an additional insured, has
tendered a claim to Simon Marketing's Errors & Omissions insurance carriers, to
cover some or all of the cost of the Boland Settlement, including the cost of
running the "Prize Giveaway," of the prizes themselves, and of attorney's fees
to be paid to plaintiffs' counsel up to an amount of $3 million.

On June 6, 2002, the Illinois Circuit Court issued a preliminary order approving
the Boland Settlement and authorizing notice to the class. On August 28, 2002,
the opt-out period pertaining thereto expired. The Company has been informed
that approximately 250 persons in the United States and Canada purport to have
opted out of the Boland Settlement. Furthermore, actions may move forward in
Canada and in certain of the cases asserting claims not involving the Jacobson
theft. On January 3, 2003, the Illinois Circuit Court issued an order approving
the Boland Settlement and overruling the objections thereto. Even if the Boland
Settlement is enforceable to bar claims of persons who have not opted out,
individual claims may be asserted by those persons who are determined to have
properly opted out of the Boland Settlement. Claims may also be asserted in
Canada and by individuals whose claims do not involve the Jacobson theft if a
court were to determine the claim to be distinguishable from and not barred by
the Boland Settlement.

A hearing on motions to dismiss the remaining cases in the MDL Proceedings are
scheduled on April 29, 2003, other than a case originally filed in federal
district court in Kentucky, in which the plaintiff has opted out of the Boland
Settlement. The plaintiff in that case asserts that McDonald's and Simon
Marketing failed to redeem a purported $1,000,000 winning ticket. This case has
been ordered to arbitration.

Actions pending in California Court had been stayed pending a ruling on the
final approval of the Boland Settlement. Certain of the California plaintiffs
purport to have opted out of the Boland Settlement individually and also on
behalf of all California consumers. In its final order approving the Boland
Settlement, the Illinois court rejected the attempt by the California plaintiff
to opt out on behalf of all California consumers. Now that the Illinois court
has approved the Boland Settlement, Simon Marketing will move in the California
Court to have the class and representative claims dismissed as well as the
claims of individuals who have not properly opted out. A hearing has been
scheduled in that motion for April 14,2003. Even if the Boland Settlement is
enforceable to bar class and representative actions pending in California,
individual claims may go forward as to those plaintiffs, if any, who are
determined to have properly opted out of the Boland Settlement, or who have
asserted claims not involving the Jacobson theft. The Company does not know
which California and non-California claims will go forward notwithstanding the
Boland Settlement.

On or about August 20, 2002, an action was filed against Simon Marketing in
Florida State Court, alleging that McDonald's and Simon Marketing deliberately
diverted from seeding in Canada game pieces with high-level winning prizes in
certain McDonald's promotional games. The plaintiffs are Canadian citizens and
seek restitution and damages on a class-wide basis in an unspecified amount.
Simon Marketing and McDonald's removed this action to federal court on September
10, 2002 and the MDL Panel has transferred the case to the MDL Proceedings in
Illinois, where a motion to dismiss will be heard on April 29, 2003. The
plaintiffs in this case did not opt out of the Boland Settlement.

On or about September 13, 2002, an action was filed against Simon Marketing in
Ontario Provincial Court in which the allegations are similar to those made in
the above Florida action. On October 28, 2002, an action was filed against Simon
Marketing in Ontario Provincial Court, containing similar allegations. The
plaintiffs in the aforesaid actions seek an aggregate of $110 million in damages
and an accounting on a class-wide basis. Simon Marketing has retained Canadian
local counsel to represent it in these actions. The Company believes that the
plaintiffs in these actions did not opt out of the Boland Settlement. These
actions are in the earliest stages.

On October 23, 2001, the Company and Simon Marketing filed suit against
McDonald's in California Superior Court for the County of Los Angeles. The
complaint alleges, among other things, fraud, defamation and breach of contract
in connection with the termination of Simon Marketing's relationship with
McDonald's.

19

<PAGE>

Also on October 23, 2001, the Company and Simon Marketing were named as
defendants, along with Mr. Jacobson, and certain other individuals unrelated to
the Company or Simon Marketing, in a complaint filed by McDonald's in the United
States District Court for the Northern District of Illinois. The complaint
alleges that Simon Marketing had engaged in fraud, breach of contract, breach of
fiduciary obligations and civil conspiracy and alleges that McDonald's is
entitled to indemnification and damages of an unspecified amount. The federal
lawsuit by McDonald's has been dismissed for lack of federal jurisdiction.
Subsequently, a substantially similar lawsuit was filed by McDonald's in
Illinois state court which the Company has moved to dismiss as a compulsory
counter-claim which must properly be filed in the Company's California state
court action. There has been no ruling on the Company's motion.

The Company is unable to predict the outcome of the lawsuits against the Company
and their ultimate effects, if any, on the Company's financial condition,
results of operations or net cash flows.

On November 13, 2001, the Company filed suit against Philip Morris in California
Superior Court for the County of Los Angeles, asserting numerous causes of
action arising from Philip Morris' termination of the Company's relationship
with Philip Morris. Subsequently, the Company dismissed the actions without
prejudice, so that the Company and Philip Morris could attempt to resolve this
dispute outside of litigation. During 2002, a settlement was reached resulting
in a payment of $1.5 million by Philip Morris to the Company. See Subsequent
Events footnote in the accompanying consolidated financial statements.

In March 2002, Simon Marketing initiated a lawsuit against certain suppliers and
agents of McDonald's in California Superior Court for the County of Los Angeles.
The complaint alleges, among other things, breach of contract and intentional
interference with contractual relations. In July 2002, a stay was granted in the
case on the basis of "forum non conveniens", which would have required the
matter to be refiled in Illinois state court. The Company has filed a writ
appealing such ruling.

On March 29, 2002, Simon Marketing filed a lawsuit against
PricewaterhouseCoopers LLP ("PWC") and two other accounting firms, citing the
accountants' failure to oversee, on behalf of Simon Marketing, various steps in
the distribution of high-value game pieces for certain McDonald's promotional
games. The complaint alleges that this failure allowed the misappropriation of
certain of these high-value game pieces by Mr. Jacobson. The lawsuit, filed in
Los Angeles Superior Court, seeks unspecified actual and punitive damages
resulting from economic injury, loss of income and profit, loss of goodwill,
loss of reputation, lost interest, and other general and special damages. The
defendants' motion to dismiss for "forum non conveniens" has been denied in the
case and, following demurrers by the defendants, the Company has subsequently
filed a first amended complaint against two firms, PWC and one of the two other
accounting firms named as defendants in the original complaint, KPMG LLP. The
defendants' demurrer to the first amended complaint was sustained in part, and a
second amended complaint was filed. No answer is yet due.

As a result of this lawsuit, PWC resigned as the Company's independent public
accountants on April 17, 2002. In addition, on April 17, 2002, PWC withdrew its
audit report dated March 26, 2002 filed with the Company's original 2001 Annual
Report on Form 10-K. PWC indicated that it believed the lawsuit resulted in an
impairment of its independence in connection with the audit of the Company's
2001 financial statements. The Company does not believe that PWC's independence
was impaired. On June 6, 2002, the Company engaged BDO Seidman LLP as the
Company's new independent public accountants. In connection with obtaining PWC's
consent to the inclusion of their audit report dated March 26, 2002 in this
Amendment No. 1 on Form 10-K/A to the Company's annual report on Form 10-K for
the year ended December 31, 2001, the Company agreed to indemnify PWC against
any legal costs and expenses incurred by PWC in the successful defense of any
legal action that arises as a result of such inclusion. Such indemnification
will be void if a court finds PWC liable for professional malpractice. The
Company has been informed that in the opinion of the Securities and Exchange
Commission indemnification for liabilities arising under the Securities Act of
1933 is against public policy and therefore unenforceable. PWC has provided the
Company with a copy of a 1995 letter from the Office of the Chief Accountant of
the Commission which states that, in a similar situation, his Office would not
object to an indemnification agreement of the kind between the Company and PWC.
See Item 9.

20

<PAGE>

OUTLOOK

As a result of the loss of its McDonald's and Philip Morris business, along with
the resulting legal matters as discussed above, there is substantial doubt about
the Company's ability to continue as a going concern. The accompanying financial
statements do not include any adjustments that might result from the outcome of
these uncertainties. The Company has taken significant actions and will continue
to take further action to reduce its cost structure. The Board of Directors of
the Company continues to consider various alternative courses of action for the
Company going forward. including possibly acquiring one or more operating
businesses, selling the Company or distributing its net assets, if any, to
shareholders. The decision on which course to take will depend upon a number of
factors including the outcome of the significant litigation matters in which the
Company is involved (See Legal Actions Associated with the McDonald's Matter).
To date, the Board of Directors has made no decision on which course of action
to take. Management believes it has sufficient capital resources and liquidity
to operate the Company for the foreseeable future.

For additional information related to certain matters discussed in this section,
reference is made to the Company's Reports on Form 8-K dated August 21, 2001,
September 17, 2001, September 21, 2001, October 30, 2001, April 17, 2002 and
June 6, 2002, respectively.

SALE OF BUSINESS

In February 2001, the Company sold its CPG business to Cyrk, Inc. ("Cyrk"),
formerly known as Rockridge Partners, Inc., 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 Cyrk, 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 the Company's
acquisitions of Marketing Incentives, Inc. ("MI") and Tonkin, Inc. ("Tonkin") in
1996 and 1997, respectively.

Pursuant to the Purchase Agreement, Cyrk purchased from the Company (i) all of
the outstanding capital stock of Cyrk Acquisition Corp. ("CAC"), successor to
the business of MI, and Tonkin, each a wholly owned subsidiary of the Company,
(ii) certain other assets of the Company, including those assets at the
Company's Danvers and Wakefield, Massachusetts facilities necessary for the
operation of the CPG business and (iii) all intellectual property of the CPG
business as specified in the Purchase Agreement. Cyrk assumed certain
liabilities of the CPG business as specified in the Purchase Agreement and all
of the assets and liabilities of CAC and Tonkin and, pursuant to the Purchase
Agreement, the Company agreed to transfer its former name, Cyrk, to the buyer.
Cyrk extended employment offers to certain former employees of the Company who
had performed various support activities, including accounting, human resources,
information technology, legal and other various management functions. There is
no material relationship between Cyrk 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 completed the restructuring effort announced by the
Company in May 2000 with respect to the CPG business.

21

<PAGE>

For additional information related to this transaction, reference is made to the
Company's Report on Form 8-K dated February 15, 2001.

Following the closing of the sale of the CPG business, certain disputes arose
between the Company and Cyrk. In March 2002, the Company entered into a
settlement agreement with Cyrk. Under the settlement agreement: (1) the Company
contributed $500,000 towards the settlement of a lawsuit against the Company and
Cyrk made by a former employee, (2) the Company cancelled the remaining
indebtedness outstanding under Cyrk's subordinated promissory note in favor of
the Company in the original principal amount of $2.3 million, (3) Cyrk agreed to
vacate the Danvers, Massachusetts facility by June 15, 2002 and that lease was
to terminate as of June 30, 2002, thereby terminating the Company's substantial
lease liability thereunder (4) Cyrk and the Company each released the other from
all known and unknown claims (subject to limited exceptions) including Cyrk's
release of all indemnity claims made against the Company arising out of its
purchase of the CPG business, and (5) a letter of credit in the amount of
$500,000 was provided by Cyrk for the benefit of the Company to support a
portion of a $4.2 million letter of credit provided by the Company to secure an
obligation assumed by Cyrk in connection with Cyrk's purchase of the CPG
business. If Cyrk fails to perform its obligations under this agreement, or
fails to perform and discharge liabilities assumed in connection with its
purchase of the CPG business, then all or a portion of Cyrk's indebtedness to
the Company under the subordinated promissory note may be reinstated. The
Company's 2001 financial statements have been adjusted to reflect the
settlement, and include a pre-tax charge of $2.3 million associated with the
write-off of the subordinated note,

The $4.2 million letter of credit provided by the Company supports Cyrk's
obligations to Winthrop Resources Corporation. This letter of credit is secured,
in part, by $3.7 million of restricted cash of the Company. Cyrk had previously
agreed to indemnify the Company if Winthrop made any draw under this letter of
credit. The letter of credit has an annual expiration until the underlying
obligation is satisfied.

In the fourth quarter of 2002, Cyrk informed the Company that it (1) was
suffering substantial financial difficulties (2) would not be able to discharge
its obligations secured by the Company's $4.2 million letter of credit and (3)
would be able to obtain a $2.5 million equity infusion if it was able to
decrease Cyrk's liability for these obligations. As a result, in December 2002,
the Company granted Cyrk an option until April 20, 2003 to pay the Company $1.5
million in exchange for the Company's agreement to apply its $3.7 million
restricted cash to discharge Cyrk's obligations to Winthrop, with any remainder
to be turned over to Cyrk. The option may only be exercised after the
satisfaction of several conditions, including the Company's confirmation of
Cyrk's financial condition, Cyrk and Simon obtaining all necessary third party
consents, Cyrk and its subsidiaries providing Simon with a full release of all
known and unknown claims, and the Company having no further liability to
Winthrop as a guarantor of Cyrk's obligations. To the extent Cyrk exercises this
option, the Company would incur a loss ranging from between $2.2 million to $3.7
million. At this time, the Company is unable to assess the likelihood of this
event.

2001 RESTRUCTURING

After the February 2001 sale of its CPG business, the Company conducted a second
quarter 2001 evaluation of its remaining businesses with the objective of
restoring consistent profitability through a more rationalized, cost-efficient
business model. As a result of this evaluation, and pursuant to a plan approved
by its Board of Directors, the Company had taken action to shutdown or
consolidate certain businesses, sell certain assets and liabilities related to
its legacy corporate catalog business in the United Kingdom and eliminate
approximately two-thirds (40 positions) of its Wakefield, Massachusetts
corporate office workforce. Additionally, the Company announced the resignation
of its co-chief executive officer and two other executive officers, including
the Company's chief financial officer. Consequently, the Company announced that
all responsibilities for the chief executive officer position had been
consolidated under Allan I. Brown, who had served as co-chief executive officer
since November 1999 and as the chief executive officer of Simon Marketing since
1975. For additional information related to these events, reference is made to
the Company's Report on Form 8-K dated June 15, 2001.

22

<PAGE>

As a result of these actions, the Company recorded a second quarter 2001 pre-tax
charge of approximately $20.2 million for restructuring expenses. The second
quarter charge relates principally to employee termination costs ($10.5
million), asset write-downs which were primarily attributable to a consolidation
of its Wakefield, Massachusetts workspace ($6.5 million), a loss on the sale of
the UK business ($2.1 million) and the settlement of certain lease obligations
($1.1 million). Total cash outlays related to restructuring activities were
approximately $12.9 million during 2000 and 2001. The restructuring plan was
substantially complete by the end of 2001.

2000 RESTRUCTURING

On May 11, 2000, the Company announced that, pursuant to a plan approved by its
Board of Directors, it was integrating and streamlining its traditional
promotional product divisions, Corporate Promotions Group and Custom Product &
Licensing, into one product-focused business unit. As a result of this action,
the Company recorded a 2000 pre-tax charge to operations of approximately $5.7
million principally for involuntary termination costs, asset write-downs and the
settlement of lease obligations. See notes to consolidated financial statements.

1999 EQUITY INVESTMENT

In November 1999,Overseas Toys L.P., an affiliate of the Yucaipa Companies
("Yucaipa"), a Los Angeles-based investment firm, invested $25 million in the
Company in exchange for convertible preferred stock and a warrant to purchase an
additional $15 million of convertible preferred stock. Under the terms of the
investment, which was approved at a Special Meeting of Stockholders held on
November 10, 1999, Overseas Toys L.P., purchased 25,000 shares of a new series
of Company convertible preferred stock (initially convertible into 3,030,303
shares of Company common stock) and received a warrant to purchase an additional
15,000 shares of a new series of Company convertible preferred stock (initially
convertible into 1,666,667 shares of Company common stock). The net proceeds
($20.6 million) from this transaction were used for general corporate purposes.

As of December 31, 2001, assuming conversion of all of the convertible preferred
stock, Overseas Toys L.P. would own approximately 16% of the then outstanding
common shares. Assuming the preceding conversion, and assuming the exercise of
the warrant and the conversion of the preferred stock issuable upon its
exercise, Overseas Toys L.P. would own a total of approximately 23% of the then
outstanding common Shares.

In connection with this transaction, Ronald W. Burkle, managing partner of
Yucaipa, was appointed chairman of the Company's Board of Directors. In addition
to Mr. Burkle, Yucaipa is entitled to nominate two individuals to a seven-person
Simon Worldwide Board of Directors. Pursuant to a Voting Agreement, dated
September 1, 1999, among Yucaipa, Mr. Brady, Mr. Brown, Mr. Shlopak, the Shlopak
Foundation, Cyrk International Foundation and the Eric Stanton Self-Declaration
of Revocable Trust, each of Messrs. Brady, Brown, Shlopak and Stanton have
agreed to vote all of the shares beneficially held by them to elect the three
members nominated by Yucaipa. Additionally, in November 1999, the Company
entered into a five year Management Agreement with Yucaipa whereby Yucaipa
provided Simon Worldwide with management and consultation services in exchange
for a management fee of $500,000 per year for a term of five (5) years which
would automatically renew unless either party elected in advance not to renew,
in which case under the terms of the agreement, a $2.5 million termination fee
was due.

In August 2001, two of the Directors appointed by Yucaipa, Mr. Burkle and Erika
Paulson, resigned from the Simon Worldwide Board of Directors. On October 17,
2002, the Management Agreement between the Company and Yucaipa was terminated by
the payment to Yucaipa of $1.5 million and each party was released from further
obligations thereunder. See notes to consolidated financial statements.

For additional information related to this transaction, reference is made to the
Company's Report on Form 8-K and its proxy statement filed on Schedule 14A with
the Securities and Exchange Commission, dated September 1, 1999 and October 12,
1999, respectively.

23

<PAGE>

CRITICAL ACCOUNTING POLICIES

Management's discussion and analysis of financial condition and results of
operations is based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, management evaluates
its estimates and bases its estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates.

Management applies the following critical accounting policies in the preparation
of the Company's consolidated financial statements:

ACCOUNTS RECEIVABLE/ALLOWANCE FOR DOUBTFUL ACCOUNTS. The Company evaluates the
collectibility of its accounts receivable on a specific identification basis. In
circumstances where the Company is aware of a customer's inability or
unwillingness to pay outstanding amounts, the Company records a specific reserve
for bad debts against amounts due to reduce the receivable to its estimated
collectible balance. The Company recorded bad debt expense of approximately
$15.5 million in 2001. The allowance for doubtful accounts at December 31, 2001,
of approximately $15.6 million, includes a reserve to cover amounts due
primarily from McDonald's. During 2002, the Company recovered $877 of accounts
receivable balances that had been fully reserved as of December 31, 2001. See
Loss of Customers, Resulting Events and Going Concern above and see notes to
consolidated financial statements.

LONG-TERM INVESTMENTS. At December 31, 2001, the Company had investments in two
privately-held, primarily Internet-related companies with a net book value
totaling $10.5 million that are being accounted for under the cost method.
($10.0 million of the aforementioned total is an indirect investment, through a
limited liability company that is controlled by Yucaipa, in Alliance
Entertainment Corp. ("Alliance"). Yucaipa is believed to be indirectly a
significant shareholder in Alliance. Alliance is a home entertainment product
distribution, fulfillment, and infrastructure company providing both
brick-and-mortar and e-commerce home entertainment retailers with complete
business-to-business solutions.) These companies are subject to many of the
risks inherent in the Internet, including their dependency upon the widespread
acceptance and use of the Internet as an effective medium of commerce.
Periodically, the Company performs a review of the carrying value of its
investments in these two companies and considers such factors as current
results, trends and future prospects, capital market conditions and other
economic factors. If deemed necessary, the Company would adjust the carrying
value of its investments to reflect an impairment that is considered to be other
than temporary. Based on its year-end internal evaluation, the Company believes
that the carrying value of these investments is their net realizable value at
December 31, 2001. During 2002, based on specific events, the Company recorded a
write down totaling $10.0 million against the Alliance investment. See
Subsequent Events footnote to the consolidated financial statements. While the
Company will continue to periodically evaluate its investments, there can be no
assurance as to the future success of these companies, and thus the Company
might not ever realize any benefits from, or recover the cost of, its
investments.

ACCOUNTS PAYABLE, TRADE AND ACCRUED EXPENSES. The Company's trade payables at
year-end represent specific amounts due to a variety of suppliers and vendors
("vendors") worldwide for products and services delivered to and/or provided to
the Company through December 31, 2001. Additionally, accrued expenses at
year-end include specific Company liabilities and contingent payment obligations
to various vendors and former employees, respectively. Subsequent to December
31, 2001, and related to the loss of its two largest customers (as well as its
other customers) (see Loss of Customers, Resulting Events and Going Concern
above and see notes to consolidated financial statements), the Company has
negotiated and will continue to negotiate settlements related to many of its
year-end liabilities. During 2002, approximately $16.3 million of the Company's
recorded liabilities have been settled. The negotiated settlements were on terms
generally more favorable to the Company than required by the original terms of
these obligations. See Subsequent Event footnote to the consolidated financial
statements.

24

<PAGE>

RECENTLY ISSUED ACCOUNTING STANDARDS

In August 2001, the FASB issued SFAS No. 144,"Accounting for the Impairment or
Disposal of Long-Lived Assets". This statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of". The statement retains the previously existing accounting
treatments related to the recognition and measurement of the impairment of
long-lived assets to be held and used while expanding the measurement
requirements of long-lived assets to be disposed of by sale to include
discontinued operations. It also expands the previously existing reporting
requirements for discontinued operations to include a component of an entity
that either has been disposed of or is classified as held for sale. The Company
implemented SFAS in January 1, 2002. In April 2002, the Company had effectively
eliminated a majority of its ongoing operations and was in the process of
disposing all of its assets and settling its liabilities related to the
promotions business. The process is ongoing and will continue throughout 2003
and possibly into 2004. During the second quarter of 2002, the discontinued
activities of the Company, consisting of revenues, operating costs, certain
general and administrative costs and certain assets and liabilities associated
with the Company's promotions business, will be classified as discontinued
operations for financial reporting purposes.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 requires companies to recognize costs
associated with exit or disposal activities initiated by the Company after
December 31, 2002. Management does not expect this statement to have a material
impact on the Company's consolidated financial position or results of
operations.

SIGNIFICANT CONTRACTUAL OBLIGATIONS

The following table includes certain significant contractual obligations of the
Company at December 31, 2001. During 2002, the Company settled a majority of
these obligations. See notes to consolidated financial statements for additional
information related to these and other obligations.

<TABLE>
<CAPTION>
                                                        Payments Due by Period
                                                   Less Than     1-3         4-5       After 5
                                       Total        1 Year      Years       Years       Years
                                       -----        ------      -----       -----       -----
                                                           (In thousands)
<S>                                    <C>         <C>         <C>         <C>         <C>
Long-term debt                         $     -     $     -     $     -     $     -     $     -
Capital lease obligations                1,920         457       1,463           -           -
Operating leases (1)                    23,535       2,524      13,484       7,527           -
Unconditional purchase obligations           -           -           -           -           -
Contingent payment obligations (2)       5,872       5,872           -           -           -
Other long-term obligations              9,445         515       6,868       1,031       1,031
                                       -------------------------------------------------------
Total contractual cash obligations     $40,772     $ 9,368     $21,815     $ 8,558     $ 1,031
                                       =======================================================
</TABLE>

(1) Payments for operating leases are recognized as an expense in the
Consolidated Statement of Operations as incurred.

(2) Contingent payment obligations arose from the acquisition of Simon Marketing
in 1997 and payment is due in June 2002. See Note 21 in consolidated notes to
financial statements.

25

<PAGE>

OTHER COMMERCIAL COMMITMENTS

The following table includes certain commercial commitments of the Company at
December 31, 2001. See notes to consolidated financial statements for additional
information related to these and other commitments.

<TABLE>
<CAPTION>
                                    Total
                                   Amounts     Less Than     1-3           4-5          After 5
                                  Committed     1 Year      Years         Years          Years
                                  ---------     ------      -----         -----          -----
                                                       (In thousands)
<S>                               <C>          <C>         <C>          <C>            <C>
Lines of Credit (1)                $21,000     $21,000     $      -     $        -     $       -
Standby letters of credit            5,700       5,700            -              -             -
Guarantees                             328         328            -              -             -
Standby repurchase obligations           -           -            -              -             -
Other commercial commitments             -           -            -              -             -
                                   -------------------------------------------------------------
Total commercial commitments       $27,028     $27,028     $      -     $        -     $       -
                                   =============================================================
</TABLE>

(1) As a result of the loss of its McDonald's and Philip Morris business (see
Loss of Customers, Resulting Events and Going Concern above and see notes to
consolidated financial statements), the Company no longer has the ability to
borrow under its revolving credit facility or to issue a letter of credit under
any of its existing credit facilities without full cash collateralization.

RESULTS OF OPERATIONS

2001 COMPARED TO 2000

As noted in the Loss of Customers, Resulting Events and Going Concern and the
2001 Restructuring sections above, the Company took a series of actions in 2001,
which resulted in recording a 2001 pre-tax charge of approximately $80.3
million. See notes to consolidated financial statements.

Net sales decreased $444.4 million, or 58%, to $324.0 million in 2001 from
$768.4 million in 2000. The decrease in net sales was primarily attributable to
the loss of revenues associated with McDonald's and Philip Morris and revenues
associated with the CPG business sold in February 2001. See notes to
consolidated financial statements.

Gross profit decreased $72.3 million, or 50%, to $71.7 million in 2001 from
$144.0 million in 2000. As a percentage of net sales, gross profit increased to
22.1% in 2001 from 18.7% in 2000. The decrease in nominal gross margin dollars
is primarily attributable to the decrease in revenues associated with McDonald's
and Philip Morris and the revenues associated with the CPG business. The
increase in the gross margin percentage was due to the sales mix associated with
certain promotional programs.

Selling, general and administrative expenses totaled $81.4 million in 2001 as
compared to $162.2 million in 2000. The Company's decreased spending was due
principally to the effects of the sale of the CPG business and the effects
associated with the loss of its McDonald's and Philip Morris business. See notes
to consolidated financial statements. As a percentage of net sales, selling,
general and administrative costs totaled 25.1% in 2001 as compared to 21.1% in
2000 as a result of a lower sales base.

In connection with its May 2000 announcement to restructure its promotional
product divisions, the Company recorded a pre-tax restructuring charge of $5.7
million (including the $1.7 million inventory write-down charged against gross
profit). See notes to consolidated financial statements.

26

<PAGE>

The Company also recorded a nonrecurring pre-tax charge to operations of $.7
million in 2000 associated with the settlement of a change in control agreement
with an employee of the Company who was formerly an executive officer. See notes
to consolidated financial statements.

Other income in 2001 includes a $4.2 million gain realized on the sale of an
investment, which was partially offset by a $3.2 million charge to reflect an
other than temporary investment impairment. Other expense in 2000 includes a
$4.5 million charge related to an other-than-temporary investment impairment
associated with the Company's venture portfolio, which was partially offset by a
$3.2 million gain realized on the sale of an investment. See notes to
consolidated financial statements.

Pursuant to a March 2002 settlement agreement with Cyrk as described above, the
Company recorded a 2001 pre-tax loss of $2.3 million associated with the
write-off of a subordinated note from Cyrk. In connection with the February 2001
sale of its CPG business, the Company recognized a 2000 pre-tax loss of $50.1
million, $22.7 million of which is associated with the write-off of goodwill
attributable to CPG. See notes to consolidated financial statements.

As required by Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes", the Company periodically evaluates the positive and negative
evidence bearing upon the realizability of its deferred tax assets. The Company
has considered recent events (see notes to consolidated financial statements)
and results of operations and concluded, in accordance with the applicable
accounting methods, that it is more likely than not that the deferred tax assets
will not be realizable. To the extent that these assets have been deemed to be
unrealizable, a valuation allowance and tax provision of $22.6 million was
recorded in the third quarter of 2001. See notes to consolidated financial
statements.

2000 COMPARED TO 1999

Net sales decreased $220.4 million, or 22%, to $768.4 million in 2000 from
$988.8 million in 1999. The decrease in net sales was primarily attributable to
a decrease in revenues associated with McDonald's and Beanie Babies related
product sales in 2000.

Gross profit decreased $28.3 million, or 16%, to $144.0 million in 2000 from
$172.3 million in 1999. As a percentage of net sales, gross profit increased to
18.7% in 2000 from 17.4% in 1999. The increase in the gross margin percentage
was due principally to a more favorable sales mix in which sales volume
associated with certain promotional programs that have gross margin limitations
were less than the levels of a year ago.

Selling, general and administrative expenses totaled $162.2 million in 2000 as
compared to $155.0 million in 1999. As a percentage of net sales, selling,
general and administrative costs totaled 21.1% as compared to 15.7% in 1999. The
Company's increased spending was due principally to an increase in client
service costs and a $1.2 million charge for a contingent payment of cash and
stock which was associated with the acquisition of a previously acquired
company.

In connection with its May 2000 announcement to restructure its promotional
product divisions, the Company recorded a nonrecurring pre-tax restructuring
charge of $5.7 million (including the $1.7 million inventory write-down charged
against gross profit) attributable to employee termination costs, asset write
downs and lease cancellations costs. See notes to consolidated financial
statements.

The Company also recorded a nonrecurring pre-tax charge to operations of $.7
million in 2000 associated with the settlement of a change in control agreement
with an employee of the Company who was formerly an executive officer. See notes
to consolidated financial statements. The Company recorded a 1999 nonrecurring
pre-tax charge to operations of $1.7 million associated with the settlement of
previously issued incentive stock options in a subsidiary which were issued to
principals of a previously acquired company. The settlement was reached to
facilitate the integration of the acquired company into other operations within
the Company's CPG division.

27

<PAGE>

Other expense in 2000 includes a $4.5 million charge related to an
other-than-temporary investment impairment associated with the Company's venture
portfolio, which was partially offset by a $3.2 million gain realized on the
sale of an investment. See notes to consolidated financial statements. Other
income of $2.8 million in 1999 represents a gain realized on the sale of an
investment.

In connection with the February 2001 sale of its CPG business, the Company
recognized a 2000 pre-tax loss of $50.1 million, $22.7 million of which is
associated with the write-off of goodwill attributable to CPG. See notes to
consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

The matters discussed in the Loss of Customers, Resulting Events and Going
Concern section above, which had and will continue to have a substantial adverse
impact on the Company's cash position, raise substantial doubts about the
Company's ability to continue as a going concern. The accompanying financial
statements do not include any adjustments that might result from the outcome of
these uncertainties. The Company has taken and will continue to take action to
reduce its cost structure. Since inception, the Company had financed its working
capital and capital expenditure requirements through cash generated from
operations, and investment and financing activities such as public and private
sales of common and preferred stock, bank borrowings, asset sales and capital
equipment leases. Subsequent to December 31, 2001, the Company continued to
incur losses in 2002 and continues to incur losses in 2003 for the general and
administrative expenses incurred to manage the affairs of the Company and
resolve outstanding legal matters. Inasmuch as the Company no longer generates
operating income and is unable to borrow funds, the source of current and future
working capital is expected to be cash on hand, the recovery of long-term assets
and any future proceeds from litigation. Management believes it has sufficient
capital resources and liquidity to operate the Company for the foreseeable
future. The Board of Directors of the Company continue to consider various
alternative courses of action for the Company going forward, including possibly
acquiring one or more operating businesses, selling the Company or distributing
its net assets, if any, to shareholders. The decision on which course to take
will depend upon a number of factors including the outcome of the significant
litigation matters in which the Company is involved (See Legal Actions
Associated with the McDonald's Matter). To date, the Board of Directors has made
no decision on which course of action to take.

Working capital at December 31, 2001 was $4.6 million compared to $60.4 million
at December 31, 2000. Net cash used in operating activities during 2001 was
$22.2 million, due primarily to a net loss of $122.3 million which was partially
offset by a $69.1 million charge for impaired assets (primarily goodwill and
accounts receivable), $11.9 million of deferred income taxes, $9.0 million of
non-cash restructuring charges, $5.2 million of depreciation and amortization
and a $.9 million net increase in cash from working capital items. Net cash used
in operating activities during 2000 was $11.8 million, due principally to a net
loss of $69.7 million and a $34.9 million decrease in accrued expenses, which
were partially offset by the loss on sale of business of $47.9 million, a $20.1
million decrease in inventories, a $10.7 million decrease in accounts receivable
and $9.6 million of depreciation and amortization.

Net cash used in investing activities in 2001 was $.3 million, which was
primarily attributable to an $8.7 million increase in restricted cash, $7.9
million of investment purchases and $2.9 million of purchases of property and
equipment, which were partially offset by $11.1 million of proceeds from the
sale of investments and $8.4 million of proceeds from the sale of the CPG
business. See notes to consolidated financial statements. Net cash used in
investing activities in 2000 was $13.9 million, which was primarily attributable
to $12.8 million of purchases of property and equipment.

Net cash used in financing activities in 2001 was $4.2 million, which was
primarily attributable to $5.1 million of repayments of short-term borrowings.
Net cash used in financing activities in 2000 was $5.9 million, which was
primarily attributable to $5.9 million of repayments of short-term borrowings
and long-term obligations.

In February 2001, the Company sold its CPG business for approximately $14.0
million, which included approximately $3.7 million of Company debt that was
assumed by the buyer. $2.3 million of the purchase

28

<PAGE>

price was paid with a 10% per annum five-year subordinated note, with the
balance being paid in cash. Pursuant to a March 2002 settlement agreement
between the Company and Cyrk, this note has been cancelled. See Sale of Business
above and notes to consolidated financial statements.

Subsequent to December 31, 2001, and related to the loss of its two largest
customers, as well as the loss of its other customers, (see notes to
consolidated financial statements), the Company has negotiated early
terminations on many of its facility and non facility operating leases, and has
also negotiated settlements related to liabilities with many of its suppliers.
During 2002, approximately $16.3 million of the Company's recorded liabilities
have been settled. These settlements were on terms generally more favorable to
the Company than required by the existing terms of these obligations. See
Subsequent Events footnote in the accompanying consolidated financial
statements.

As a result of the precipitous drop in the value of the Company's common stock
after the announcement of the loss of its two largest customers (see notes to
consolidated financial statements), the Company recorded a $5.0 million charge
in the third quarter of 2001 to accelerate the recognition of contingent payment
obligations (due in June 2002) arising from the acquisition of Simon Marketing
in 1997. Pursuant to Separation, Settlement and General Release Agreements
entered into during 2002 with former employees, the Company settled its
contingent payment obligations for an amount less than its recorded liability.
See Subsequent Events footnote in the accompanying consolidated financial
statements.

In March 2002, the Company, Simon Marketing and a Trustee entered into an
Indemnification Trust Agreement (the "Trust") which requires the Company and
Simon Marketing to fund an irrevocable trust in the amount of $2.7 million. The
Trust was set up and will be used to augment the Company's existing insurance
coverage for indemnifying directors, officers and certain described consultants,
who are entitled to indemnification against liabilities arising out of their
status as directors, officers and/or consultants. (See notes to consolidated
financial statements.)

The Company had available several worldwide bank letter of credit and revolving
credit facilities, which expired at various dates beginning in May 2002. In June
2001, the Company secured a new primary domestic letter of credit facility of up
to $21.0 million for the purpose of financing the importation of various
products from Asia and for issuing standby letters of credit. Pursuant to the
provisions of this facility, the Company had bank commitments to issue or
consider issuing for product related letter of credit borrowings of up to $15.0
million and bank commitments to issue or consider issuing for standby letters of
credit of up to $6.0 million through May 15, 2002. As a result of the loss of
its McDonald's and Philip Morris business (see notes to consolidated financial
statements) the Company no longer has the ability to borrow under its revolving
credit facility or to issue a letter of credit under any of its existing credit
facilities without full cash collateralization. As of December 31, 2001, the
Company's borrowing capacity was $21.0 million, of which $.5 million in letters
of credit were outstanding. In addition, bank guarantees totaling $.3 million
were outstanding at December 31, 2001. Borrowings under these facilities were
collateralized by substantially all of the assets of the Company.

Restricted cash as of December 31, 2001 consisted of $6.2 million deposited with
lenders to satisfy the Company's obligations pursuant to its outstanding standby
letters of credit and $2.5 million which was segregated in separate cash
accounts in which security interests had been granted to certain employees for
retention payments. The $2.5 million was released back to the Company in the
first quarter of 2002 upon making of retention and severance payments to these
applicable employees. $500,000 of cash was also released as a result of a
settlement with Cyrk (see Sale of Business). The remaining restricted cash
secures outstanding standby letters of credit having maturities ranging from
February 2002 through October 2002, which automatically renew from year to year
until the underlying obligation is satisfied. There is no assurance whether all
or any of such restricted cash will ever be released. See Subsequent Events
footnote in the accompanying consolidated financial statements.

The $4.2 million letter of credit provided by the Company supports Cyrk's
obligations to Winthrop Resources Corporation. This letter of credit is secured,
in part, by $3.7 million of restricted cash of the Company. Cyrk had previously
agreed to indemnify the Company if Winthrop made any draw under this letter of
credit.

29

<PAGE>

In the fourth quarter of 2002, Cyrk informed the Company that it (1) was
suffering substantial financial difficulties (2) would not be able to discharge
its obligations secured by the Company's $4.2 million letter of credit and (3)
would be able to obtain a $2.5 million equity infusion if it were able to
decrease Cyrk's liability for these obligations. As a result, in December 2002,
the Company granted Cyrk an option until April 20, 2003 to pay the Company $1.5
million in exchange for the Company's agreement to apply its $3.7 million
restricted cash to discharge Cyrk's obligations to Winthrop, with any remainder
to be turned over to Cyrk. The option may only be exercised after the
satisfaction of several conditions, including the Company's confirmation of
Cyrk's financial condition, Cyrk and Simon obtaining all necessary third party
consents, Cyrk and its subsidiaries providing Simon with a full release of all
known and unknown claims, and the Company having no further liability to
Winthrop as a guarantor of Cyrk's obligations. To the extent Cyrk exercises this
option, the Company would incur a loss ranging from between $2.2 million to $3.7
million. At this time, the Company is unable to assess the likelihood of this
event.

The Company's second quarter 2001 restructuring actions (see notes to
consolidated financial statements) have had and will continue to have an adverse
impact on the Company's cash position. Total cash outlays related to
restructuring activities totaled approximately $11.3 million during 2001 and
2002

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

<TABLE>
<CAPTION>
                                                                                                 PAGE
                                                                                                 ----
<S>                                                                                              <C>
Report of Independent Accountants                                                                53-54
Consolidated Balance Sheets as of December 31, 2001 and 2000                                     55-56
Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999          57
Consolidated Statements of Stockholders' (Deficit) Equity for the years ended December              58
31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and            59-60
1999 Notes to Consolidated Financial Statements
Schedule II:  Valuation and Qualifying Accounts                                                     85
</TABLE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

See disclosure in Item 1 and Item 3 regarding the resignation of
PricewaterhouseCoopers, LLP ("PWC") as the Company's independent public
accountants. For additional information, please see the Company's Forms 8-K
dated April 17, 2002, May 3, 2002 and June 6, 2002, which are incorporated
herein by reference.

In connection with obtaining PWC's consent to the inclusion of their audit
report dated March 26, 2002 in this Amendment No. 1 on Form 10-K/A to the
Company's annual report on Form 10-K for the year ended December 31, 2001, the
Company agreed to indemnify PWC against any legal costs and expenses incurred by
PWC in the successful defense of any legal action that arises as a result of
such inclusion. Such indemnification will be void if a court finds PWC liable
for professional malpractice. The Company has been informed that in the opinion
of the Securities and Exchange Commission indemnification for liability arising
under the Securities Act of 1933 is against public policy and therefore
unenforceable. PWC has provided the Company with a copy of a 1995 letter from
the Office of the Chief Accountant of the Commission, which states that, in a
similar situation, his Office would not object to an indemnification agreement
of the kind between the Company and PWC.

30

<PAGE>

                                    PART III

ITEM 10. DIRECTORS OF THE REGISTRANT.

The Company's certificate of incorporation provides that the number of directors
shall be determined from time to time by the Board of Directors (but shall be no
less than three and no more than fifteen) and that the Board shall be divided
into three classes. On September 1, 1999, Simon Worldwide entered into a
Securities Purchase Agreement with Overseas Toys, L.P., an affiliate of the
Yucaipa Companies ("Yucaipa"), the holder of all of the Company's outstanding
series A senior cumulative participating convertible preferred stock, pursuant
to which Simon Worldwide agreed to fix the size of the Board at seven members,
of which Yucaipa currently has the right to designate three individuals to the
Board.

Pursuant to a Voting Agreement, dated September 1, 1999, among Yucaipa, Mr.
Brady, Mr. Brown, Mr. Shlopak, the Shlopak Foundation, Cyrk International
Foundation and the Eric Stanton Self-Declaration of Revocable Trust, each of
Messrs. Brady, Brown, Shlopak and Stanton have agreed to vote all of the shares
beneficially held by them to elect the three members nominated by Yucaipa. On
November 10, 1999, Ronald W. Burkle, George G. Golleher and Richard Wolpert were
the three Yucaipa nominees elected to the Company's Board, of which Mr. Burkle
became Chairman. Mr. Wolpert resigned from the Board on February 7, 2000.
Thereafter, Yucaipa requested that Erika Paulson be named as its third designee
to the Board and on May 25, 2000 the Board elected Ms. Paulson to fill the
vacancy created by Mr. Wolpert's resignation. On August 24, 2001, Mr. Burkle and
Ms. Paulson resigned from the Board and Yucaipa has not subsequently designated
replacement nominees to the Board. On June 15, 2001, Patrick D. Brady resigned
from the Board.

The following table sets forth the names and ages of the directors, the year in
which each individual was first elected a director and the year his term
expires:

<TABLE>
<CAPTION>
       Name                 Age     Class   Year Term Expires     Director Since
       ----                 ---     -----   -----------------     --------------
<S>                         <C>     <C>     <C>                   <C>
Joseph W. Bartlett          69       I           2003                  1993
Allan I. Brown              62       I           2003                  1999
Joseph Anthony Kouba        55       III         2002                  1997
George G. Golleher          54       II          2004                  1999
</TABLE>

No stockholders meeting to elect directors was held in 2002. In accordance with
Delaware law and the Company's by-laws, Mr. Kouba's term as a director continues
until his successor is elected and qualified.

BUSINESS HISTORY OF DIRECTORS

MR. BARTLETT is engaged in the private practice of law. From 1996 through 2002,
he had been a partner in the law firm of Morrison & Foerster LLP. He was a
partner in the law firm of Mayer, Brown & Platt from July 1991 until March 1996.
From 1969 until November 1990, Mr. Bartlett was a partner of, and from November
1990 until June 1991 he was of counsel to, the law firm of Gaston & Snow. Mr.
Bartlett served as under secretary of the United States Department of Commerce
from 1967 to 1968 and as law clerk to the Chief Justice of the United States in
1960.

MR. BROWN had been the Company's Chief Executive Officer and President from July
2001 until March 2002 when his employment with the Company was terminated. Mr.
Brown remains on the Company's Board of Directors. (See Executive Compensation.)
Prior to July 2001, Mr. Brown served as the Company's Co-Chief Executive Officer
and Co-President since November 1999. Since March 2000, Mr. Brown was
responsible for the global operations of Simon Worldwide's traditional
businesses, including the Company's Simon Marketing, Inc. subsidiary. Since
November of 1975, Mr. Brown had also served as the Chief Executive Officer of
Simon Marketing, Inc. Since 1992, Mr. Brown had also served as President of
Simon Marketing, Inc. Mr. Brown is party to a Voting Agreement with Yucaipa,
Patrick D. Brady, Gregory P. Shlopak, the Shlopak Foundation, Cyrk International
Foundation and the Eric Stanton Self-Declaration of Revocable Trust, pursuant to
which Mr. Brown and each of Messrs. Brady, Shlopak and Stanton have

31

<PAGE>

agreed to vote all of the shares beneficially held by them to elect Yucaipa's
nominees to the Company's Board.

MR. GOLLEHER is a consultant and private investor. Mr. Golleher served as
President and Chief Operating Officer of Fred Meyer, Inc. from March 1998 to
June 1999, and also served as a member of its Board of Directors. Mr. Golleher
served as Chief Executive Officer of Ralphs Grocery Company from January 1996 to
March 1998 and was Vice Chairman from June 1995 to January 1996. Mr. Golleher
serves as Chairman of the Board of American Restaurant Group and also serves on
the Board of Directors of Rite-Aid Corporation.

MR. KOUBA has been, since prior to 1996, a private investor and is engaged in
the business of real estate, hospitality and outdoor advertising. He has been an
attorney and a member of the Bar in California since 1972

The Company does not currently have any executive officers. The Company's
ongoing operations are now being managed by an Executive Committee of the Board
of Directors consisting of Messrs. Golleher and Kouba, in consultation with
outside financial, accounting, legal and other advisors.

ITEM 11. EXECUTIVE COMPENSATION.

The following table sets forth the compensation the Company paid or accrued for
services rendered in 2001, 2000 and 1999, respectively, by its executive
officers.

Summary Compensation Table

<TABLE>
<CAPTION>
                                           Annual Compensation(1)                    Long-Term
                                                                                    Compensation
                                                                                    Securities
     Name and                                                       Other Annual     Underlying         All Other
Principal Position           Year     Salary        Bonus           Compensation      Options         Compensation
------------------           ----     ------        -----           ------------      -------         ------------
<S>                          <C>      <C>           <C>             <C>             <C>               <C>
Allan I. Brown(2)            2001     $750,000      $  500,000            --           167,000        $5,373,053(3)
Chief Executive              2000     $628,846      $  800,000            --                --        $1,213,508
Officer and President        1999     $300,000      $2,850,000            --                --        $  994,428

Patrick D. Brady(4)          2001     $357,704              --            --                --        $3,437,245(5)
Co-Chief Executive           2000     $600,000              --            --                --        $  114,524
Officer and Co-              1999     $346,153      $  500,000            --                --        $  287,114
President

Dominic F. Mammola(6)        2001     $208,268      $  125,000            --                --        $1,748,242(7)
Executive Vice               2000     $300,000      $  250,000            --                --        $  105,241
President and Chief          1999     $250,000      $  250,000            --                --        $   26,443
Financial Officer

Ted L. Axelrod(8)            2001     $185,583      $  125,000            --                --        $1,818,090(9)
Executive Vice               2000     $250,000      $  300,000            --                --        $   41,244
President                    1999     $250,000      $  250,000            --                --        $   16,123
</TABLE>

1.    In accordance with the rules of the Securities and Exchange Commission,
      other compensation in the form of perquisites and other personal benefits
      have been omitted for all of the executive officers, except for Mr. Brown,
      because the aggregate amount of such perquisites and other personal

32

<PAGE>

      benefits constituted less than the lesser of $50,000 or 10% of the total
      annual salary and bonuses for such executive officers for 2001, 2000 and
      1999.

2.    Mr. Brown resigned from his position as Chief Executive Officer and
      President of the Company in March 2002. Mr. Brown remains on the Company's
      Board of Directors. (See Employment and Severance Agreements.)

3.    Represents (1) $3,452,546 in forgiveness of indebtedness of Mr. Brown to
      the Company (of which $2,652,546 was forgiven pursuant to his March 2002
      severance agreement (effective as of December 31, 2001) (2) $5,100
      contributed by the Company to its 401(k) plan on behalf of Mr. Brown, (3)
      $182,283 of other compensation paid directly by the Company to Mr. Brown
      or on his behalf, (4) $273,460 paid by the Company on behalf of Mr. Brown
      for medical, legal, accounting and other Expenses, and (5) $449,664, the
      benefit to Mr. Brown of the payment in 2001 with respect to a split dollar
      life insurance policy, calculated as the present value of an interest free
      loan of the premiums to Mr. Brown over his present actuarial life
      expectancy. (See Insurance Arrangements.) and (6) a $1,010,000 lump sum
      payment made by the Company to Mr. Brown pursuant to his March 2002
      severance agreement (effective as of December 31, 2001).

4.    Mr. Brady resigned from his position as Co-Chief Executive Officer and
      Co-President of the Company and as a member of the Board effective June
      15, 2001.

5.    Represents (1) $3,234,673 in severance payments made to Mr. Brady
      associated with his resignation from the Company in June 2001 (See
      Employment and Severance Agreements), (2) $85,060 in forgiveness of loans
      by the Company to Mr. Brady, (3) $5,100 contributed by the Company to its
      401(k) plan on behalf of Mr. Brady, (4) $3,724 paid by the Company
      associated with an automobile lease, (5) $23,140 in premiums paid by the
      Company with respect to the cash surrender value benefit payable to Mr.
      Brady's estate under certain reverse split-dollar life insurance policies
      (6) $5,548 in premiums paid by the Company for a supplemental disability
      insurance policy, and (7) $80,000, such amount representing the benefit to
      Mr. Brady of the payment by the Company in 2001 of premiums with respect
      to certain split-dollar life insurance policies, calculated as the present
      value of an interest-free loan of the premiums to Mr. Brady over his
      present actuarial life expectancy. (See Insurance Arrangements.)

6.    Mr. Mammola resigned from his position as Executive Vice President and
      Chief Financial Officer of the Company effective June 30, 2001, and
      continued as a consultant to the Company until March 31, 2002.

7.    Represents (1) $1,665,300 in severance payments made to Mr. Mammola
      associated with his resignation from the Company in June 2001 (See
      Employment and Severance Agreements), (2) $5,100 contributed by the
      Company to its 401(k) plan on behalf of Mr. Mammola, (3) $3,640 in
      premiums paid for by the Company for a term life insurance policy for the
      benefit of Mr. Mammola's estate, (4) $28,150 paid by the Company
      associated with an automobile lease and related taxes, (5) $20,610 in
      premiums paid by the Company for a supplemental disability insurance
      policy, and (6) $25,442, such amount representing the benefit to Mr.
      Mammola of the payment by the Company in 2001 of premiums with respect to
      a split-dollar life insurance policy, calculated as the present value of
      an interest-free loan of the premium to Mr. Mammola over his present

33

<PAGE>

      actuarial life expectancy. (See Insurance Arrangements.)

8.    Mr. Axelrod resigned from his position as Executive Vice President of the
      Company effective June 30, 2001.

9.    Represents (1) $1,665,300 in severance payments made to Mr. Axelrod
      associated with his resignation from the Company in June 2001 (See
      Employment and Severance Agreements), (2) $100,000 in forgiveness of loans
      by the Company to Mr. Axelrod, (3) $5,100 contributed by the Company to
      its 401(k) plan on behalf of Mr. Axelrod, (4) $31,699 paid by the Company
      associated with an automobile lease and related taxes, (5) $1,037 in
      premiums paid by the Company for a supplemental disability insurance
      policy, and (6) $14,954, such amount representing the benefit to Mr.
      Axelrod of the payment by the Company in 2001 of premiums with respect to
      a split-dollar life insurance policy, calculated as the present value of
      an interest-free loan of the premium to Mr. Axelrod over his present
      actuarial life expectancy. (See Insurance Arrangements.)

     OPTION GRANTS IN THE LAST FISCAL YEAR

The following table sets forth certain information with respect to stock options
granted to each of the Company's executive officers during 2001.

<TABLE>
<CAPTION>
                                                                                                              Potential Realized
                                                                                                               Value at Assumed
                                                                                                                Annual Rates of
                                                                                                                  Stock Price
                                                                                                               Appreciation for
                                                 Individual Grants                                                Option Term 3
                    ---------------------------------------------------------------------------------         ------------------
                        Number of          Percent of Total
                       Securities         Options Granted to
                       Underlying         Employees in Fiscal
                    Options Granted 1            Year           Exercise Price 2      Expiration Date 4        5%        10%
                    -----------------            ----           ----------------      -----------------    --------    --------
<S>                 <C>                   <C>                   <C>                   <C>                  <C>         <C>
Allan I. Brown           167,000                 100%                $0.20               4/10/2003         $344,020    $380,760
</TABLE>

1.    These non-qualified stock options became exercisable in December 2001.

2.    The exercise price per share of each option was below the fair market
      value of the Company's common stock on the date of grant and, as a result,
      the Company recorded compensation expense of $459,250 in 2001.

3.    The potential realizable value is calculated based on the term of the
      option (two years) at its date of grant. It is calculated by assuming that
      the stock price on the date of grant appreciates at the indicated annual
      rate compounded annually for the entire term of the option and that the
      option is exercised and sold on the last day of its term for the
      appreciated stock price. However, the optionee will not actually realize
      any benefit from the option unless the market value of the Company's stock
      price in fact increases over the option price.

34

<PAGE>

4. The original expiration date of these options is April 10, 2003 or 180 days
after the termination of the employee. Since the employment of Allan Brown
terminated in March 2002, these options expired unexercised in September 2002.

AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

The following table sets forth for each of the Company's executive officers
certain information regarding exercises of stock options during 2001 and stock
options held at the end of 2001.

<TABLE>
<CAPTION>
                                                               Number of Securities          Value of Unexercised
                                  Shares                            Underlying                   In-the-Money
                                 Acquired                      Unexercised Options                Options at
                                    on           Value          at Fiscal Year-End             Fiscal Year-End(1)
     Name                        Exercise      Realized     Exercisable/Unexercisable      Exercisable/Unexercisable
     ----                        --------      --------     -------------------------      -------------------------
<S>                              <C>           <C>          <C>                            <C>
Allan I. Brown                       --            --                 167,000/--                     --/--
Patrick D. Brady(2)                  --            --                      --/--                     --/--
Dominic F. Mammola                   --            --                  67,312/--                     --/--
Ted L. Axelrod                       --            --                  59,786/--                     --/--
</TABLE>

1.    This "value" is the difference between the market price of the Company's
      common stock subject to the options on December 31, 2001 ($0.16 per share)
      and the option exercise (purchase) price, assuming the options were
      exercised and the shares sold on that date.

2.    In connection with his resignation from the Company in June 2001, Mr.
      Brady forfeited all of his options.

INSURANCE ARRANGEMENTS

The Company provided Mr. Brady, and provided Mr. Brown, split-dollar life
insurance benefits. The Company has also agreed to pay the premiums for two
whole life policies on the life of Mr. Brady. The Company has certain rights to
borrow against these policies insuring the life of Mr. Brady and the right to
receive an amount equal to all premiums paid by the Company not later than upon
the death of the insured individual. The irrevocable trusts established by Mr.
Brady and Mr. Brown which own the foregoing policies are entitled to borrow
against these policies, subject to certain limitations. The trusts are also
entitled to receive the death benefits under the policies net of the cumulative
premiums paid by the Company. The aggregate annual premium amount in 2001 in
respect of the split dollar policies insuring the lives of Mr. Brady and Mr.
Brown are $80,000 and $449,664, respectively. Mr. Brown's life insurance policy
and the Company's obligation to continue to fund it was cancelled as part of his
Termination, Severance and General Release Agreement.

The Company also provides Mr. Brady with a reverse split-dollar life insurance
policy pursuant to which the Company pays the premiums on universal life
insurance policies on the life of Mr. Brady. Upon the death of Mr. Brady,
assuming the policies are still in force, the Company is entitled to receive the
death benefit ($4,250,000 on the life) and Mr. Brady's estate is entitled to
receive the cash surrender value of the policy. Simon Worldwide is obligated to
pay no more than $80,000 per year in annual premiums under his split-dollar
insurance policies under its severance agreement with Mr. Brady.

In accordance with their respective severance agreements, the Company also
provides split-dollar life insurance benefits to Messrs. Axelrod and Mammola,
and have agreed to pay the premiums for a whole life policy on the life of Mr.
Mammola through June 30, 2003. See Employment and Severance Agreements. The
Company has certain rights to borrow against these policies and the right to
receive upon the death of the insured executive an amount equal to the lesser of
(1) the cash surrender value of the policy and (2) the

35

<PAGE>

aggregate amount of premiums paid by the Company at such date. The aggregate
annual premium amount payable by the Company for the split-dollar policies
insuring the lives of Messrs. Axelrod and Mammola is $14,954 and $25,442,
respectively.

EMPLOYMENT AND SEVERANCE AGREEMENTS

In March 2002, pursuant to negotiations that began in the fourth quarter of
2001, the Company entered into a Termination, Severance and General Release
Agreement ("Agreement") with Allan Brown. Pursuant to this Agreement, Mr.
Brown's employment with the Company terminated in March 2002 (Mr. Brown remains
on the Company's Board of Directors) and substantially all other agreements,
obligations and rights existing between Mr. Brown and the Company were
terminated, including Mr. Brown's Employment Agreement dated September 1, 1999,
as amended, the Company's obligation to fund his split-dollar life insurance
policy and his retention agreement dated August 29, 2001. (For additional
information related to Mr. Brown's retention agreement, see the Company's 2001
third quarter Form 10-Q.) Pursuant to this Agreement, the Company made a
lump-sum payment to Mr. Brown of $1,010,000, Mr. Brown agreed to transfer to the
Company 52,904 shares of the Company's common stock in payment of Mr. Brown's
non-recourse loan for the principal amount of $575,000, and the Company
cancelled $2,652,546 of indebtedness of Mr. Brown to the Company. The Company
received a full release from Mr. Brown in connection with this Agreement, and
the Company provided Mr. Brown with a full release. Additionally, the Agreement
called for Mr. Brown to provide consulting services to the Company for a period
of six months after Mr. Brown's employment with the Company terminated in
exchange for a fee of $46,666 per month, plus specified expenses. The agreement
also restricts Mr. Brown from certain future business endeavors. See notes to
consolidated financial statements and Executive Compensation.

The Company entered into a severance agreement with Mr. Brady. Pursuant to this
agreement, Mr. Brady's employment with the Company terminated effective June 15,
2001, he received two lump-sum payments in the amounts of $3,200,000 and
$34,673, respectively, and $85,060 of Mr. Brady's indebtedness to the Company
was forgiven. The Company also agreed to continue to make payments to maintain
certain life insurance coverage for Mr. Brady until 2009, and to maintain
certain life, medical and dental coverage for Mr. Brady through November 2002.
The Company received a general release from Mr. Brady in connection with his
separation agreement, and the Company provided Mr. Brady with a general release,
subject to limited exceptions.

The Company entered into severance agreements with Messrs. Axelrod and Mammola
in November 1998. Pursuant to these agreements, Messrs. Axelrod and Mammola
terminated their employment with the Company and each received a lump-sum
payment of $1,665,300. Under these agreements, the Company is required to
continue to provide certain life, medical, dental, and disability insurance
coverage to them until June 2003. In addition, pursuant to these agreements, all
of their respective stock options became immediately exercisable. The Company
received a full release from Messrs. Axelrod and Mammola in connection with the
payment of their severance payments. Mr. Axelrod has agreed to escrow a portion
of his severance payment. The Company may use the escrow to satisfy certain
federal tax obligations, if any, imposed upon the Company as a result of Mr.
Axelrod's severance payment.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Decisions concerning executive compensation are made by the Compensation
Committee of the Board, which during 2001 consisted of Messrs. Bartlett, Burkle
(until his resignation in August 2001) and Kouba. Neither Messrs. Bartlett,
Burkle nor Kouba is or was an officer or employee of the Company or any of its
subsidiaries. In 2001, none of the Company's executive officers served as an
executive officer, or on the Board of Directors, of any entity of which Messrs.
Bartlett, Burkle or Kouba also served as an executive officer or as a member of
its Board of Directors.

36

<PAGE>

DIRECTORS' AND OFFICERS' COMPENSATION

Directors who are also employees (or are affiliated with Yucaipa) receive no
compensation for their services on the Board. Directors who are not employees
(and are not affiliated with Yucaipa) are reimbursed for reasonable
out-of-pocket expenses incurred in attending any meetings. In addition, such
non-employee directors (who are not affiliated with Yucaipa) are entitled to
receive an annual payment of $25,000, a payment of $2,000 for each Board of
Directors or Committee meeting that such non-employee director attends in
person, and 5,000 options each year. Following August 24, 2001, the date upon
which Mr. Burkle and Ms. Paulson resigned from the Board, no Board members were
affiliates of Yucaipa. As of March 18, 2002, the date of termination of Mr.
Brown's employment, no Board members were employees of the Company.

On August 28, 2001, following the resignation of two Yucaipa Board members,
including the Chairman, the Chief Financial Officer, the Controller, and certain
other officers, the Company entered into retention letter agreements with each
of Joseph Bartlett, George Golleher and Anthony Kouba, the non-management
members of the Board, pursuant to which the Company paid each of them a
retention fee of $150,000 in exchange for their agreement to serve as a director
of the Company for at least six months. If a director resigned before the end of
the six-month period, the director would have been required to refund to the
Company the pro rata portion of the retention fee equal to the percentage of the
six-month period not served. Additionally, the Company agreed to compensate
these directors at an hourly rate of $750 for services outside of Board and
committee meetings (for which they are paid $2,000 per meeting in accordance
with existing Company policy).

In 2001, payments totaling $276,291, $462,500 and $479,671 were made to Messrs.
Bartlett, Golleher and Kouba, respectively.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following tables set forth certain information regarding beneficial
ownership of the Company's common stock at December 31, 2001. Except as
otherwise indicated in the footnotes, the Company believes that the beneficial
owners of its common stock listed below, based on information furnished by such
owners, have sole investment and voting power with respect to the shares of the
Company's common stock shown as beneficially owned by them.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth each person known by the Company (other than
directors and executive officers) to own beneficially 5% or more of the
outstanding common stock.

<TABLE>
<CAPTION>
                                                      Number of Shares
  Name And Address                                    Of Common Stock      Percentage Of
Of Beneficial Owner (1)                              Beneficially Owned      Class (2)
-----------------------                              -----------------------------------
<S>                                                  <C>                   <C>
Yucaipa and affiliates:
Overseas Toys, L.P.(3)
OA3, LLC(3)
Multi-Accounts, LLC(3)
Ronald W. Burkle(3)                                      4,883,395            22.7%

Dimensional Fund Advisors, Inc.(4)
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401                                   1,174,500            7.05%
</TABLE>

37

<PAGE>

<TABLE>
<S>                                                      <C>                  <C>
Gotham International Advisors, L.L.C.(5)
c/o Goldman Sachs (Cayman) Trust, Limited,
Harbor Centre, 2nd Floor, P.O. Box 896
George Town, Grand Cayman
Cayman Islands, British West Indies                      1,250,909            7.5%

H. Ty Warner(6)
P.O. Box 5377
Oak Brook, IL 60522                                      1,075,610            6.4%

Eric Stanton(7)
39 Gloucester Road
6th Floor
Wanchai
Hong Kong                                                1,041,386            6.3%

Gregory P. Shlopak(8)
63 Main Street
Gloucester, MA 01930                                     1,064,900            6.4%
</TABLE>

1.    The number of shares beneficially owned by each stockholder is determined
      in accordance with the rules of the Securities and Exchange Commission and
      is not necessarily indicative of beneficial ownership for any other
      purpose. Under these rules, beneficial ownership includes those shares of
      common stock that the stockholder has sole or shared voting or investment
      power and any shares of common stock that the stockholder has a right to
      acquire within sixty (60) days after December 31, 2001 through the
      exercise of any option, warrant or other right (including the conversion
      of the series A preferred stock). The percentage ownership of the
      outstanding common stock, however, is based on the assumption, expressly
      required by the rules of the Securities and Exchange Commission, that only
      the person or entity whose ownership is being reported has converted
      options, warrants or other rights into shares of common stock (including
      the conversion of the series A preferred stock).

2.    Based on 16,653,193 shares of common stock outstanding as of December 31,
      2001.

3.    Represents approximately 3,216,728 shares of common stock issuable upon
      conversion of 26,538.01 shares of outstanding series A preferred stock and
      1,666,667 shares of common stock issuable upon conversion of 15,000 shares
      of series A preferred stock issuable pursuant to a warrant which is
      currently exercisable. Overseas Toys, L.P. is an affiliate of Yucaipa and
      is the record holder of all of the outstanding shares of series A
      preferred stock and the warrant to acquire the shares of series A
      preferred stock. Multi-Accounts, LLC is the sole general partner of
      Overseas Toys, L.P., and OA3, LLC is the sole managing member of
      Multi-Accounts, LLC. Ronald W. Burkle is the sole managing member of OA3,
      LLC. The address of each of Overseas Toys, L.P., Multi-Accounts, LLC, OA3,
      LLC, and Ronald W. Burkle is 9130 West Sunset Boulevard, Los Angeles,
      California 90069.

      Overseas Toys, L.P. is party to a Voting Agreement, dated September 1,
      1999, with Patrick D. Brady, Allan I. Brown, Gregory P. Shlopak, the
      Shlopak Foundation, Cyrk International Foundation and the Eric Stanton
      Self-Declaration of Revocable Trust, pursuant to which Overseas Toys,
      L.P., Multi-Accounts, LLC, OA3, LLC, and Ronald W. Burkle may be deemed to

38

<PAGE>

      have shared voting power over 9,475,104 shares for the purpose of election
      of certain nominees of Yucaipa to the Company's Board, and may be deemed
      to be members of a "group" for the purposes of Section 13(d)(3) of the
      Securities Exchange Act of 1934, as amended. Overseas Toys, L.P.,
      Multi-Accounts, LLC, OA3, LLC and Ronald W. Burkle disclaim beneficial
      ownership of any shares, except for the shares as to which they possess
      sole dispositive and voting power.

4.    The information concerning this holder is based solely on information
      contained in filings it has made with the Securities and Exchange
      Commission pursuant to Sections 13(d) and 13(g) of the Securities Exchange
      Act of 1934, as amended. Dimensional Fund Advisors Inc., or Dimensional,
      is a registered investment advisor for four investment companies and also
      serves as investment manager to certain other investment vehicles. In its
      roles as investment advisor and investment manager, Dimensional has
      indicated that it has the sole power to vote, or to direct the vote of,
      and the sole power to dispose, or direct the disposition of, all of the
      shares. Dimensional disclaims beneficial ownership of all of the shares.

5.    The information concerning this holder is based solely on information
      contained in filings it has made with the Securities and Exchange
      Commission pursuant to Sections 13(d) and 13(g) of the Securities Exchange
      Act of 1934, as amended. Gotham International Advisors, L.L.C., or Gotham,
      serves as investment manager to Gotham Partners International, Ltd., or
      International, with respect to the shares of common stock directly owned
      by International. In its role as investment manager, Gotham has indicated
      that it has the sole power to vote, or to direct the vote of, and the sole
      power to dispose, or direct the disposition of, all of the shares. Gotham
      disclaims beneficial ownership of all of the shares.

6.    Includes 100,000 shares issuable pursuant to a warrant which is currently
      exercisable.

7.    Eric Stanton, as trustee of the Eric Stanton Self-Declaration of Revocable
      Trust, has the sole power to vote, or to direct the vote of, and the sole
      power to dispose, or to direct the disposition of, 1,041,386 shares. Mr.
      Stanton, as trustee of the Eric Stanton Self-Declaration of Revocable
      Trust, is a party to a Voting Agreement, dated September 1, 1999, with
      Yucaipa and Messrs. Brown, Brady and Shlopak, and the Shlopak Foundation
      Trust and the Cyrk International Foundation Trust pursuant to which
      Messrs. Brady, Brown, Shlopak and Stanton and the trusts have agreed to
      vote in favor of certain nominees of Yucaipa to the Company's Board. Mr.
      Stanton expressly disclaims beneficial ownership of any shares except for
      the 1,041,386 shares as to which he possesses sole voting and dispositive
      power.

8.    The information concerning this holder is based solely on information
      contained in filings Mr. Shlopak has made with the Securities and Exchange
      Commission pursuant to Sections 13(d) and 13(g) of the Securities Exchange
      Act of 1934, as amended. Includes 84,401 shares held by a private
      charitable foundation as to which Mr. Shlopak, as trustee, has sole voting
      and dispositive power. Mr. Shlopak is a party to a Voting Agreement, dated
      September 1, 1999, with Yucaipa, Patrick D. Brady, Allan I. Brown, the
      Shlopak Foundation, Cyrk International Foundation and the Eric Stanton
      Self-Declaration of Revocable Trust, pursuant to which Messrs. Brady,
      Brown, Shlopak and Stanton and the trusts have agreed to vote in favor of

39

<PAGE>

          certain nominees of Yucaipa to the Company's Board. Mr. Shlopak
          expressly disclaims beneficial ownership of any shares except for the
          1,064,900 shares as to which he possesses sole voting and dispositive
          power.

SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth information at December 31, 2001 regarding the
beneficial ownership of the Company's common stock (including common stock
issuable upon the exercise of stock options exercisable within 60 days of
December 31, 2001) by each director and each executive officer named in the
Summary Compensation Table, and by all of the Company's directors and executive
officers as a group.

<TABLE>
<CAPTION>
                                 Number of Shares
   Name And Address              Of Common Stock        Percentage Of
Of Beneficial Owner (1)         Beneficially Owned        Class (2)
----------------------          -------------------------------------
<S>                             <C>                     <C>
Patrick D. Brady(3)                      1,277,822          7.7%

Allan I. Brown(4)                        1,280,023          7.7%

Joseph W. Bartlett(5)                       72,500            *

Dominic F. Mammola(6)                       67,312            *

Ted L. Axelrod(7)                           59,786            *

Joseph Anthony Kouba(8)                     32,500            *

George G. Golleher(9)                       17,500            *

All directors and
executive officers as a
group (seven persons)(10)                2,807,443         16.9%
</TABLE>

*       Represents less than 1%

   1    The address of each of the directors and executive officers is c/o
        Simon Worldwide, Inc., 1888 Century Park East, Suite 222, Los Angeles,
        California, 90067. The number of shares beneficially owned by each
        stockholder is determined in accordance with the rules of the
        Securities and Exchange Commission and is not necessarily indicative
        of beneficial ownership for any other purpose. Under these rules,
        beneficial ownership includes those shares of common stock that the
        stockholder has sole or shared voting or investment power and any
        shares of common stock that the stockholder has a right to acquire
        within sixty (60) days after December 31, 2001 through the exercise of
        any option, warrant or other right (including the conversion of the
        series A preferred stock). The percentage ownership of the outstanding
        common stock, however, is based on the assumption, expressly required
        by the rules of the Securities and Exchange Commission, that only the
        person or entity whose ownership is being reported has converted
        options, warrants or other rights (including the conversion of the
        series A preferred stock) into shares of common stock.

   2    Based on 16,653,193 shares of common stock outstanding as of December
        31, 2001.

40

<PAGE>

     3    Includes 90,408 shares held by a private charitable foundation as to
          which Mr. Brady, as trustee, has sole voting and dispositive power.
          Mr. Brady is party to a Voting Agreement, dated September 1, 1999,
          with Yucaipa, Mr. Brown, Mr. Shlopak, the Shlopak Foundation, Cyrk
          International Foundation and the Eric Stanton Self-Declaration of
          Revocable Trust, pursuant to which Messrs. Brown, Shlopak, Stanton,
          Yucaipa and the trusts have agreed to vote in favor of certain
          nominees of Yucaipa to the Company's Board. Mr. Brady expressly
          disclaims beneficial ownership of any shares except for 1,277,822
          shares as to which he possesses sole dispositive and voting power.

     4    Includes 167,000 shares issuable pursuant to stock options which
          became exercisable in December 2001. Mr. Brown has the sole power to
          vote, or to direct the vote of, and the sole power to dispose, or to
          direct the disposition of, 1,280,023 shares. Mr. Brown is party to a
          Voting Agreement, dated September 1, 1999, with Yucaipa, Mr. Brady,
          Mr. Shlopak, the Shlopak Foundation, Cyrk International Foundation and
          the Eric Stanton Self-Declaration of Revocable Trust, pursuant to
          which Messrs. Brady, Brown, Shlopak and Stanton and the trusts have
          agreed to vote in favor of certain nominees of Yucaipa to the
          Company's Board. Mr. Brown expressly disclaims beneficial ownership of
          any shares except for the 1,280,023 shares as to which he possesses
          sole voting and dispositive power.

     5    The 72,500 shares are issuable pursuant to stock options exercisable
          within 60 days of December 31, 2001.

     6    The 67,312 shares are issuable pursuant to stock options exercisable
          within 60 days of December 31, 2001.

     7    The 59,786 shares are issuable pursuant to stock options exercisable
          within 60 days of December 31, 2001.

     8    The 32,500 shares are issuable pursuant to stock options exercisable
          within 60 days of December 31, 2001.

     9    Includes 2,500 shares issuable pursuant to stock options exercisable
          within 60 days of December 31, 2001.

     10   Includes (1) 90,408 shares held by a private charitable foundation as
          to which Mr. Brady, as trustee, has sole voting and dispositive power
          and (2) a total of 234,598 shares issuable pursuant to stock options
          exercisable within 60 days of December 31, 2001.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The following sets forth certain transactions, or series of similar
transactions, between the Company and any director, executive officer or
beneficial owner of more than 5% of the Company's outstanding shares of common
stock or series A preferred stock.

REAL ESTATE MATTERS

The Company leased a warehouse and distribution facility in Danvers,
Massachusetts under the terms of a lease agreement from a limited liability
company which was owned by Messrs. Brady and Shlopak. The lease was triple net
and the aggregate annual rent under the lease was approximately $462,000.
Pursuant to a Purchase Agreement dated February 15, 2001, the Company sold its
Corporate Promotions Group

41

<PAGE>

business. Pursuant to the terms of the purchase agreement, the buyer assumed the
lease for the facility in Danvers, however, the Company remained liable under
the lease to the extent that the buyer did not perform its obligations under the
lease. Pursuant to an Agreement entered into in March 2002, among and between
the Company, the buyer and the landlord, the lease terminated effective June 30,
2002, along with any and all obligations of the Company under the lease.

VC Experts, Inc., an entity affiliated with Joseph Bartlett, a director of the
Company, is indebted to the Company in the amount of $20,125 for space it
sub-leased in the Company's New York office for the period September 2001
through January 2002.

TRANSACTIONS WITH CERTAIN STOCKHOLDERS

Pursuant to a Management Agreement with The Yucaipa Companies L.L.C.
("Yucaipa"), Yucaipa provided the Company with management and financial
consultation services in exchange for an annual fee of $500,000 per year. In
addition, under the Management Agreement, the Company agreed to pay Yucaipa a
consulting fee equal to one percent (1%) of the total purchase price for any
acquisition or disposition transaction by the Company in which Yucaipa provided
consultation to the Company. The Company agreed to reimburse Yucaipa up to
$500,000 per year for all of its reasonable out-of-pocket expenses incurred in
connection with the performance of its duties under the Management Agreement.
The term of the Management Agreement was for five years, with automatic renewals
for successive five year terms at the end of each year unless either the Company
or Yucaipa elect not to renew and upon termination, a payment of $2.5 million
became due. No management fee had been paid after November 2001. On October 17,
2002, the Management Agreement between the Company and Yucaipa was terminated by
agreement between the parties and a payment was made by the Company to Yucaipa
of $1.5 million and each party was released from further obligations thereunder.
In 1999 and 2000, in collaboration with Ty Inc., the world's largest
manufacturer and marketer of plush toys (sold under the name Beanie Babies(R)),
the Company created, developed and marketed certain licensed Beanie Babies
products to retailers. Effective January 1, 2000 the Company became a strategic
marketing agent for Ty Inc. and provided Ty Inc. with advisory, design,
development and/or creative services on a project by project basis. Ty Warner
beneficially owns more than 5% of the Company's shares. In 2001, net sales of
Beanie Babies related products by the Company were approximately $1,970,000.

Pursuant to a consulting agreement among Eric Stanton, Simon Worldwide and Simon
Marketing, Mr. Stanton provided consulting services to Simon Marketing in 2001
in exchange for $350,000. In the first quarter of 2002, the Company entered into
an Amended Consulting Agreement and General Release ("Agreement") with Mr.
Stanton. Pursuant to the terms of the Agreement, Mr. Stanton's consulting
relationship with the Company terminated on June 30, 2002. Additionally, the
Company received a full release from Mr. Stanton in connection with this
Agreement, and the Company provided Mr. Stanton with a full release. Mr. Stanton
is the beneficial owner of more than 5% of the Company's shares.

Mr. Stanton's wife, Vivian Foo, was employed by the Company's Simon Marketing
(Hong Kong) Limited subsidiary until the first quarter of 2002. In the first
quarter of 2002, the Company entered into a Settlement and General Release
Agreement ("Agreement") with Ms. Foo. Pursuant to the terms of the Agreement,
Ms. Foo's employment with the Company terminated in March 2002 and all other
agreements, obligations and rights existing between Ms. Foo and the Company
(including the agreement described in the next paragraph) were terminated in
exchange for a lump-sum payment of approximately $759,000. Additionally, the
Company received a full release from Ms. Foo in connection with this Agreement,
and the Company provided Ms. Foo with a full release.

The Company entered into an agreement with Ms. Foo in connection with the
Company's 1997 acquisition of Simon Marketing. Pursuant to this agreement, Ms.
Foo had received annual payments of cash and the Company's common stock (based
on the average closing price of the Company's common stock for the 20 trading
days immediately preceding each June 9) in the aggregate amount of $600,000.
Accordingly, the Company issued 113,895 of its shares of common stock to Ms. Foo
in 2001 as the common stock portion of such payment. In 2001, Ms. Foo's annual
base salary and bonus was $1,148,383 in the aggregate. In

42

<PAGE>

addition, pursuant to Ms. Foo's agreement, she was entitled to certain employee
benefits in connection with her expatriate status. In 2001, these benefits had
an aggregate value of $490,215.

INDEBTEDNESS OF MANAGEMENT

During fiscal 2001, Patrick D. Brady, the Company's former Co-Chief Executive
Officer and Co-President, was indebted to the Company for the principal amount
of $85,060. Mr. Brady incurred this sum of indebtedness because of advances made
to him by the Company. His largest indebtedness at any time during fiscal 2001
was $85,060. The rate of interest charged on the indebtedness is 5.5%. Pursuant
to Mr. Brady's severance agreement, the indebtedness was forgiven. See
Employment and Severance Agreements.

During fiscal 2001, Allan I. Brown, the Company's then Chief Executive Officer
and President, was indebted to the Company under three promissory notes and
pledge agreements for the principal amount of $575,000, $1,000,000 and
$1,000,000, respectively. Mr. Brown incurred these sums of indebtedness because
of advances made to him by the Company. The $575,000, $1,000,000 and $1,000,000
indebtedness accrued interest at a rate of 7%, 6.6% and 6.3% per annum,
respectively. Pursuant to an agreement entered into in March 2002 between the
Company and Mr. Brown, Mr. Brown's employment with the Company terminated. In
connection with such termination, Mr. Brown relinquished rights under his
employment contract and other agreements and certain other rights and his
outstanding indebtedness to the Company was forgiven or, in the case of his
non-recourse loan, was satisfied in full through the delivery of 52,904 shares
of the Company's common stock previously pledged to the Company by Mr. Brown.
See Employment and Severance Agreements. The largest principal amount of
indebtedness of Mr. Brown to the Company during fiscal 2001 was $2,575,000.

During fiscal 2001, Ted L. Axelrod, a former Executive Vice President, was
indebted to the Company for the principal amount of $100,000. Mr. Axelrod
incurred this sum of indebtedness because of an advance made to him by the
Company. His largest aggregate amount of indebtedness outstanding at any time
during fiscal 2001 was $100,000. The rate of interest charged on the
indebtedness was the federal statutory rate. Pursuant to Mr. Axelrod's severance
agreement and in consideration of certain mutual releases and settlements, the
indebtedness was forgiven.

43

<PAGE>

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

     (a)  DOCUMENTS FILED AS PART OF THIS REPORT.

          1.   FINANCIAL STATEMENTS:

               Consolidated Balance Sheets as of December 31, 2001 and 2000

               Consolidated Statements of Operations for the years ended
               December 31, 2001, 2000 and 1999

               Consolidated Statements of Stockholders' (Deficit) Equity for the
               years ended December 31, 2001, 2000 and 1999

               Consolidated Statements of Cash Flows for the years ended
               December 31, 2001, 2000 and 1999

               Notes to Consolidated Financial Statements

          2.   FINANCIAL STATEMENT SCHEDULES FOR THE FISCAL YEARS ENDED DECEMBER
               31, 2001, 2000 AND 1999:

               Schedule II: Valuation and Qualifying Accounts.

               All other schedules for which provision is made in the applicable
               accounting regulations of the Securities and Exchange Commission
               are not required under the related instructions or are
               inapplicable, and therefore have been omitted.

3.   EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO.                            DESCRIPTION
-----------                            -----------
<S>                   <C>
    2.1 (9)           Securities Purchase Agreement dated September 1,
                      1999, between the Registrant and Overseas Toys, L.P.

    2.2 (12)          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 (16)          March 12, 2002 Letter Agreement between Cyrk and
                      Simon, as amended by Letter Agreement dated as of
                      March 22, 2002

    2.4 (16)          Mutual Release Agreement between Cyrk and Simon

    2.5               Letter Agreement Between Cyrk and Simon, dated
                      December 20,2002, filed herewith
</TABLE>

44

<PAGE>

<TABLE>
<S>                   <C>
    3.1 (3)           Restated Certificate of Incorporation of the
                      Registrant

    3.2 (1)           Amended and Restated By-laws of the Registrant

    3.3 (10)          Certificate of Designation for Series A Senior
                      Cumulative Participating Convertible Preferred Stock

    4.1 (1)           Specimen certificate representing Common Stock

    10.1 (2)(3)       1993 Omnibus Stock Plan, as amended

    10.2 (2)(4)       Life Insurance Agreement dated as of November 15,
                      1994 by and between the Registrant and Patrick D.
                      Brady as Trustee under a declaration of trust dated
                      November 7, 1994 between Gregory P. Shlopak and
                      Patrick D. Brady, Trustee, entitled "The Shlopak
                      Family 1994 Irrevocable Insurance Trust"

    10.2.1 (2)(4)     Assignments of Life Insurance policies as Collateral,
                      each dated November 15, 1994

    10.3 (2)(4)       Life Insurance Agreement dated as of November 15,
                      1994 by and between the Registrant and Patrick D.
                      Brady as Trustee under a declaration of trust dated
                      November 7, 1994 between Gregory P. Shlopak and
                      Patrick D. Brady, Trustee, entitled "The Gregory P.
                      Shlopak 1994 Irrevocable Insurance Trust"

    10.3.1 (2)(4)     Assignments of Life Insurance policies as Collateral,
                      each dated November 15, 1994

    10.4 (2)(4)       Life Insurance Agreement dated as of November 15,
                      1994 by and between the Registrant and Walter E.
                      Moxham, Jr. as Trustee under a declaration of trust
                      dated November 7, 1994 between Patrick D. Brady and
                      Walter E. Moxham, Jr., Trustee, entitled "The Patrick
                      D. Brady 1994 Irrevocable Insurance Trust"

    10.4.1 (2)(4)     Assignments of Life Insurance policies as Collateral,
                      each dated November 15, 1994

    10.5 (2)(5)       1997 Acquisition Stock Plan

    10.6 (6)          Securities Purchase Agreement dated February 12, 1998
                      by and between the Company and Ty Warner

    10.7 (7)          Severance Agreement between the Company and Gregory
                      P. Shlopak

    10.8 (2)(8)       Severance Agreement between the Company and Ted L.
                      Axelrod dated November 20, 1998

    10.9 (2)(8)       Severance Agreement between the Company and Dominic
                      F. Mammola dated November 20, 1998

    10.9.1 (2)(8)     Amendment No. 1 to Severance Agreement between the
                      Company and Dominic F. Mammola dated March 29, 1999
</TABLE>

45

<PAGE>

<TABLE>
<S>                   <C>
    10.10 (10)        Registration Rights Agreement between the Company and
                      Overseas Toys, L.P.

    10.11 (10)        Management Agreement between the Company and The
                      Yucaipa Companies

    10.12 (2)(9)      Employment Agreement between the Company and Allan
                      Brown, dated September 1, 1999

    10.13 (2)(9)      Employment Agreement between the Company and Patrick
                      Brady, dated September 1, 1999

    10.14 (10)        Lease agreement dated as of July 29, 1999, between
                      TIAA Realty, Inc. and the Company

    10.15 (2)(10)     Life Insurance Agreement dated as of September 29,
                      1997 by and between the Company and Frederic N.
                      Gaines, Trustee of the Allan I. Brown Insurance
                      Trust, under Declaration of Trust dated September 29,
                      1997

    10.16 (2)(11)     Promissory Note and Pledge Agreement by Allan Brown
                      in favor of the Company dated July 10, 2000

    10.17 (2)(13)     Promissory Note and Pledge Agreement by Allan Brown
                      in favor of the Company dated October 18, 2000

    10.18 (12)        Subordinated Promissory Note by Rockridge Partners,
                      Inc. in favor of the Company dated February 15, 2001

    10.19 (14)        Credit and Security Agreement dated as of June 6,
                      2001 and entered into by and between the Company and
                      City National Bank

    10.20 (15)        Retention and Amendment Agreement dated as of August
                      29, 2001 between the Company and Allan I. Brown

    10.21 (15)        Form of Retention Agreement dated as of August 28,
                      2001 between the Company and each of George Golleher,
                      Anthony Kouba and Joseph Bartlett

    10.22 (16)        Termination, Severance and General Release Agreement
                      between the Company and Allan Brown, dated March 18,
                      2002

    10.23 (16)        Amended Consulting Agreement and General Release
                      between the Company and Eric Stanton, dated March 1,
                      2002

    10.24 (16)        Settlement and General Release Agreement between the
                      Company and Vivian Foo, dated March 15, 2002

    10.25 (16)        Indemnification Trust Agreement between the Company
                      and Development Specialists, Inc. as Trustee, dated
                      March 1, 2002
</TABLE>

46

<PAGE>

<TABLE>
<S>                   <C>
    10.26 (16)        Promissory Note and Pledge Agreement by Allan Brown
                      in favor of the Company, dated June 9, 1997

    10.27             Letter Agreement, dated October 9, 2002, to terminate
                      and settle the Management Agreement between the
                      Company and Yucaipa, filed herewith

    21.1 (16)         List of Subsidiaries

    99.1              Amended Cautionary Statement for Purposes of the
                      "Safe Harbor" Provisions of the Private Securities
                      Litigation Reform Act of 1995, filed herewith

    99.2 (2)(9)       Termination Agreement among the Company, Patrick
                      Brady, Allan Brown, Gregory Shlopak, Eric Stanton,
                      and Eric Stanton Self-Declaration of Revocable Trust

    99.3              Certification Pursuant to 18 U.S.C. Section 1350, as
                      adopted pursuant to section 906 of the Sarbanes-Oxley
                      Act of 2002, filed herewith
</TABLE>

-----------------
(1)  Filed as an exhibit to the Registrant's Registration Statement on Form S-1
     (Registration No. 33-63118) or an amendment thereto and incorporated herein
     by reference.

(2)  Management contract or compensatory plan or arrangement.

(3)  Filed as an exhibit to the Annual Report on Form 10-K for the year ended
     December 31, 1994 and incorporated herein by reference.

(4)  Filed as an exhibit to the Registrant's Registration Statement on Form 10-Q
     dated March 31, 1995 and incorporated herein by reference.

(5)  Filed as an exhibit to the Registrant's Registration Statement on Form S-8
     (Registration No. 333-45655) and incorporated herein by reference.

(6)  Filed as an exhibit to the Annual Report on Form 10-K for the year ended
     December 31, 1997 and incorporated herein by reference.

(7)  Filed as an exhibit to the Registrant's Report on Form 8-K dated December
     31, 1998 and incorporated herein by reference.

(8)  Filed as an exhibit to the Annual Report on Form 10-K for the year ended
     December 31, 1998 and incorporated herein by reference.

(9)  Filed as an exhibit to the Registrant's Report on Form 8-K dated September
     1, 1999 and incorporated herein by reference.

(10) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
     December 31, 1999 and incorporated herein by reference.

(11) Filed as an exhibit to the Registrant's Registration Statement on Form 10-Q
     dated September 30, 2000 and incorporated herein by reference.

(12) Filed as an exhibit to the Registrant's Report on Form 8-K dated February
     15, 2001 and incorporated herein by reference.

47

<PAGE>

(13) Filed as an exhibit to the Annual Report on Form 10-K for the year ended
     December 31, 2000 and incorporated herein by reference.

(14) Filed as an exhibit to the Registrant's Registration Statement on Form 10-Q
     dated June 30, 2001 and incorporated herein by reference.

(15) Filed as an exhibit to the Registrant's Registration Statement on Form 10-Q
     dated September 30, 2001 and incorporated herein by reference.

(16) Filed as an exhibit to the original annual report on Form 10-K for the year
     ended December 31, 2001, filed on March 29, 2002, and incorporated herein
     by reference.

     (b)  REPORTS ON FORM 8-K.

     The Company filed a Report on Form 8-K dated October 30, 2001 with respect
     to a complaint filed by McDonald's Corporation against the registrant and
     its subsidiary Simon Marketing, Inc. and a complaint filed by Simon
     Marketing, Inc. and the registrant against McDonald's Corporation.

48

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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. The Executive Committee of
the Board of Directors has the responsibility for the role of the principal
executive officer of the registrant.

Date: April 16, 2003 SIMON WORLDWIDE, INC.

               /s/ George G. Golleher           /s/ J. Anthony Kouba
               ----------------------           --------------------
               George G. Golleher               J. Anthony Kouba
               Member of Executive              Member of Executive
               Committee                        Committee

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<TABLE>
<S>                                 <C>                                         <C>
/s/ Joseph W. Bartlett              Director                                    April 16, 2003
----------------------
JOSEPH W. BARTLETT

/s/ Allan I. Brown                  Director                                    April 16, 2003
----------------------
ALLAN I. BROWN

/s/ George G. Golleher              Director and Member of                      April 16, 2003
----------------------              Executive Committee
GEORGE G. GOLLEHER

/s/ J. Anthony Kouba                Director and Member of                      April 16, 2003
----------------------              Executive Committee
J. ANTHONY KOUBA

/s/ Greg Mays                       Principal Financial Officer                 April 16, 2003
----------------------
GREG MAYS
</TABLE>

49

<PAGE>

I, George Golleher, a member of the Executive Committee of the Board of
Directors which has responsibility for the role of principal executive officer
of the Company, certify that:

1.       I have reviewed this amended annual report on Form 10-K / A of the
         Company.

2.       Based on my knowledge, this amended annual 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 amended annual report; and

3.       Based on my knowledge, the financial statements, and other financial
         information included in this amended annual 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 amended annual report.

                                                    /s/ GEORGE G. GOLLEHER
                                                    ----------------------------
         April 16, 2003                         BY: George G. Golleher
                                                    Executive Committee Member

50

<PAGE>

I, J. Anthony Kouba, a member of the Executive Committee of the Board of
Directors which has responsibility for the role of principal executive officer
of the Company, certify that:

1.       I have reviewed this amended annual report on Form 10-K / A of the
         Company.

2.       Based on my knowledge, this amended annual 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 amended annual report; and

3.       Based on my knowledge, the financial statements, and other financial
         information included in this amended annual 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 amended annual report.

                                                    /s/ J. ANTHONY KOUBA
                                                    ----------------------------
         April 16, 2003                         BY: J. Anthony Kouba
                                                    Executive Committee Member

51

<PAGE>

I, Greg Mays, principal financial officer of the Company, certify that:

1.       I have reviewed this amended annual report on Form 10-K / A of the
         Company.

2.       Based on my knowledge, this amended annual 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 amended annual report; and

3.       Based on my knowledge, the financial statements, and other financial
         information included in this amended annual 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 amended annual report.

                                                /s/  GREG MAYS
                                                --------------------------------
         April 16, 2003                         BY:  Greg Mays
                                                     Principal Financial Officer

52

<PAGE>

                          INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders of
Simon Worldwide, Inc.:

We have audited the accompanying consolidated balance sheet of Simon Worldwide,
Inc. and its subsidiaries as of December 31, 2001 and the related consolidated
statements of operations, stockholders' (deficit) equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Simon Worldwide Inc.
and its subsidiaries at December 31, 2001, and the results of its operations and
its cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has a stockholders' deficit,
suffered significant losses from operations, suffered the loss of major
customers and faces numerous legal actions that raise substantial doubt about
its ability to continue as a going concern. Management's plans in regards to
these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.

Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule as of and for the year ended December
31, 2001 listed in the index to the consolidated financial statements is
presented for purposes of complying with the Securities and Exchange Commissions
rule and is not a required part of the basic financial statements. This schedule
has been subjected to the auditing procedures applied in our audit of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.

BDO Seidman, LLP /s/

Los Angeles, CA
February 26, 2003

53

<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
   Stockholders of Simon Worldwide, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Simon
Worldwide, Inc. and its subsidiaries at December 31, 2000, and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States of America. In addition, in our opinion, the
financial statement schedule at December 31, 2000 and for each of the two years
in the period ended December 31, 2000 listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
schedule based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and schedule are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements and schedule,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement and schedule
presentation. We believe that our audits provide a reasonable basis for our
opinion.

Boston, Massachusetts
February 15, 2001

54

<PAGE>

                              SIMON WORLDWIDE, INC.
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2001 AND 2000
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                     2001         2000
                                                                     ----         ----
<S>                                                                <C>          <C>
                                     ASSETS
Current assets:
 Cash and cash equivalents                                         $ 40,851     $  68,162
 Restricted cash                                                      8,733             -
 Investment                                                             152         7,969
 Accounts receivable:
 Trade, less allowance for doubtful accounts of $15,616
  at December 31, 2001 and $2,074 at December 31, 2000                7,253        48,877
 Officers                                                                 -         4,340
 Inventories                                                              -        10,175
 Prepaid expenses and other current assets                            3,693         5,120
 Refundable income taxes                                                  -         4,417
 Deferred income taxes                                                    -         7,120
 Proceeds from sale of business                                           -         8,363
                                                                   --------     ---------
   Total current assets                                              60,682       164,543
Property and equipment, net                                           2,814        12,510
Excess of cost over net assets acquired, net                              -        48,033
Investments                                                          10,500        12,500
Deferred income taxes                                                     -         4,734
Other assets                                                          3,940         7,815
Proceeds from sale of business                                            -         2,300
                                                                   --------     ---------
                                                                   $ 77,936     $ 252,435
                                                                   ========     =========
</TABLE>

         The accompanying notes are an integral part of the consolidated
                              financial statements.

55

<PAGE>

                 LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

<TABLE>
<S>                                                                                      <C>           <C>
Current liabilities:
 Short-term borrowings                                                                   $    457      $  5,523
 Accounts payable:
 Trade                                                                                     21,511        36,035
 Affiliates                                                                                   183           281
 Accrued expenses and other current liabilities                                            31,515        53,265
 Investment payable                                                                             -         7,875
 Accrued restructuring expenses                                                             2,444         1,193
                                                                                         --------      --------
   Total current liabilities                                                               56,110       104,172
Long-term obligations                                                                       6,785         6,587
                                                                                         --------      --------
   Total liabilities                                                                       62,895       110,759
                                                                                         --------      --------

Commitments and contingencies

Mandatorily redeemable preferred stock, Series A1 senior cumulative
 participating convertible, $.01 par value, 26,538 shares issued and
 outstanding at December 31, 2001 and 25,500 shares issued and outstanding
 at December 31, 2000, stated at redemption value of $1,000 per share                      26,538        25,500

Stockholders' (deficit) equity:
 Preferred stock, $.01 par value; 1,000,000 shares authorized; 26,538 Series
  A1 shares issued at December 31, 2001 and 25,500 Series A1 shares
  issued at December 31, 2000                                                                   -             -
 Common stock, $.01 par value; 50,000,000 shares authorized;
  16,653,193 shares issued and outstanding at December 31, 2001 and
  16,059,130 shares issued and outstanding at December 31, 2000                               167           161
 Additional paid-in capital                                                               135,966       138,978
 Retained deficit                                                                        (145,515)      (22,128)
 Accumulated other comprehensive income (loss):
  Unrealized gain on investment                                                                 -            94
  Cumulative translation adjustment                                                        (2,115)         (929)
                                                                                         --------      --------
  Total stockholders' (deficit) equity                                                    (11,497)      116,176
                                                                                         --------      --------

                                                                                         $ 77,936      $252,435
                                                                                         ========      ========
</TABLE>

         The accompanying notes are an integral part of the consolidated
                             financial statements.

56

<PAGE>

                              SIMON WORLDWIDE, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                    2001          2000          1999
                                                                    ----          ----          ----
<S>                                                              <C>            <C>           <C>
Net sales                                                        $  324,040     $ 768,450     $ 988,844
Cost of sales                                                       252,326       622,730       816,507
Write-down of inventory in connection
 with restructuring                                                       -         1,695             -
                                                                 ----------     ---------     ---------
                                                                    252,326       624,425       816,507
                                                                 ----------     ---------     ---------
Gross profit                                                         71,714       144,025       172,337
                                                                 ----------     ---------     ---------

Selling, general and administrative expenses                         79,249       157,429       150,425
Goodwill amortization expense                                         1,574         3,547         3,568
Related parties                                                         619         1,265         1,002
Impairment of intangible asset                                       46,671             -             -
Charges attributable to loss of significant customers                33,644             -             -
Restructuring and other nonrecurring charges                         20,212         4,700         1,675
                                                                 ----------     ---------     ---------
                                                                    181,969       166,941       156,670
                                                                 ----------     ---------     ---------
Operating income (loss)                                            (110,255)      (22,916)       15,667
Interest income                                                      (2,075)       (4,269)       (3,232)
Interest expense                                                        576         1,315         2,115
Other (income) expense                                               (1,085)        1,255        (2,752)
Loss on sale of business                                              2,300        27,387             -
Write-off of goodwill attributable to business sold                       -        22,716             -
                                                                 ----------     ---------     ---------
Income (loss) before income taxes                                  (109,971)      (71,320)       19,536
Income tax provision (benefit)                                       12,374        (1,605)        8,400
                                                                 ----------     ---------     ---------
Net income (loss)                                                  (122,345)      (69,715)       11,136
Preferred stock dividends                                             1,042         1,000           142
                                                                 ----------     ---------     ---------
Net income (loss) available to common stockholders               $ (123,387)    $ (70,715)    $  10,994
                                                                 ==========     =========     =========

Earnings (loss) per common share - basic                         $    (7.50)    $   (4.43)    $    0.70
                                                                 ==========     =========     =========

Earnings (loss) per common share - diluted                       $    (7.50)    $   (4.43)    $    0.67
                                                                 ==========     =========     =========

Weighted average shares outstanding - basic                          16,455        15,972        15,624
                                                                 ==========     =========     =========

Weighted average shares outstanding - diluted                        16,455        15,972        16,631
                                                                 ==========     =========     =========
</TABLE>

         The accompanying notes are an integral part of the consolidated
                             financial statements.

57

<PAGE>

                              SIMON WORLDWIDE, INC.
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                            Common        Additional   Retained
                                                             Stock          Paid-in    (Deficit)   Comprehensive
                                                        ($.01 Par Value)    Capital    Earnings    Income (Loss)
                                                        ----------------------------------------------------------
<S>                                                     <C>               <C>          <C>         <C>
Balance, December 31, 1998                              $           155   $  138,784   $  37,593
Comprehensive income:
 Net income                                                                               11,136   $      11,136
                                                                                                   -------------
 Other comprehensive loss, net of income taxes:
  Net unrealized loss on available-for-sale securities                                                      (106)
  Translation adjustment                                                                                    (719)
                                                                                                   -------------
 Other comprehensive loss                                                                                   (825)
                                                                                                   -------------
Comprehensive income                                                                               $      10,311
                                                                                                   =============
Dividends on preferred stock                                                                (142)
Stock compensation                                                               775
Mandatorily redeemable preferred stock
issuance costs                                                                (4,447)
Issuance of shares under employee stock
  option and stock purchase plans                                     1          512
Issuance of shares for businesses acquired                            1        1,411
                                                        ----------------------------------------
Balance, December 31, 1999                                          157      137,035      48,587
Comprehensive loss:
 Net loss                                                                                (69,715)       $(69,715)
                                                                                                   -------------
 Other comprehensive loss, net of income taxes:
  Net unrealized loss on available-for-sale securities                                                    (1,242)
  Translation adjustment                                                                                     109
                                                                                                   -------------
 Other comprehensive loss                                                                                 (1,133)
                                                                                                   -------------
Comprehensive loss                                                                                 $     (70,848)
                                                                                                   =============
Dividends on preferred stock                                                              (1,000)
Issuance of shares under employee stock option
 and stock purchase plans                                             2          533
Issuance of shares for businesses acquired                            2        1,410
                                                        ----------------------------------------
Balance, December 31, 2000                                          161      138,978     (22,128)
Comprehensive loss:
 Net loss                                                                               (122,345)  $    (122,345)
                                                                                                   -------------
 Other comprehensive loss, net of income taxes:
  Net unrealized loss on available-for-sale securities                                                       (94)
  Translation adjustment                                                                                  (1,186)
                                                                                                   -------------
 Other comprehensive loss                                                                                 (1,280)
                                                                                                   -------------
Comprehensive loss                                                                                 $    (123,625)
                                                                                                   =============
Dividends on preferred stock                                                              (1,042)
Phantom shareholder contingent obligation                                     (5,042)
Options compensation                                                             459
Issuance of shares under employee stock option
 and stock purchase plans                                             1          164
Issuance of shares for businesses acquired                            5        1,407
                                                        ----------------------------------------
Balance, December 31, 2001                              $           167   $  135,966   $(145,515)
                                                        ========================================
</TABLE>

<TABLE>
<CAPTION>
                                                           Accumulated
                                                              Other            Total
                                                          Comprehensive     Stockholders'
                                                          Income (Loss)   (Deficit) Equity
                                                          --------------------------------
<S>                                                       <C>             <C>
Balance, December 31, 1998                                $       1,123   $     177,655
Comprehensive income:
 Net income                                                                      11,136

 Other comprehensive loss, net of income taxes:
  Net unrealized loss on available-for-sale securities                             (106)
  Translation adjustment                                                           (719)
 Other comprehensive loss                                          (825)
Comprehensive income
Dividends on preferred stock                                                       (142)
Stock compensation                                                                  775
Mandatorily redeemable preferred stock
issuance costs                                                                   (4,447)
Issuance of shares under employee stock
  option and stock purchase plans                                                   513
Issuance of shares for businesses acquired                                        1,412
                                                          -----------------------------
Balance, December 31, 1999                                          298         186,077
Comprehensive loss:
 Net loss                                                                       (69,715)
 Other comprehensive loss, net of income taxes:
  Net unrealized loss on available-for-sale securities                           (1,242)
  Translation adjustment                                                            109
 Other comprehensive loss                                        (1,133)
Comprehensive loss
Dividends on preferred stock                                                     (1,000)
Issuance of shares under employee stock option
 and stock purchase plans                                                           535
Issuance of shares for businesses acquired                                        1,412
                                                          -----------------------------
Balance, December 31, 2000                                         (835)        116,176
Comprehensive loss:
 Net loss                                                                      (122,345)
 Other comprehensive loss, net of income taxes:
  Net unrealized loss on available-for-sale securities                              (94)
  Translation adjustment                                                         (1,186)
 Other comprehensive loss                                        (1,280)
Comprehensive loss
Dividends on preferred stock                                                     (1,042)
Phantom shareholder contingent obligation                                        (5,042)
Options compensation                                                                459
Issuance of shares under employee stock option
 and stock purchase plans                                                           165
Issuance of shares for businesses acquired                                        1,412
                                                          -----------------------------
Balance, December 31, 2001                                $      (2,115)  $     (11,497)
                                                          =============================
</TABLE>

         The accompanying notes are an integral part of the consolidated
                              financial statements.

58

<PAGE>

                              SIMON WORLDWIDE, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                    2001          2000          1999
                                                                    ----          ----          ----
<S>                                                              <C>            <C>           <C>
Cash flows from operating activities:
 Net income (loss)                                               $ (122,345)    $ (69,715)    $  11,136
 Adjustments to reconcile net income (loss) to net
  cash provided by (used in) operating activities:
   Depreciation and amortization                                      5,230         9,625         8,988
   Loss on sale of property and equipment                               119           103           130
   Realized gain on sale of investments                              (4,249)       (3,245)       (2,752)
   Provision for doubtful accounts                                    2,101         3,423         2,578
   Loss on sale of business                                           2,300        47,876             -
   Deferred income taxes                                             11,854           389         2,575
   Charges for impaired assets and loss of customer                  69,111             -             -
   Charge for impaired investments                                    3,159         4,500             -
   Issuance of common stock for services provided                       575           575             -
   Non-cash restructuring charges                                     8,964           684           854
   Stock compensation                                                   459             -           775
   Increase (decrease) in cash from changes
    in working capital items:
     Accounts receivable                                             26,474        10,731       (10,033)
     Inventories                                                      8,128        20,132         5,161
     Prepaid expenses and other current assets                          976          (105)          161
     Refundable income taxes                                          4,417        (4,417)            -
     Accounts payable                                               (14,480)        2,483        (4,199)
     Accrued expenses and other current liabilities                 (24,569)      (34,868)       15,738
                                                                 ----------     ---------     ---------
Net cash provided by (used in) operating activities                 (21,776)      (11,829)       31,112
                                                                 ----------     ---------     ---------
Cash flows from investing activities:
 Purchase of property and equipment                                  (2,935)      (12,828)       (5,461)
 Proceeds from sale of property and equipment                            66           277            45
 Purchase of investments                                             (7,875)       (4,500)      (12,500)
 Proceeds from sale of CPG division                                   8,363             -             -
 Proceeds from sale of investments                                   11,126         3,378         3,086
 Additional consideration related to acquisitions                         -             -          (730)
 Increase in restricted cash                                         (8,733)            -             -
 Other, net                                                            (339)         (202)       (1,375)
                                                                 ----------     ---------     ---------
Net cash used in investing activities                                  (327)      (13,875)      (16,935)
                                                                 ----------     ---------     ---------
Cash flows from financing activities:
 Repayments of short-term borrowings, net                            (5,066)       (3,346)       (8,041)
 Proceeds from (repayments of) long-term obligations                    198        (2,569)       (2,943)
 Proceeds from issuance of preferred stock, net                           -             -        20,553
 Proceeds from issuance of common stock                                 164           534           513
 Dividends paid                                                           -          (500)            -
                                                                 ----------     ---------     ---------
Net cash provided by (used in) financing activities                  (4,704)       (5,881)       10,082
                                                                 ----------     ---------     ---------
</TABLE>

59

<PAGE>

<TABLE>
<S>                                                              <C>            <C>           <C>
Effect of exchange rate changes on cash                                (504)           49          (380)
                                                                 ----------     ---------     ---------

Net increase (decrease) in cash and cash equivalents                (27,311)      (31,536)       23,879
Cash and cash equivalents, beginning of year                         68,162        99,698        75,819
                                                                 ----------     ---------     ---------
Cash and cash equivalents, end of year                           $   40,851     $  68,162     $  99,698
                                                                 ==========     =========     =========
Supplemental disclosure of cash flow information:
 Cash paid during the year for:
  Interest                                                       $      440     $   1,167     $   1,981
                                                                 ==========     =========     =========
  Income taxes                                                   $      465     $   5,262     $   6,026
                                                                 ==========     =========     =========
Supplemental non-cash investing activities:
 Issuance of additional stock related to acquisitions            $    1,412     $   1,413     $   1,412
                                                                 ==========     =========     =========
 Dividends paid in kind on mandatorily redeemable
 preferred stock                                                 $    1,038     $     500     $       -
                                                                 ==========     =========     =========
</TABLE>

         The accompanying notes are an integral part of the consolidated
                             financial statements.

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:

The Company sold its CPG business on February 15, 2001 to Cyrk, for
approximately $14 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 Cyrk, with the balance being paid in
cash. In March 2002, the Company entered into a settlement agreement with Cyrk
whereby the Company cancelled the remaining indebtedness outstanding under the
aforementioned subordinated note from Cyrk, totaling $2.3 million (see Note 3)

60

<PAGE>

                              SIMON WORLDWIDE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  ($ in thousands, except share data and dollar
               amounts followed immediately by the word "million")

1. Nature of Business, Loss of Customers, Resulting Events and Going Concern

In August 2001, the Company experienced the loss of its two largest customers:
McDonald's Corporation ("McDonald's") and, to a lesser extent, Philip Morris
Incorporated ("Philip Morris"). Since August 2001, the Company has concentrated
its efforts on reducing its costs and settling numerous claims, contractual
obligations and pending litigation. As a result of these efforts the Company has
been able to resolve a significant number of outstanding liabilities that
existed at December 31, 2001 or arose subsequent to that date (See Subsequent
Events footnote to the consolidated financial statements for further details).
As of December 31, 2001, the Company had 136 employees worldwide and as of
December 31, 2002 had reduced its worldwide workforce to 9 employees.

The Company had a stockholders' deficit of $11,497 and a loss from operations
$110,255 for the year ended December 31, 2001. Subsequent to December 31, 2001,
the Company continued to incur losses in 2002 and continues to incur losses in
2003 for the general and administrative expenses being incurred to manage the
affairs of the Company and resolve outstanding legal matters. Management
believes it has sufficient capital resources and liquidity to operate the
Company for the foreseeable future. However, as a result of the loss of these
major customers, along with the resulting legal matters discussed further below,
there is substantial doubt about the Company's ability to continue as a going
concern. The accompanying financial statements do not include any adjustments
that might result from the outcome of these uncertainties.

In April, 2002, the Company had effectively eliminated a majority of its ongoing
operations and was in the process of disposing all of its assets and settling
its liabilities related to the promotions business. The process is ongoing and
will continue throughout 2003 and possibly into 2004. During the second quarter
of 2002, the discontinued activities of the Company, consisting of revenues,
operating costs, certain general and administrative costs and certain assets and
liabilities associated with the Company's promotions business, will be
classified as discontinued operations for financial reporting purposes. The
Board of Directors of the Company continues to consider various alternative
courses of action for the Company going forward, including possibly acquiring
one or more operating businesses, selling the Company or distributing its net
assets, if any, to shareholders. The decision on which course to take will
depend upon a number of factors including the outcome of the significant
litigation matters in which the Company is involved (See Legal Actions
Associated with the McDonald's Matter). To date, the Board of Directors has made
no decision on which course of action to take.

Prior to the loss of its two largest customers in August 2001 and the subsequent
loss of its other customers, (as noted below), the Company had been operating as
a multi-national full-service promotional marketing company, specializing in the
design and development of high-impact promotional products and sales programs.

On August 21, 2001, the Company was notified by McDonald's Corporation
("McDonald's") that they were terminating their approximately 25-year
relationship with Simon Marketing as a result of the arrest of Jerome P.
Jacobson ("Mr. Jacobson"), a former employee of Simon Marketing who subsequently
plead guilty to embezzling winning game pieces from McDonald's promotional games
administered by Simon Marketing. No other Company employee was found or even
alleged to have any knowledge of or complicity in his illegal scheme. The Second
Superseding Indictment filed December 7, 2001 by the U.S. Attorney in the United
States District Court for the Middle District of Florida charged that Mr.
Jacobson "embezzled more than $20 million worth of high value winning McDonald's
promotional game pieces from his employer, [Simon]". Simon Marketing was
identified in the Indictment, along with McDonald's, as an innocent victim of
Mr. Jacobson's fraudulent scheme. (Also, see section, Legal Actions Associated
with the McDonald's Matter, below.) Further, on August 23, 2001, the Company was
notified that its second largest

61

<PAGE>

customer, Philip Morris, was also ending their approximately nine-year
relationship with the Company. Net sales to McDonald's and Philip Morris
accounted for 78% and 8%, 65% and 9% and 61% and 9% of total net sales in 2001,
2000 and 1999, respectively. The Company's financial condition, results of
operations and net cash flows have been and will continue to be materially
adversely affected by the loss of the McDonald's and Philip Morris business, as
well as the loss of its other customers. At December 31, 2001, Simon Worldwide
had no customer backlog as compared to $236,900 of written customer purchase
orders at December 31, 2000. In addition, the absence of business from
McDonald's and Philip Morris has adversely affected the Company's relationship
with and access to foreign manufacturing sources.

The Company has taken significant actions and will continue to take further
action to reduce its cost structure. The Company's operations throughout the
world have been eliminated, including its sourcing arm in Asia and all of its
worldwide sales and general and administrative operations. As of December 31,
2001, the Company had 136 employees worldwide and has reduced its worldwide
workforce to 9 employees as of the end of 2002. The Board of Directors of the
Company continues to consider various alternative courses of action for the
Company going forward, including possibly acquiring one or more operating
businesses, selling the Company or distributing its net assets, if any, to
shareholders. The decision on which course to take will depend upon a number of
factors including the outcome of the significant litigation matters in which the
Company is involved (See Legal Actions Associated with the McDonald's Matter).
To date, the Board of Directors has made no decision on which course of action
to take.

As a result of actions taken in the second half of 2001, the Company recorded
third and fourth quarter pre tax charges totaling approximately $80,315. These
charges relate principally to the write-down of goodwill attributable to Simon
Marketing ($46,671) and to a substantial reduction of its worldwide
infrastructure, including, asset write-downs ($22,440), lump-sum severance costs
associated with the termination of approximately 377 employees ($6,275), lease
cancellations ($1,788), legal fees ($1,736) and other costs associated with the
McDonald's and Philip Morris matters ($1,405).

In order to induce their continued commitment to provide vital services to the
Company in the wake of the events of August 2001, in the third quarter of 2001
the Company entered into retention arrangements with its Chief Executive
Officer, each of the three non-management members of the Company's Board of
Directors (the "Board") and key members of management of Simon Marketing. As a
further inducement to the Company's directors to continue their service to the
Company, and to provide assurances that the Company will be able to fulfill its
obligations to indemnify directors, officers and agents of the Company and its
subsidiaries ("Indemnitees") under Delaware law and pursuant to various
contractual arrangements, in March 2002 the Company entered into an
Indemnification Trust Agreement ("Agreement") for the benefit of the Indemnitees
(see Note 21). Pursuant to this Agreement, the Company has deposited a total of
$2,700 with an independent trustee in order to fund any indemnification amounts
owed to an Indemnitee which the Company is unable to pay.

In connection with the loss of its customers and pursuant to negotiations that
began in the fourth quarter of 2001, the Company entered into a Termination,
Severance and General Release Agreement ("Agreement") with its Chief Executive
Officer ("CEO") in March 2002. In accordance with the terms of this Agreement,
the CEO's employment with the Company terminated in March 2002 (the CEO remains
on the Company's Board of Directors) and substantially all other agreements,
obligations and rights existing between the CEO and the Company were terminated,
including the CEO's Employment Agreement dated September 1, 1999, as amended,
and his retention agreement dated August 29, 2001. The ongoing operations of the
Company and Simon Marketing are being managed by the Executive Committee of the
Board consisting of Messrs. Golleher and Kouba, in consultation with outside
financial, accounting, legal and other advisors. As a result of the foregoing,
the Company recorded a 2001 fourth quarter pre-tax charge of $4,563, relating
principally to the forgiveness of indebtedness of the CEO to the Company, a
lump-sum severance payment and the write-off of an asset associated with an
insurance policy on the life of the CEO. The Company received a full release
from the CEO in connection with this Agreement, and the Company provided the CEO
with a full release. Additionally, the Agreement called for the CEO to provide
consulting services to the Company for a period of six months after the CEO's
employment with the Company terminated in exchange for a fee of approximately
$47 per month, plus specified expenses.

62

<PAGE>

On August 28, 2001, the Company entered into retention letter agreements with
each of Messrs. Golleher and Kouba and Joseph Bartlett, the non-management
members of the Board, pursuant to which the Company paid each of them a
retention fee of $150 in exchange for their agreement to serve as a director of
the Company for at least six months. If a director resigned before the end of
the six-month period, the director would have been required to refund to the
Company the pro rata portion of the retention fee equal to the percentage of the
six-month period not served. Additionally, the Company agreed to compensate
these directors at an hourly rate of $.750 for services outside of Board and
committee meetings (for which they are paid $2 per meeting in accordance with
existing Company policy).

In addition, retention agreements were entered into in September and October
2001 with certain key employees which provide for retention payments ranging
from 8% to 100% of their respective salaries conditioned upon continued
employment through specified dates and/or severance payments of up to 100% of
these employee's respective annual salaries should such employees be terminated
within the parameters of their agreements (for example, termination without
cause). In the first quarter of 2002, additional similar agreements were entered
into with certain employees of one of the Company's subsidiaries. Payments under
these agreements have been made at various dates from September 2001 through
March 2002. The Company's obligations under these agreements are approximately
$3,100. Approximately $1,700 of these commitments had been segregated in
separate cash accounts in October 2001, in which security interests had been
granted to certain employees, and have been released back to the Company in 2002
upon making of retention and severance payments to these applicable employees.

LEGAL ACTIONS ASSOCIATED WITH THE McDONALD'S MATTER

Subsequent to August 21, 2001, numerous consumer class action and representative
action lawsuits (hereafter variously referred to as, "actions", "complaints" or
"lawsuits") have been filed in Illinois, the headquarters of McDonald's, and in
multiple jurisdictions nationwide and in Canada. Plaintiffs in these actions
asserted diverse causes of action, including negligence, breach of contract,
fraud, restitution, unjust enrichment, misrepresentation, false advertising,
breach of warranty, unfair competition and violation of various state consumer
fraud statutes. Complaints filed in federal court in New Jersey also alleged a
pattern of racketeering.

Plaintiffs in many of these actions alleged, among other things, that
defendants, including the Company, its subsidiary Simon Marketing, and
McDonald's, misrepresented that plaintiffs had a chance at winning certain
high-value prizes when in fact the prizes were stolen by Mr. Jacobson.
Plaintiffs seek various forms of relief, including restitution of monies paid
for McDonald's food, disgorgement of profits, recovery of the "stolen" game
prizes, other compensatory damages, attorney's fees, punitive damages and
injunctive relief.

The class and/or representative actions filed in Illinois state court were
consolidated in the Circuit Court of Cook County, Illinois (the "Boland" case).
Numerous class and representative actions filed in California have been
consolidated in California Superior Court for the County of Orange (the
"California Court"). Numerous class and representative actions filed in federal
courts nationwide have been transferred by the Judicial Panel on Multidistrict
Litigation (the "MDL Panel") to the federal district court in Chicago, Illinois
(the "MDL Proceedings"). Numerous of the class and representative actions filed
in state courts other than in Illinois and California were removed to federal
court and transferred by the MDL Panel to the MDL Proceedings.

On April 19, 2002, McDonald's entered into a Stipulation of Settlement (the
"Boland Settlement") with certain plaintiffs in the Boland case pending in the
Circuit Court of Cook County, Illinois (the "Illinois Circuit Court"). The
Boland Settlement purports to settle and release, among other things, all claims
related to the administration, execution and operation of the McDonald's
promotional games, or to "the theft, conversion, misappropriation, seeding,
dissemination, redemption or non-redemption of a winning prize or winning game
piece in any McDonald's Promotional Game," including without limitation claims
brought under the consumer protection statutes or laws of any jurisdiction, that
have been or could or might have been alleged by any class member in any forum
in the United States of America, subject to a right of class members to opt out
on an individual basis, and includes a full release of the Company and Simon

63

<PAGE>

Marketing, as well as their officers, directors, employees, agents, and vendors.
Under the terms of the Boland Settlement, McDonald's agrees to sponsor and run a
"Prize Giveaway" in which a total of fifteen (15) $1 million prizes, payable in
twenty installments of $50 per year with no interest, shall be randomly awarded
to persons in attendance at McDonald's restaurants. The Company has been
informed that McDonald's, in its capacity as an additional insured, has tendered
a claim to Simon Marketing's Errors & Omissions insurance carriers, to cover
some or all of the cost of the Boland Settlement, including the cost of running
the "Prize Giveaway," of the prizes themselves, and of attorney's fees to be
paid to plaintiffs' counsel up to an amount of $3 million. The Company believes
that the insurance carrier will fund the Company's portion of the settlement.

On June 6, 2002, the Illinois Circuit Court issued a preliminary order approving
the Boland Settlement and authorizing notice to the class. On August 28, 2002,
the opt-out period pertaining thereto expired. The Company has been informed
that approximately 250 persons in the United States and Canada purport to have
opted out of the Boland Settlement. Furthermore, actions may move forward in
Canada and in certain of the cases asserting claims not involving the Jacobson
theft. On January 3, 2003, the Illinois Circuit Court issued an order approving
the Boland Settlement and overruling the objections thereto. Even if the Boland
Settlement is enforceable to bar claims of persons who have not opted out,
individual claims may be asserted by those persons who are determined to have
properly opted out of the Boland Settlement. Claims may also be asserted in
Canada and by individuals whose claims do not involve the Jacobson theft if a
court were to determine the claim to be distinguishable from and not barred by
the Boland Settlement.

A hearing on motions to dismiss the remaining cases in the MDL Proceedings are
scheduled on April 29, 2003, other than a case originally filed in federal
district court in Kentucky, in which the plaintiff has opted out of the Boland
Settlement. The plaintiff in that case asserts that McDonald's and Simon
Marketing failed to redeem a purported $1,000 winning ticket. This case has been
ordered to arbitration.

Actions pending in California Court have had been stayed pending a ruling on the
final approval of the Boland Settlement. Certain of the California plaintiffs
purport to have opted out of the Boland Settlement individually and also on
behalf of all California consumers. In its final order approving the Boland
Settlement, the Illinois court rejected the attempt by the California plaintiff
to opt out on behalf of all California consumers. McDonald's and Simon Marketing
have moved in the California Court to have the class and representative claims
dismissed as well as the claims of individuals who have not properly opted out.
A hearing has been scheduled in that motion for April 14, 2003. Even if the
Boland Settlement is enforceable to bar class and representative actions pending
in California, individual claims may go forward as to those plaintiffs, if any,
who are determined to have properly opted out of the Boland Settlement, or who
have asserted claims not involving the Jacobson theft. The Company does not know
which California and non-California claims will go forward notwithstanding the
Boland Settlement.

On or about August 20, 2002, an action was filed against Simon Marketing in
Florida State Court alleging that McDonald's and Simon Marketing deliberately
diverted from seeding in Canada game pieces with high-level winning prizes in
certain McDonald's promotional games. The plaintiffs are Canadian citizens and
seek restitution and damages on a class-wide basis in an unspecified amount.
Simon Marketing and McDonald's removed this action to federal court on September
10, 2002 and the MDL Panel has transferred the case to the MDL Proceedings in
Illinois, where a motion to dismiss will be heard on April 29, 2003. The
plaintiffs in this case did not opt out of the Boland Settlement.

On or about September 13, 2002, an action was filed against Simon Marketing in
Ontario Provincial Court in which the allegations are similar to those made in
the above Florida action. On October 28, 2002, an action was filed against Simon
Marketing in Ontario Provincial Court containing similar allegations. The
plaintiffs in the aforesaid actions seek an aggregate of $110 million in damages
and an accounting on a class-wide basis. Simon Marketing has retained Canadian
local counsel to represent it in these actions. The Company believes that the
plaintiffs in these actions did not opt out of the Boland Settlement. These
actions are in the earliest stages.

64

<PAGE>

On October 23, 2001, the Company and Simon Marketing filed suit against
McDonald's in California Superior Court for the County of Los Angeles. The
complaint alleges, among other things, fraud, defamation and breach of contract
in connection with the termination of Simon Marketing's relationship with
McDonald's.

Also on October 23, 2001, the Company and Simon Marketing were named as
defendants, along with Mr. Jacobson, and certain other individuals unrelated to
the Company or Simon Marketing, in a complaint filed by McDonald's in the United
States District Court for the Northern District of Illinois. The complaint
alleges that Simon Marketing had engaged in fraud, breach of contract, breach of
fiduciary obligations and civil conspiracy and alleges that McDonald's is
entitled to indemnification and damages of an unspecified amount. The federal
lawsuit by McDonald's has been dismissed for lack of federal jurisdiction.
Subsequently, a substantially similar lawsuit was filed by McDonald's in
Illinois state court which the Company has moved to dismiss as a compulsory
counter-claim which must properly be filed in the Company's California state
court action. There has been no ruling on the Company's motion.

The Company is unable to predict the outcome of any or all of the lawsuits
against the Company and their ultimate effects, if any, on the Company's
financial condition, results of operations or net cash flows. On November 13,
2001, the Company filed suit against Philip Morris in California Superior Court
for the County of Los Angeles, asserting numerous causes of action arising from
Philip Morris' termination of the Company's relationship with Philip Morris.
Subsequently, the Company dismissed the action without prejudice, so that the
Company and Philip Morris could attempt to resolve this dispute outside of
litigation. In 2002, a settlement was reached resulting in a payment of $1.5
million by Philip Morris to the Company.

In March 2002, Simon Marketing initiated a lawsuit against certain suppliers and
agents of McDonald's in California Superior Court for the County of Los Angeles.
The complaint alleges, among other things, breach of contract and intentional
interference with contractual relations. In July 2002, a stay was granted in the
case on the basis of "forum non conveniens", which would have required the
matter to be refiled in Illinois state court. The Company has filed a writ
appealing such ruling.

On March 29, 2002, Simon Marketing filed a lawsuit against
PricewaterhouseCoopers LLP ("PWC") and two other accounting firms, citing the
accountants' failure to oversee, on behalf of Simon Marketing, various steps in
the distribution of high-value game pieces for certain McDonald's promotional
games. The complaint alleges that this failure allowed the misappropriation of
certain of these high-value game pieces by Mr. Jacobson. The lawsuit, filed in
Los Angeles Superior Court, seeks unspecified actual and punitive damages
resulting from economic injury, loss of income and profit, loss of goodwill,
loss of reputation, lost interest, and other general and special damages. The
defendants' motion to dismiss for "forum non conveniens" has been denied in the
case and, following demurrers by the defendants, the Company has subsequently
filed a first amended complaint against two firms, PWC and one of the two other
accounting firms named as defendants in the original complaint, KPMG LLP. The
defendants' demurrer to the first amended complaint was sustained in part, and a
second amended complaint was filed. No answer is yet due.

As a result of this lawsuit, PWC resigned as the Company's independent public
accountants on April 17, 2002. In addition, on April 17, 2002, PWC withdrew its
audit report dated March 26, 2002 filed with the Company's original 2001 Annual
Report on Form 10-K. PWC indicated that it believed the lawsuit resulted in an
impairment of its independence in connection with the audit of the Company's
2001 financial statements. The Company does not believe that PWC's independence
was impaired. On June 6, 2002, the Company engaged BDO Seidman, LLP as the
Company's new independent public accountants. In connection with obtaining PWC's
consent to the inclusion of their audit report dated March 26, 2002 in this
Amendment No. 1 on Form 10-K/A to the Company's annual report on Form 10-K for
the year ended December 31, 2001, the Company agreed to indemnify PWC against
any legal costs and expenses incurred by PWC in the successful defense of any
legal action that arises as a result of such inclusion. Such indemnification
will be void if a court finds PWC liable for professional malpractice. The
Company has been informed that in the opinion of the Securities and Exchange
Commission indemnification for liabilities arising under the Securities Act of
1933 is against public policy and therefore unenforceable.

65

<PAGE>

PWC has provided the Company with a copy of a 1995 letter from the Office of the
Chief Accountant of the Commission which states that, in a similar situation,
his Office would not object to an indemnification agreement of the kind between
the Company and PWC. See Item 9.

2. Significant Accounting Policies

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of the
Company. All intercompany accounts and transactions have been eliminated in
consolidation.

REVENUE RECOGNITION

Sales are generally recognized when title to the product passes to the customer,
which occurs when the products are shipped or services are provided to
customers. Sales of certain imported goods are recognized at the time shipments
are received at the customer's designated location. Deferred revenue includes
deposits related to merchandise for which the Company has received payment but
for which title and risk of loss have not passed.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

CONCENTRATION OF CREDIT RISK

The Company places its cash in what it believes to be credit-worthy financial
institutions. However, cash balances exceed FDIC insured levels at various times
during the year.

FINANCIAL INSTRUMENTS

The carrying amounts of cash equivalents, investments, short-term borrowings and
long-term obligations approximate their fair values.

CASH EQUIVALENTS

Cash equivalents consist of short-term, highly liquid investments which have
original maturities at date of purchase of three months or less.

INVESTMENTS

Investments are stated at fair value. Current investments are designated as
available-for-sale in accordance with the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", and as such unrealized gains and losses are reported in a
separate component of stockholders' equity. Long-term investments, for which
there are no readily available market values, are accounted for under the cost
method and are carried at the lower of estimated fair value or cost.

INVENTORIES

Inventories are valued at the lower of cost (specific identification, first-in,
first-out and average methods) or market.

66

<PAGE>

PROPERTY AND EQUIPMENT

Historically, property and equipment are stated at cost and are depreciated
primarily using the straight-line method over the estimated useful lives of the
assets or over the terms of the related leases, if such periods are shorter.
Property and equipment currently have been adjusted to reflect an impairment
charge associated with the Company's loss of its customers (see Note 1). The
cost and accumulated depreciation for property and equipment sold, retired or
otherwise disposed of are relieved from the accounts, and resulting gains or
losses are reflected in income.

IMPAIRMENT OF LONG-LIVED ASSETS

Periodically, the Company assesses, based on undiscounted cash flows, if there
has been a permanent impairment in the carrying value of its long-lived assets
and, if so, the amount of any such impairment by comparing anticipated
undiscounted future operating income with the carrying value of the related long
lived assets. In performing this analysis, management considers such factors as
current results, trends and future prospects, in addition to other economic
factors.

INCOME TAXES

The Company determines deferred taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), which
requires that deferred tax assets and liabilities be computed based on the
difference between the financial statement and income tax bases of assets and
liabilities using the enacted marginal tax rate. Deferred income tax expenses or
credits are based on the changes in the asset or liability from period to
period.

FOREIGN CURRENCY TRANSLATION

The Company translates financial statements denominated in foreign currency by
translating balance sheet accounts at the balance sheet date exchange rate and
income statement accounts at the average monthly rates of exchange. Translation
gains and losses are recorded in a separate component of stockholders' equity,
and transaction gains and losses are reflected in income.

EARNINGS (LOSS) PER COMMON SHARE

Earnings (loss) per common share have been determined in accordance with the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128").

RECENTLY ISSUED ACCOUNTING STANDARDS

In August 2001, the FASB issued SFAS No. 144,"Accounting for the Impairment or
Disposal of Long-Lived Assets". This statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of". The statement retains the previously existing accounting
treatments related to the recognition and measurement of the impairment of
long-lived assets to be held and used while expanding the measurement
requirements of long-lived assets to be disposed of by sale to include
discontinued operations. It also expands the previously existing reporting
requirements for discontinued operations to include a component of an entity
that either has been disposed of or is classified as held for sale. The Company
implemented SFAS 144 on January 1, 2002. In April 2002, the Company had
effectively eliminated a majority of its ongoing operations and was in the
process of disposing all of its assets and settling its liabilities related to
the promotions business. The process is ongoing and will continue throughout
2003 and possibly into 2004. During the second quarter of 2002, the discontinued
activities of the Company, consisting of revenues, operating costs, certain
general and administrative costs and certain assets and liabilities associated
with the Company's promotions business, will be classified as discontinued
operations for financial reporting purposes.

67

<PAGE>

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 requires companies to recognize costs
associated with exit or disposal activities initiated by the Company after
December 31, 2002. Management does not expect this statement to have a material
impact on the Company's consolidated financial position or results of
operations.

3. Sale of Business

In February 2001, the Company sold its Corporate Promotions Group ("CPG")
business to Cyrk, Inc. ("Cyrk"), formerly known as Rockridge Partners, Inc., 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
$14,000, which included the assumption of approximately $3,700 of Company debt
$2,300 of the purchase price was paid with a 10% per annum five-year
subordinated note from Cyrk, with the balance being paid in cash. The 2000
financial statements reflect this transaction and include a pre-tax charge of
$50,103 due to the loss on the sale of the CPG business, $22,716 of which is
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 $48,975 or $3.07 per share. Net sales in 2000 and 1999
attributable to the CPG business were $146,773 and $134,855, respectively, or
19% and 13%, respectively, 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 approximately $17,700, or 17% of consolidated Company
revenues. Net sales in the first quarter of 2000 attributable to the CPG
business were approximately $33,600, 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 the Company's
acquisitions of Marketing Incentives, Inc. ("MI") and Tonkin, Inc. ("Tonkin") in
1996 and 1997, respectively.

Pursuant to the Purchase Agreement, Cyrk purchased from the Company (i) all of
the outstanding capital stock of Cyrk Acquisition Corp. ("CAC"), successor to
the business of MI, and Tonkin, each a wholly owned subsidiary of the Company,
(ii) certain other assets of the Company, including those assets at the
Company's Danvers and Wakefield, Massachusetts facilities necessary for the
operation of the CPG business and (iii) all intellectual property of the CPG
business as specified in the Purchase Agreement. Cyrk assumed certain
liabilities of the CPG business as specified in the Purchase Agreement and all
of the assets and liabilities of CAC and Tonkin and, pursuant to the Purchase
Agreement, the Company agreed to transfer its former name, Cyrk, to the buyer.
Cyrk extended employment offers to certain former employees of the Company who
had performed various support activities, including accounting, human resources,
information technology, legal and other various management functions. There is
no material relationship between Cyrk 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 completed the restructuring effort announced by the
Company in May 2000 with respect to the CPG business. (See Note 11.)

Following the closing of the sale of the CPG business, certain disputes arose
between the Company and Cyrk. In March 2002, the Company entered into a
settlement agreement with Cyrk. Under the settlement agreement: (1) the Company
contributed $500 towards the settlement of a lawsuit against the Company and
Cyrk made by a former employee, (2) the Company cancelled the remaining
indebtedness outstanding under Cyrk's subordinated promissory note in favor of
the Company in the original principal amount of $2,300, (3) Cyrk agreed to
vacate the Danvers, Massachusetts facility by June 15, 2002 and that lease would
terminate as of June 30, 2002, thereby terminating the Company's substantial
lease liability thereunder (4) Cyrk and the Company each released the other from
all known and unknown claims (subject to limited exceptions) including Cyrk's
release of all indemnity claims made against the Company arising out of its
purchase of the CPG business, and (5) a letter of credit in the amount of $500
was provided by Cyrk for the benefit of the Company to support a portion of a
$4,200 letter of credit provided by the Company for the benefit of Cyrk in
connection with Cyrk's purchase of the CPG business. If Cyrk fails to perform
its obligations under this agreement, or fails to perform and discharge
liabilities assumed in

68

<PAGE>

connection with its purchase of the CPG business, then all or a portion of
Cyrk's indebtedness to the Company under the subordinated promissory note may be
reinstated. Pursuant to this agreement, the Company's 2001 financial statements
reflect the settlement, and include a pre-tax charge of $3,184 associated with
the write-off of the subordinated note and other charges relating to final sale
and settlement.

4. Inventories

As of December 31,2001, the Company had no inventory balances. Inventories as of
December 31, 2000 consisted of the following:

<TABLE>
<S>                         <C>
Raw materials               $   178
Work in process               3,099
Finished goods                6,898
                            -------
                            $10,175
                            =======
</TABLE>

5. Property and Equipment

Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                         December 31,
                                                      2001           2000
                                                    --------       --------
<S>                                                 <C>            <C>
Machinery and equipment                             $  3,563       $  8,157
Furniture and fixtures                                 7,442         12,943
Leasehold improvements                                   165          7,445
                                                    --------       --------
                                                      11,170         28,545
Less- accumulated depreciation and amortization       (8,356)       (16,035)
                                                    --------       --------
                                                    $  2,814       $ 12,510
                                                    ========       ========
</TABLE>

At December 31, 2001, property and equipment reflect an impairment charge of
$3,919 associated with the Company's loss of its customers (see Note 1).
Depreciation and amortization expense on property and equipment totaled $3,867,
$6,078 and $5,420 in 2001, 2000 and 1999, respectively.

6. Investments

Current

In December 2000, the Company purchased 1,500,000 shares of a marketable
security at $5.25 per share. The Company sold 1,310,000 shares in 2001 and
realized a gain on the sale of this stock of $4,249. As of December 31, 2001 and
2000, the shares of stock owned by the Company were stated at fair value of $152
and $7,969, respectively. On December 31, 2001, the Company adjusted the basis
of this investment to recognize an impairment, totaling $851,due to a decline in
market value which is considered to be other than temporary.

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

69

<PAGE>

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.

Periodically, 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 the results of these reviews, the Company has
recorded charges in 2001 and 2000 of $2,000 and $4,500, respectively, to other
expense 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 the companies in which
these investments were made will be successful, and thus the Company might not
ever realize any benefits from, or recover the cost of, its investments.

At December 31, 2001, the Company has an investment in two companies with a net
book value totaling $10,500, including a $10,000 indirect investment, through a
limited liability company that is controlled by Yucaipa, in Alliance
Entertainment Corp.("Alliance"). Yucaipa is believed to be indirectly a
significant shareholder in Alliance. Alliance is a home entertainment product
distribution, fulfillment, and infrastructure companies providing both
brick-and-mortar and e-commerce home entertainment retailers with complete
business-to-business solutions. See Subsequent Event footnote for further
details.

7. Borrowings and Long-term Obligations

The Company has several worldwide bank letters of credit and revolving credit
facilities which expire at various dates beginning in May 2002. In June 2001,
the Company secured a new primary domestic letter of credit facility of up to
$21,000 for the purpose of financing the importation of various products from
Asia and for issuing standby letters of credit. Pursuant to the provisions of
this facility, the Company had bank commitments to issue or consider issuing for
product related letter of credit borrowings of up to $15,000 and bank
commitments to issue or consider issuing for standby letters of credit of up to
$6,000 through May 15, 2002. As a result of the loss of its McDonald's and
Philip Morris business (see Note 1) the Company no longer has the ability to
borrow under its revolving credit facility or to issue a letter of credit under
any of its existing credit facilities without it being fully cash
collateralized. As of December 31, 2001, the Company's borrowing capacity was
$21.0 million, of which $.5 million in letters of credit were outstanding. In
addition, bank guarantees totaling $.3 million were outstanding at December 31,
2001. Borrowings under these facilities are collateralized by substantially all
of the assets of the Company.

$6,228 of the restricted cash at December 31, 2001 consists of amounts deposited
with lenders to satisfy the Company's obligations pursuant to its outstanding
standby letters of credit. The outstanding standby letters of credit have
maturities ranging from February 2002 through October 2002 but automatically
renew from year to year until the underlying obligation is satisfied. There is
no assurance whether all or any of such restricted cash will be released.

The total outstanding short-term borrowings at December 31, 2001 and 2000 were
$0 and $5,523, respectively. The weighted average interest rate on short-term
borrowings was 0% and 8.81% at December 31, 2001 and 2000, respectively.

During 2002, the Company settled a majority of its long-term obligations that
were outstanding as of December 31, 2001. See Subsequent Events footnote for
further details.

70

<PAGE>

8. Lease Commitments

The approximate minimum rental commitments under all noncancelable leases as of
December 31, 2001 were as follows:

<TABLE>
<S>                                                <C>
2002                                               $ 6,079
2003                                                 5,451
2004                                                 5,170
2005                                                 3,632
2006                                                 2,884
Thereafter                                           4,643
                                                   -------
Total minimum lease payments                       $27,859
                                                   =======
</TABLE>

As a consequence of the loss of its two major customers (as well as its other
customers) and its resulting effects (see Note 1), and the substantial doubt
about the Company's ability to continue as a going concern, the Company has
taken action to significantly reduce its worldwide infrastructure. As such, the
Company has eliminated approximately 377 positions worldwide and has taken and
will continue to take action to reduce its global property commitments as it.
The Company has negotiated or is in the process of early lease terminations on
most of its worldwide facilities and property and equipment rental commitments,
substantially reducing the lease commitments noted above. See Subsequent Event
footnote for further details.

Rental expense for all operating leases was $7,989, $10,893 and $11,286 for the
years ended December 31, 2001, 2000 and 1999, respectively. Rent is charged to
operations on a straight-line basis for certain leases.

9. Income Taxes

The components of the provision (benefit) for income taxes are as follows:

<TABLE>
<CAPTION>
                        For the Years Ended December 31,
                         2001         2000         1999
<S>                     <C>         <C>          <C>
Current:
            Federal     $   520     $(4,544)     $ 3,710
            State             -         465        1,074
            Foreign           -       2,086        1,041
                        --------------------------------
                              -      (1,993)       5,825
                        --------------------------------

Deferred:
            Federal      10,702        (258)       2,226
            State         1,152         646          349
                        --------------------------------
                         11,854         388        2,575
                        --------------------------------

                        --------------------------------
                        $12,374     $(1,605)     $ 8,400
                        ================================
</TABLE>

As required by SFAS 109, the Company periodically evaluates the positive and
negative evidence bearing upon the realizability of its deferred tax assets. The
Company, however, has considered recent events (see Note 1) and results of
operations and concluded, in accordance with the applicable accounting methods,
that it is more likely than not that the deferred tax assets will not be
realizable. As a result, the Company

71

<PAGE>

recorded an additional valuation allowance and tax provision of approximately
$39,958 was recorded during 2001. The tax effects of temporary differences that
gave rise to deferred tax assets as of December 31, were as follows:

<TABLE>
<CAPTION>
                                                          2001                   2000
                                                       --------------------------------
<S>                                                    <C>                    <C>
Deferred tax assets
  Receivable reserves                                  $     864              $     536
  Inventory capitalization and reserves                    2,217                    179
  Other asset reserves                                     7,453                  2,671
  Deferred compensation                                    1,186                  1,100
  Capital losses                                           2,594                  2,725
  Foreign tax credits                                      1,881                  1,881
  Alternative minimum tax credits                            637                    637
  Net operating losses                                    27,537                  7,213
  Depreciation                                             1,146                    469
  Valuation allowance                                    (45,515)                (5,557)
                                                       ---------              ---------
                                                       $       -              $  11,854
                                                       =========              =========
</TABLE>

As of December 31, 2001, the Company had federal and state net operating loss
carryforwards of approximately $59,916 and $82,614, respectively. The federal
net operating loss carryforward will begin to expire in 2020 and the state net
operating loss carryforwards began to expire in 2002. As of December 31, 2001,
the Company also had foreign tax credit carryforwards of $1,881 that began to
expire in 2002 and alternative minimum tax credits of $637 which carryforward
indefinitely.

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

<TABLE>
<CAPTION>
                                                              2001           2000          1999
                                                             ------         ------        ------
<S>                                                          <C>            <C>           <C>
Federal tax (benefit) rate
Increase (decrease) in taxes resulting from:                  (35)%          (35)%          35%
     State income, taxes, net of federal benefit               (1)             1             5
     Effect of foreign tax rates and non-utilization
        of losses (1)                                          32              7            (6)
     Goodwill                                                  16              1             5
     Non-deductible loss on sale of business                    0             22             0
     Meals and entertainment                                    0              1             1
     Other, net                                                (1)             1             3
                                                               --             --            --
Effective tax (benefit) rate                                   11%            (2%)          43%
                                                               ==             ==            ==
</TABLE>

(1) 1999 includes utilization of prior year foreign losses.

During 2002, the Company was audited by the Internal Revenue Service for the tax
years 1996 through 2000. See subsequent event footnote for further details.

72

<PAGE>

10. Accrued Expenses and Other Current Liabilities

At December 31, 2001 and 2000, accrued expenses and other current liabilities
consisted of the following:

<TABLE>
<CAPTION>
                                                                 2001        2000
                                                                 ----        ----
<S>                                                             <C>         <C>
Accrued payroll and related items and
   deferred compensation                                        $10,400     $12,501
Inventory purchases                                               6,201      19,535
Deferred revenue                                                     --       4,425
Lease Obligations                                                 2,596          96
Royalties                                                         2,912       1,833
Promotion Administrator Fees                                      2,962          --
Other                                                             6,444      14,875
                                                                -------     -------

                                                                $31,515     $53,265
                                                                =======     =======
</TABLE>

See Subsequent Events footnote for additional information with respect to the
settlement of certain liabilities included in the totals above.

11. Restructuring and Other Nonrecurring Charges

A summary of the nonrecurring charges for the years ended December 31, 2001,
2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                           2001        2000        1999
                           ----        ----        ----
<S>                      <C>         <C>         <C>
Restructuring charge     $20,212     $ 5,735     $    --
Settlement charge             --         660       1,675
                         -------     -------     -------
                         $20,212     $ 6,395     $ 1,675
                         =======     =======     =======
</TABLE>

2001 Restructuring

After the February 2001 sale of its CPG business, and its previously announced
intentions, the Company conducted a second quarter 2001 evaluation of its
remaining businesses with the objective of restoring consistent profitability
through a more rationalized, cost-efficient business model. As a result of this
evaluation, and pursuant to a plan approved by its Board of Directors, the
Company has taken action to shutdown or consolidate certain businesses, sell
certain assets and liabilities related to its legacy corporate catalog business
in the United Kingdom and eliminate approximately two-thirds (40 positions) of
its Wakefield, Massachusetts corporate office workforce. Additionally, the
Company announced the resignation of its co-chief executive officer and two
other executive officers, including the Company's chief financial officer.
Consequently, the Company announced that all responsibilities for the chief
executive officer position had been consolidated under Allan I. Brown, who had
served as co-chief executive officer since November 1999 and as the chief
executive officer of Simon Marketing, Inc., the Company's wholly owned
subsidiary based in Los Angeles, California since 1975.

As a result of these actions, the Company recorded a second quarter 2001 pre-tax
charge of approximately $20,212 for restructuring expenses. The second quarter
charge relates principally to employee termination costs ($10,484), asset
write-downs which were primarily attributable to a consolidation of its
Wakefield, Massachusetts workspace ($6,500), a loss on the sale of the UK
business ($2,147) and the settlement of

73

<PAGE>

certain lease obligations ($1,081). Total cash outlays related to restructuring
activities were approximately $12,855 during 2000 and 2001. The restructuring
plan was substantially complete by the end of 2001. See Subsequent Events
footnote for further details. A summary of activity in the restructuring accrual
related to the

2001 restructuring action is as follows:

<TABLE>
<S>                              <C>
Balance at January 1, 2001       $     --
Restructuring provision            20,212
Non-cash asset write-downs         (8,874)
Employee termination costs
  and other cash payments          (9,340)
                                 --------
Balance at December 31, 2001     $  1,998
                                 ========
</TABLE>

2000 Restructuring

On May 11, 2000, the Company announced that, pursuant to a plan approved by its
Board of Directors, it was integrating and streamlining its traditional
promotional product divisions, Corporate Promotions Group and Custom Product &
Licensing, into one product focused business unit. In association with the
consolidation of its product divisions, the Company eliminated a substantial
number of inventory SKUs from its product offering. As a result of this action
the Company recorded a 2000 pre-tax charge of $6,360 for restructuring expenses.
This charge was based on the Company's intentions and best estimates at the time
of the restructuring announcement. The original restructuring charge was revised
downward to $5,735, or a reversal of $625 of the original accrual as a result of
the sale of the CPG business (see Note 3).

The restructuring charge relates principally to involuntary termination costs
($2,970), asset write-downs ($1,965, including $1,695 of inventory write-downs)
and the settlement of lease obligations ($800). The Company eliminated
approximately 85 positions, or 7% of its domestic workforce. This charge had the
effect of increasing the 2000 net loss available to common stockholders by
approximately $5,606 or $0.35 per share. The restructuring plan was
substantially complete by the end of 2000. See Subsequent Events footnote for
further details. A summary of activity in the restructuring accrual is as
follows:

<TABLE>
<S>                              <C>
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           (657)
Non-cash asset write-downs           (90)
                                 -------
Balance at December 31, 2001     $   446
                                 =======
</TABLE>

2000 Settlement Charge

The Company recorded a 2000 nonrecurring pre-tax charge to operations of $660
associated with the settlement of a change in control agreement with an employee
of the Company who was formerly an executive officer.

74

<PAGE>

1999 Settlement Charge

The Company recorded a 1999 nonrecurring pre-tax charge to operations of $1,675
associated with the settlement of previously issued incentive stock options in a
subsidiary which were issued to principals of a previously acquired company. The
settlement was reached to facilitate the integration of the acquired company
into other operations within one of the Company's divisions.

12. Redeemable Preferred Stock

In November 1999, Overseas Toys, L.P., an affiliate of the Yucaipa Companies
("Yucaipa"), a Los Angeles-based investment firm, invested $25,000 in the
Company in exchange for preferred stock and a warrant to purchase additional
preferred stock. Under the terms of the investment, which was approved at a
Special Meeting of Stockholders on November 10, 1999, the Company issued 25,000
shares of a newly authorized senior cumulative participating convertible
preferred stock ("preferred stock") to Yucaipa for $25,000. Yucaipa is entitled,
at their option, to convert each share of preferred stock into common stock
equal to the sum of $1,000 per share plus all accrued and unpaid dividends,
divided by $8.25 (3,216,728 shares as of December 31, 2001 and 3,108,049 shares
as of December 31, 2000).

In connection with the issuance of the preferred stock, the Company also issued
a warrant to purchase 15,000 shares of a newly authorized series of preferred
stock at a purchase price of $15,000. Each share of this series of preferred
stock issued upon exercise of the warrant is convertible, at Yucaipa's option,
into common stock equal to the sum of $1,000 per share plus all accrued and
unpaid dividends, divided by $9.00 (1,666,667 shares as of December 31, 2001 and
December 31, 2000, respectively). The warrant expires on November 10, 2004.

Assuming conversion of all of the convertible preferred stock, Yucaipa would own
approximately 16% of the then outstanding common shares at December 31, 2001 and
December 31, 2000, respectively. Assuming the preceding conversion, and assuming
the exercise of the warrant and the conversion of the preferred stock issuable
upon its exercise, Yucaipa would own a total of approximately 23% of the then
outstanding common shares at December 31, 2001 and December 31, 2000,
respectively, making it the Company's largest shareholder.

Yucaipa has voting rights equivalent to the number of shares of common stock
into which their preferred stock is convertible on the relevant record date.
Also, Yucaipa is entitled to receive a quarterly dividend equal to 4% of the
base liquidation preference of $1,000 per share outstanding, payable in cash or
in-kind at the Company's option.

In the event of liquidation, dissolution or winding up of the affairs of the
Company, Yucaipa, as holders of the preferred stock, will be entitled to receive
the redemption price of $1,000 per share plus all accrued dividends plus (1) (a)
7.5% of the amount that the Company's retained earnings exceeds $75,000 less (b)
the aggregate amount of any cash dividends paid on common stock which are not in
excess of the amount of dividends paid on the preferred stock, divided by (2)
the total number of preferred shares outstanding as of such date (the "adjusted
liquidation preference"), before any payment is made to other stockholders.

The Company may redeem all or a portion of the preferred stock at a price equal
to the adjusted liquidation preference of each share, if the average closing
prices of the Company's common stock have exceeded $12.00 for sixty consecutive
trading days on or after November 10, 2002, or, any time on or after November
10, 2004. The preferred stock is subject to mandatory redemption if a change in
control of the Company occurs.

In connection with this transaction, the managing partner of Yucaipa was
appointed chairman of the Company's Board of Directors and Yucaipa was entitled
to nominate two additional individuals to a seven-person board. In August 2001,
the managing partner of Yucaipa, along with another Yucaipa representative,
resigned from the Company's Board of Directors. Additionally, the Company paid
Yucaipa a management fee of $500 per year for a five-year term for which Yucaipa
provided general business consultation and advice and management services. See
Subsequent Events footnote for further details.

75

<PAGE>

13. Stock Plans

At December 31, 2001, the Company had three stock-based compensation plans,
which are described below. The Company adopted the disclosure provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") and has applied APB Opinion 25 and related
Interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized related to such plans. Had compensation cost for the
Company's 2001, 2000 and 1999 grants for stock based compensation plans been
determined consistent with SFAS 123, the Company's net income (loss) and
earnings (loss) per common share would have been reduced (increased) to the pro
forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                    2001            2000            1999
                                                                    ----            ----            ----
<S>                                                             <C>              <C>               <C>
Net income (loss) Available for Common- as reported             $  (123,387)     $  (70,715)       $10,994

Net income (loss) Available for Common- pro forma                  (124,230)        (72,143)         9,017

Earnings (loss) per common share - basic - as reported                (7.50)          (4.43)          0.70

Earnings (loss) per common share - diluted - as reported              (7.50)          (4.43)          0.67

Earnings (loss) per common share - basic - pro forma                  (7.55)          (4.52)          0.58

Earnings (loss) per common share - diluted - pro forma                (7.55)          (4.52)          0.55
</TABLE>

1993 Omnibus Stock Plan

Under its 1993 Omnibus Stock Plan (the "Omnibus Plan"), as amended in May 1997,
the Company has reserved up to 3,000,000 shares of its common stock for issuance
pursuant to the grant of incentive stock options, nonqualified stock options or
restricted stock. The Omnibus Plan is administered by the Compensation Committee
of the Board of Directors. Subject to the provisions of the Omnibus Plan, the
Compensation Committee has the authority to select the optionees or restricted
stock recipients and determine the terms of the options or restricted stock
granted, including: (i) the number of shares; (ii) the exercise period (which
may not exceed ten years); (iii) the exercise or purchase price (which in the
case of an incentive stock option cannot be less than the market price of the
common stock on the date of grant); (iv) the type and duration of options or
restrictions, limitations on transfer and other restrictions; and (v) the time,
manner and form of payment. Generally, an option is not transferable by the
option holder except by will or by the laws of descent and distribution. Also,
generally, no incentive stock option may be exercised more than 60 days
following termination of employment. However, in the event that termination is
due to death or disability, the option is exercisable for a maximum of 180 days
after such termination. Options granted under this plan generally become
exercisable in three equal installments commencing on the first anniversary of
the date of grant.

1997 Acquisition Stock Plan

The 1997 Acquisition Stock Plan (the "1997 Plan") is intended to provide
incentives in connection with the acquisitions of other businesses by the
Company. The 1997 Plan is identical in all material respects to the Omnibus
Plan, except that the number of shares available for issuance under the 1997
Plan is 1,000,000 shares.

The fair value of each option grant under the above plans was estimated using
the Black-Scholes option pricing model with the following weighted average
assumptions for 2001, 2000 and 1999, respectively: expected dividend yield of
zero % for all years; expected life of 3.0 years for 2001, 4.5 years for 2000
and 4.4 years for 1999; expected volatility of 142% for 2001, 70% for 2000 and
63% for 1999; and, a risk-free interest rate of 4.4% for 2001, 6.7% for 2000 and
5.2% for 1999.

The following summarizes the status of the Company's stock options as of
December 31, 2001, 2000 and 1999 and changes during the year ended on those
dates:

76

<PAGE>

<TABLE>
<CAPTION>
                                                              2001                     2000                       1999
                                                            Weighted                 Weighted                   Weighted
                                                            Exercise                 Exercise                   Exercise
                                                Shares        Price      Shares        Price       Shares         Price
                                              ----------    --------   ----------    --------    ----------     --------
<S>                                           <C>           <C>         <C>          <C>         <C>            <C>
Outstanding at beginning of year               1,847,448    $  9.45     2,322,121    $  10.17     2,175,927     $  11.35
             Granted                             182,000       0.35       336,931        6.41       462,651         5.67
             Exercised                                 -          -       (19,008)       6.02             -            -
             Canceled                           (853,249)     10.32      (792,596)      10.35      (316,457)       11.68
                                              ----------               ----------                ----------
Outstanding at end of year                     1,176,199       7.55     1,847,448        9.45     2,322,121        10.17

Options exercisable at year-end                  844,809       8.96     1,290,702       10.75     1,390,761        11.26
                                              ----------               ----------                ----------
Options available for future grant             2,586,389                1,915,140                 1,459,475
                                              ----------               ----------                ----------
Weighted average fair value of
     options granted during the year          $     1.92               $     3.88                $     3.12
</TABLE>

The following table summarizes information about stock options outstanding at
December 31, 2001:

<TABLE>
<CAPTION>
                     Options Outstanding                       Options Exercisable
                     -------------------                       -------------------
                                    Weighted
                                    Average        Weighted                   Weighted
    Range of                       Remaining        Average                   Average
    Exercise          Number      Contractual      Exercise      Number       Exercise
     Prices        Outstanding       Life           Prices    Exercisable      Prices
--------------     -----------    -----------      --------   -----------     --------
<S>                <C>            <C>              <C>        <C>             <C>
$ 0.20 - $ 5.38       359,905         7.8 years    $   2.83     205,179       $  3.97

  6.13 -   8.81       293,953        8.00              6.48     117,289          6.79

 10.00 -  10.87       336,996        5.50             10.67     336,996         10.67

 10.88 -  28.75       185,345        4.00             12.73     185,345         12.73

$ 0.20 - $28.75     1,176,199        6.60              7.55     844,809          8.96
</TABLE>

Employee Stock Purchase Plan

Pursuant to its 1993 Employee Stock Purchase Plan (the "Stock Purchase Plan"),
as amended in November 1999, the Company is authorized to issue up to an
aggregate of 600,000 shares of its common stock to substantially all full-time
employees electing to participate in the Stock Purchase Plan. Eligible employees
may contribute, through payroll withholdings or lump-sum cash payment, up to 10%
of their base compensation during six-month participation periods beginning in
January and July of each year. At the end of each participation period, the
accumulated deductions are applied toward the purchase of Company common stock
at a price equal to 85% of the market price at the beginning or end of the
participation period, whichever is lower. Employee purchases amounted to 57,808
shares in 2001, 80,284 shares in 2000 and 88,132 shares in 1999 at prices
ranging from $2.59 to $6.69 per share. At December 31, 2001, 190,811 shares were
available for future purchases. The fair value of the employees' purchase rights
was estimated using the Black-Scholes option pricing model with the following
weighted average assumptions for 2001, 2000 and 1999, respectively: expected
dividend yield of zero % for all years; expected life of six months for all
years; expected volatility of 142% for 2001, 70% for 2000 and 63% for 1999; and,
a risk-free interest rate of 4.4%, 5.6% and 4.8% for 2001, 2000 and 1999,
respectively. The weighted average fair value of those purchase rights per share
granted in 2001, 2000 and 1999 was $1.69, $1.77 and $1.91, respectively.

77

<PAGE>

Common Stock Purchase Warrants

In February 1998, the Company issued 975,610 shares of its common stock and a
warrant to purchase up to 100,000 shares of its common stock in a private
placement, resulting in net proceeds of approximately $10,000 which will be used
for general corporate purposes. The warrant is exercisable at any time from the
grant date of February 12, 1998 to February 12, 2003 at an exercise price of
$10.25 per share, which represented the fair market value on the grant date.

Additionally, in June 1998, the Company issued a warrant to purchase 200,000
shares of the Company's common stock as part of settling a preacquisition
contingency of Simon. The warrant is exercisable at any time from the grant date
of June 30, 1998 to July 31, 2002 at an exercise price of $11.00 per share,
which represented the fair market value on the grant date.

14. Comprehensive Income

The Company's comprehensive income consists of net income (loss), foreign
currency translation adjustments and unrealized holding gains (losses) on
available-for-sale securities, and is presented in the Consolidated Statements
of Stockholders' (Deficit) Equity. Components of other comprehensive income
(loss) consist of the following:

<TABLE>
<CAPTION>
                                                      2001         2000         1999
                                                      ----         ----         ----
<S>                                                 <C>          <C>          <C>
Change in unrealized gains
     and losses on investments                      $   (94)     $(2,196)     $  (189)
Foreign currency translation
     adjustments                                     (1,186)         109         (719)
Income tax benefit (expense) related to
     unrealized gains and losses on investments          --          954           83
                                                    ---------------------------------
Other comprehensive income (loss)                   $(1,280)     $(1,133)     $  (825)
                                                    =================================
</TABLE>

15. Profit-Sharing Retirement Plan

The Company has a qualified profit-sharing plan under Section 401(k) of the
Internal Revenue Code that is available to substantially all employees. Under
this plan the Company matches one-half of employee contributions up to six
percent of eligible payroll. Employees are immediately fully vested for their
contributions and vest in the Company contribution ratably over a three-year
period. The Company's contribution expense for the years ended December 31,
2001, 2000 and 1999 was $664, $1,194 and $1,101, respectively.

16. Commitments and Contingencies

In addition to the legal matters discussed in Note 1, the Company is also
involved in other litigation and various legal matters, which have arisen in the
ordinary course of business. The Company does not believe that the ultimate
resolution of these other litigation and various legal matters will have a
material adverse effect on its financial condition, results of operations or net
cash flows.

17. Related Party Transactions

The Company leased warehouse facilities under a fifteen-year operating lease
agreement, which was to expire December 31, 2011 from a limited liability
company which is jointly owned by a former officer and a former director of the
Company. The agreement provided for annual rent of $462 and for the payment by
the Company of all utilities, taxes, insurance and repairs. As a result of the
February 2001 sale of the CPG business (see Note 3), the buyer became the
primary obligor under this lease, however, the Company remained liable under
this lease to the extent that the buyer did not perform its obligations under
the lease.

78

<PAGE>

Pursuant to an agreement entered into in March 2002, among and between the
Company, the buyer and the landlord, the lease terminated effective June 30,
2002, along with any and all obligations of the Company under the lease.

In order to induce their continued commitment to provide vital services to the
Company in the wake of the events of August 2001, in the third quarter of 2001
the Company entered into retention arrangements with its Chief Executive
Officer, each of the three non-management members of the Company's Board of
Directors (the "Board") and key members of management of Simon Marketing. As a
further inducement to the Company's directors to continue their service to the
Company, and to provide assurances that the Company will be able to fulfill its
obligations to indemnify directors, officers and agents of the Company and its
subsidiaries ("Indemnitees") under Delaware law and pursuant to various
contractual arrangements, in March 2002 the Company entered into an
Indemnification Trust Agreement ("Agreement") for the benefit of the
Indemnitees. Pursuant to this Agreement, the Company has deposited a total of
$2,700 with an independent trustee in order to fund any indemnification amounts
owed to an Indemnitee which the Company is unable to pay.

In connection with the wind-down of its business operations and pursuant to
negotiations that began in the fourth quarter of 2001, the Company entered into
a Termination, Severance and General Release Agreement ("Agreement") with its
Chief Executive Officer ("CEO") in March 2002. In accordance with the terms of
this Agreement, the CEO's employment with the Company terminated in March 2002
(the CEO remains on the Company's Board of Directors) and substantially all
other agreements, obligations and rights existing between the CEO and the
Company were terminated, including the CEO's Employment Agreement dated
September 1, 1999, as amended, and his retention agreement dated August 29,
2001. (For additional information related to the CEO's retention agreement, see
the Company's 2001 third quarter Form 10-Q.) The ongoing operations of the
Company and Simon Marketing are being managed by the Executive Committee of the
Board consisting of Messrs. Golleher and Kouba, in consultation with outside
financial, accounting, legal and other advisors. As a result of the foregoing,
the Company recorded a 2001 fourth quarter pre-tax charge of $4,563, relating
principally to the forgiveness of indebtedness of the CEO to the Company, a
lump-sum severance payment and the write-off of an asset associated with an
insurance policy on the life of the CEO. The Company received a full release
from the CEO in connection with this Agreement, and the Company provided the CEO
with a full release. Additionally, the Agreement calls for the CEO to provide
consulting services to the Company for a period of six months after the CEO's
employment with the Company terminated in exchange for a fee of approximately
$47 per month, plus specified expenses.

On August 28, 2001, the Company entered into retention letter agreements with
each of Joseph Bartlett, George Golleher and Anthony Kouba, the non-management
members of the Board, pursuant to which the Company paid each of them a
retention fee of $150 in exchange for their agreement to serve as a director of
the Company for at least six months. If a director resigned before the end of
the six-month period, the director would have been required to refund to the
Company the pro rata portion of the retention fee equal to the percentage of the
six-month period not served. Additionally, the Company agreed to compensate
these directors at an hourly rate of $.750 for services outside of Board and
committee meetings (for which they are paid $2 per meeting in accordance with
existing Company policy). In 2001, payments totaling $276, $463 and $480 were
made to Messrs. Bartlett, Golleher and Kouba, respectively.

In addition, retention agreements were entered into in September and October
2001 with certain key employees which provide for retention payments ranging
from 8% to 100% of their respective salaries conditioned upon continued
employment through specified dates and/or severance payments up to 100% of these
employee's respective annual salaries should such employees be terminated within
the parameters of their agreements (for example, termination without cause). In
the first quarter of 2002, additional similar agreements were entered into with
certain employees of one of the Company's subsidiaries. Payments under these
agreements have been made at various dates from September 2001 through March
2002. The Company's obligations under these agreements are approximately $3,100.
Approximately $1,700 of these commitments had been segregated in separate cash
accounts in October 2001, in which security interests had been granted to
certain employees, and have been released back to the Company in 2002 upon
making of retention and severance payments to these applicable employees.

79

<PAGE>

18. Segments and Related Information

Up to the events of August 2001 (see Note 1), the Company operated in one
industry: the promotional marketing industry. The Company's business in this
industry encompasses the design, development and marketing of high-impact
promotional products and programs.

A significant percentage of the Company's sales has been attributable to a small
number of customers. In addition, a significant portion of trade accounts
receivable related to these customers. The following summarizes the
concentration of sales and trade receivables for customers with sales in excess
of 10% of total sales for any of the years ended December 31, 2001, 2000 and
1999, respectively:

<TABLE>
<CAPTION>
                                     % of Sales                      % of Trade Receivables
                                     ----------                      ----------------------
                             2001        2000      1999            2001       2000       1999
                             ----        ----      ----            ----       ----       ----
<S>                          <C>         <C>       <C>             <C>        <C>        <C>
Company A                     78          65        61              55         73         35
Company B                      8           9         9              15         15          6
</TABLE>

The Company historically conducted its promotional marketing business on a
global basis. The following summarizes the Company's net sales for the years
ended December 31, 2001, 2000 and 1999, respectively, by geographic area:

<TABLE>
<CAPTION>
                     2001         2000         1999
                     ----         ----         ----
<S>                <C>          <C>          <C>
United States      $199,583     $505,209     $608,613
Germany              45,709       76,015      111,231
Asia                 45,301      106,380       54,661
United Kingdom       13,676       25,962      153,976
Other foreign        19,771       54,884       60,363
                   --------     --------     --------
Consolidated       $324,040     $768,450     $988,844
                   ========     ========     ========
</TABLE>

The following summarizes the Company's long-lived assets as of December 31,
2001, 2000 and 1999, respectively, by geographic area:

<TABLE>
<CAPTION>
                    2001         2000         1999
                    ----         ----         ----
<S>               <C>          <C>          <C>
United States     $ 16,267     $ 79,861     $104,073
Foreign                987        3,297        3,559
                  --------     --------     --------
Consolidated      $ 17,254     $ 83,158     $107,632
                  ========     ========     ========
</TABLE>

Geographic areas for net sales are based on customer locations. Long-lived
assets include property and equipment, excess of cost over net assets acquired
(in 2000 and 1999) and other non-current assets.

80

<PAGE>

19. Earnings Per Share Disclosure

The following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computation for "income (loss) available to common
stockholders" and other related disclosures required by SFAS 128:

<TABLE>
<CAPTION>
                                                     For the Years Ended December 31,
                                               2001                                    2000
                           --------------------------------------------------------------------------------
                                                            Per                                       Per
                              Income          Shares       Share       Income          Shares        Share
                           (Numerator)    (Denominator)    Amount    (Numerator)    (Denominator)    Amount
<S>                        <C>            <C>              <C>       <C>            <C>              <C>
Basic EPS:
Income (loss)
  available to

  common stockholders      $  (123,387)      16,454,779    $(7.50)   $   (70,715)     15,971,537     $(4.43)
Preferred stock
  dividends                      1,042                                     1,000
Effect of Dilutive
  Securities:
Common stock equivalents
Convertible preferred
  Stock
Contingently and
  non-contingently
  issuable shares related
  to acquired companies
Diluted EPS:
  Income (loss) available
  to common stockholders
                           --------------------------------------------------------------------------------

  and assumed conversions  $  (122,345)      16,454,779    $(7.50)   $   (69,715)     15,971,537     $(4.43)
                           ================================================================================
</TABLE>

<TABLE>
<CAPTION>

                                          1999
                           ------------------------------------
                                                          Per
                             Income         Shares       Share
                           (Numerator)   (Denominator)   Amount
<S>                        <C>           <C>             <C>
Basic EPS:
Income (loss)
  available to

  common stockholders      $    10,994     15,624,366    $ 0.70
Preferred stock
  dividends                        142
Effect of Dilutive
  Securities:
Common stock equivalents                       95,444
Convertible preferred
  Stock                                       428,195
Contingently and
  non-contingently
  issuable shares related
  to acquired companies                       483,402
Diluted EPS:
  Income (loss) available
  to common stockholders
                           ------------------------------------

  and assumed conversions  $    11,136     16,631,407    $ 0.67
                           ====================================
</TABLE>

For the years ended December 31, 2001 and December 31, 2000, 3,376,032 and
3,499,226, respectively, 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.

20. Quarterly Results of Operations (Unaudited)

The following is a tabulation of the quarterly results of operations for the
years ended December 31, 2001 and 2000, respectively:

<TABLE>
<CAPTION>
                                      First         Second         Third           Fourth
                                     Quarter        Quarter        Quarter         Quarter
                                     -------        -------        -------         -------
<S>                                 <C>            <C>            <C>            <C>
2001
Net sales                           $ 106,505      $ 111,089      $  93,819      $   12,627
Gross profit                           24,965         18,971         20,398           7,380
Net loss                               (4,219)       (14,854)       (67,193)        (36,079)
Loss per common share - basic           (0.28)         (0.92)         (4.05)          (2.17)
Loss per common share - diluted         (0.28)         (0.92)         (4.05)          (2.17)
</TABLE>

81

<PAGE>

<TABLE>
<CAPTION>
                                                 First         Second          Third          Fourth
                                                Quarter        Quarter        Quarter         Quarter
                                                -------        -------        -------         -------
<S>                                            <C>            <C>            <C>            <C>
2000
Net sales                                      $ 177,303      $ 224,333      $ 178,702      $   188,112
Gross profit                                      32,934         32,353         37,402           41,336
Net income (loss)                                   (668)        (9,523)        (1,434)         (58,090)
Earnings (loss) per common share - basic           (0.06)         (0.61)         (0.10)           (3.63)
Earnings (loss) per common share - diluted         (0.06)         (0.61)         (0.10)           (3.63)
</TABLE>

21. Subsequent Events

ACCOUNTS RECEIVABLE RECOVERIES

On November 13, 2001, the Company had filed suit against Philip Morris in
California Superior Court for the County of Los Angeles, asserting numerous
causes of action arising from Philip Morris' termination of the Company's
relationship with Philip Morris. Subsequently, the Company dismissed the action
without prejudice, so that the Company and Philip Morris could attempt to
resolve this dispute outside of litigation. During the second quarter of 2002, a
settlement was reached resulting in a payment of $1.5 million by Philip Morris
to the Company. As this payment was in excess of the Company's net outstanding
receivable due from Philip Morris, a gain of approximately $.5 million will be
recorded in connection with this settlement. During the second and third
quarters of 2002, the Company also received payments, totaling approximately $.9
million, relating to accounts receivable from other former customers that had
been previously deemed to be uncollectible and written off during 2001. The
Company also received approximately $.4 million in connection with the
termination of a retirement plan held by one of its foreign subsidiaries. These
collections will be recorded as a reduction to charges attributable to loss of
significant customers during 2002.

LONG TERM INVESTMENTS

During the second quarter of 2002, certain events occurred which indicated an
impairment of the value of certain other investments of the Company, which had a
carrying value of $10,000 at December 31, 2001. These investments are in a
limited liability company controlled by Yucaipa. The limited liability company's
sole assets are direct ownership investments in non-public companies. The
Company will record a non-cash charge of $10,000 in the second quarter of 2002
to write-down its investment. For the years ended December 31, 2001 and December
31, 2000, the Company also recorded impairment charges of $1,500 and $2,500,
respectively, related to other investments in Yucaipa entities. In addition,
during the third quarter of 2002, the Company received a final return of
capital, totaling approximately $275, on an investment with a carrying value
totaling approximately $525 as of December 31, 2001. A loss of approximately
$250 will be recorded in connection with this final distribution. These charges
will be included in other income (expense) during 2002.

SUPPLIER SETTLEMENTS

Throughout 2002, the Company negotiated settlements related to outstanding
liabilities with many of its suppliers. As these settlements were on terms
generally more favorable to the Company than required by the existing terms of
the liabilities, the Company will record gains totaling approximately $12,000 in
connection with these settlements.

82

<PAGE>

ACCRUED RESTRUCTURING CHARGES

During the second quarter of 2002, the Company revised its initial estimate of
future restructuring activities and, as a result, will record a $750 reduction
to the restructuring accrual outstanding as of December 31, 2001.

TAX LIABILITIES

Accrued Expenses as of December 31, 2001 included a tax accrual totaling
approximately $3.5 million. An audit by the Internal Revenue Service covering
the tax years 1996 through 2000 is in process during 2002. Based on the filing
of the 2001 tax return in 2002 and preliminary discussions with the IRS,
management believed that the Company had no additional tax obligations.
Therefore, the aforementioned accrual will be reversed through the 2002 Income
Tax Provision (Benefit) during the second quarter of 2002.

SETTLEMENT OF LONG TERM OBLIGATIONS

During the first and second quarters of 2002, the Company settled all of its
outstanding domestic and international real estate and equipment lease
obligations, except for one expired warehouse lease with approximately $70 of
unpaid rent, and relocated its remaining scaled-down operations to smaller
office space in Los Angeles. In connection with these early lease terminations,
the Company made aggregate payments totaling approximately $2.9 million to
settle all current and future lease obligations. As of December 31, 2001, the
Company had recorded net lease - related liabilities totaling approximately $5.7
million, primarily included within other assets and Long Term Liabilities in the
accompanying 2001 consolidated financial statements. The difference between the
final settlement payment and the outstanding lease obligations, net of related
assets, will result in a 2002 gain totaling approximately $2.8 million.

In connection with the discontinuance of the Company's supermarket operations,
the Company filed a lawsuit in 1993 against its former contractual partner.
During 1998 the Company settled the litigation by entering into a Joint Business
Arrangement with the defendant, at which time the Company made a cash payment
and recorded a $2.9 million accrual for the maximum potential liability under
the agreement, which is included in other long term obligations in the
accompanying 2001 financial statements. During the third quarter of 2002, the
Company paid approximately $2.2 million to settle these obligations, resulting
in a settlement gain of $.7 million.

CONTINGENT PAYMENT OBLIGATIONS

As a result of the precipitous drop in the value of the Company's common stock
after the announcement of the loss of its two largest customers (see note 1),
the Company had recorded a $5.0 million charge in the third quarter 2001 to
accelerate the recognition of contingent payment obligations (due in June 2002)
arising from the acquisition of Simon Marketing in 1997. This obligation is
included in accrued expenses and other current liabilities in the accompanying
2001 financial statements. Pursuant to Separation, Settlement and General
Release Agreements entered into during the first and second quarters of 2002,
the Company paid approximately $2.0 million to settle these obligations,
resulting in an adjustment of approximately $3.0 million to be recorded through
additional paid in capital during 2002.

RESTRICTED CASH

Restricted cash as of December 31, 2001 consisted of $6.2 million deposited with
lenders to satisfy the Company's obligations pursuant to its outstanding standby
letters of credit and $2.5 million, which was segregated in separate cash
accounts in which security interests had been granted to certain employees for
retention payments. During 2002, the $2.5 million was released back to the
Company upon making of retention and severance payments to these employees. In
March 2002, restricted cash totaling $500 was also released as a result of a
settlement with Cyrk. See Note 3 for further details.

83

<PAGE>

EMPLOYEE SETTLEMENT AGREEMENTS

During the first quarter of 2002, the Company entered into a Settlement and
General Release Agreement with an executive in the Hong Kong office. Pursuant to
the terms of this agreement, the executive's employment with the Company
terminated in March 2002 and all other agreements, obligations and rights
existing between this executive and the Company were terminated in exchange for
a lump-sum payment of approximately $.8 million. Additionally, the Company
received a full release from the executive in connection with this agreement,
and the Company provided the executive with a full release. During the second
quarter of 2002, the Company settled a deferred compensation obligation with a
former director for an amount less than the liability recorded on the Company's
books, resulting in a gain of approximately $.5 million. During the first and
second quarters of 2002, the Company also entered into settlement and
termination agreements with a number of executives resulting in payments of
approximately $2.3 million.

RELATED PARTY TRANSACTIONS

On October 17, 2002, the Management Agreement between the Company and Yucaipa
was terminated by agreement between the parties and a payment was made by the
Company to Yucaipa of $1.5 million and each party was released from further
obligations thereunder. The Company will recorded this payment as expense during
2002. See Note 12 for details.

In the fourth quarter of 2002, Cyrk informed the Company that Cyrk (1) was
suffering substantial financial difficulties, (2) , would not be able to
discharge its obligations secured by the Company's $4.2 million letter of credit
and (3) would be able to obtain a $2.5 million equity infusion if it was able to
decrease Cyrk's liability for these obligations. As a result, in December 2002,
the Company granted Cyrk an option until April 20, 2003 to pay the Company $1.5
million in exchange for the Company's agreement to apply its $3.7 million
restricted cash to discharge Cyrk's obligations to Winthrop, with any remainder
to be turned over to Cyrk. The option may only be exercised after the
satisfaction of several conditions, including the Company's confirmation of
Cyrk's financial condition, Cyrk and Simon obtaining all necessary third party
consents, Cyrk and its subsidiaries providing Simon with a full release of all
known and unknown claims, and the Company having no further liability to
Winthrop as a guarantor of Cyrk's obligations. To the extent Cyrk exercises this
option, the Company would incur a loss ranging from between $2.2 million to $3.7
million. At this time, the Company is unable to assess the likelihood of this
event.

INDEMNIFICATION TRUST AGREEMENT

In March 2002, the Company, Simon Marketing and a Trustee entered into an
Indemnification Trust Agreement (the "Agreement" or the "Trust") which requires
the Company and Simon Marketing to fund an irrevocable trust in the amount of
$2,700. The Trust was set up and will be used to augment the Company's existing
insurance coverage for indemnifying directors, officers and certain described
consultants, who are entitled to indemnification against liabilities arising out
of their status as directors, officers and/or consultants (individually,
"Indemnitee" or collectively, "Indemnitees"). The Trust will pay Indemnitees for
amounts to which the Indemnitees are legally and properly entitled under the
Company's indemnity obligation and which amounts are not paid to the Indemnitees
by another party. During the term of the Trust, which continues until the
earlier to occur of: (i) the later of: (a) four years from the date of the
Agreement; or (b) as soon thereafter as no claim is pending against any
Indemnitee which is indemnifiable under the Company's indemnity obligations; or
(ii) March 1, 2022, the Company is required to replenish the Trust (up to
$2,700) for funds paid out to an Indemnitee. Upon termination of the Trust, if,
after payment of all outstanding claims against the Trust have been satisfied,
there are funds remaining in the Trust, such funds and all other assets of the
Trust shall be distributed to Simon Marketing.

84

<PAGE>

                              Simon Worldwide, Inc.
                                   Schedule II
                        Valuation and Qualifying Accounts
              For the Years Ended December 31, 2001, 2000 And 1999
                                 (In Thousands)

<TABLE>
<CAPTION>
                                               Additions
                                              Charged To          Deductions
Accounts Receivable,        Balance At         Costs And         (Charged Against     Balance At
   Allowance For            Beginning          Expenses             Accounts             End
 Doubtful Accounts          Of Period     (Bad Debt Expenses)      Receivable)         Of Period
------------------------------------------------------------------------------------------------
<S>                         <C>           <C>                    <C>                  <C>
        2001                $    2,074      $     15,492(2)         $    1,950         $15,616
        2000                     4,243             3,423                 5,592           2,074
        1999                     2,682             2,578                 1,017           4,243
</TABLE>

<TABLE>
<CAPTION>
                                               Additions
                                               Charged To
  Deferred Income           Balance At          Costs And                              Balance At
     Tax Asset              Beginning           Expenses                                  End
Valuation Allowance         Of Period     (Bad Debt Expenses)       Deductions         Of Period
-------------------------------------------------------------------------------------------------
<S>                         <C>           <C>                       <C>                <C>
        2001                $ 5,557            $39,958              $        -          $ 45,515
        2000                  1,252              4,305                       -             5,557
        1999                  8,193                  -                   6,941(1)          1,252
</TABLE>

(1)    Represents the tax benefit from adjusting the valuation allowance of the
       acquired deferred assets.

(2)    Approximately $2,101 of the 2001 bad debt expense was recorded as
       selling, general and administrative expenses in the accompanying
       consolidated financial statements. The remainder, totaling approximately
       $13,391 was recorded as charges attributable to loss of significant
       customers.

85

<PAGE>

                  EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO.                    DESCRIPTION
<S>             <C>
2.1 (9)         Securities Purchase Agreement dated September 1, 1999,
                between the Registrant and Overseas Toys, L.P.

2.2 (12)        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 (16)        March 12, 2002 Letter Agreement between Cyrk and Simon, as
                amended by Letter Agreement dated as of March 22, 2002

2.4 (16)        Mutual Release Agreement between Cyrk and Simon

2.5             Letter Agreement Between Cyrk and Simon, dated December 20,2002

3.1 (3)         Restated Certificate of Incorporation of the Registrant

3.2 (1)         Amended and Restated By-laws of the Registrant

3.3 (10)        Certificate of Designation for Series A Senior Cumulative
                Participating Convertible Preferred Stock

4.1 (1)         Specimen certificate representing Common Stock

10.1 (2)(3)        1993 Omnibus Stock Plan, as amended

10.2 (2)(4)        Life Insurance Agreement dated as of November 15, 1994 by
                   and between the Registrant and Patrick D. Brady as Trustee
                   under a declaration of trust dated November 7, 1994 between
                   Gregory P. Shlopak and Patrick D. Brady, Trustee,
                   entitled "The Shlopak Family 1994 Irrevocable Insurance Trust"

10.2.1 (2)(4)      Assignments of Life Insurance policies as Collateral, each
                   dated November 15, 1994

10.3 (2)(4)        Life Insurance Agreement dated as of November 15, 1994 by
                   and between the Registrant and Patrick D. Brady as Trustee
                   under a declaration of trust dated November 7, 1994 between
                   Gregory P. Shlopak and Patrick D. Brady, Trustee, entitled
                   "The Gregory P. Shlopak 1994 Irrevocable Insurance Trust"

 10.3.1 (2)(4)     Assignments of Life Insurance policies as Collateral, each
                   dated November 15, 1994

 10.4 (2)(4)       Life Insurance Agreement dated as of November 15, 1994 by
                   and between the Registrant and Walter E. Moxham, Jr. as
                   Trustee under a declaration of trust dated November 7, 1994
                   between Patrick D. Brady and Walter E. Moxham, Jr., Trustee,
                   entitled "The Patrick D. Brady 1994 Irrevocable Insurance
                   Trust"

 10.4.1 (2)(4)     Assignments of Life Insurance policies as Collateral, each
                   dated November 15, 1994

 10.5 (2)(5)       1997 Acquisition Stock Plan

 10.6 (6)          Securities Purchase Agreement dated February 12, 1998 by and
                   between the Company and Ty Warner

 10.7 (7)          Severance Agreement between the Company and Gregory P.
                   Shlopak

 10.8 (2)(8)       Severance Agreement between the Company and Ted L. Axelrod
                   dated November 20, 1998

 10.9 (2)(8)       Severance Agreement between the Company and Dominic F.
                   Mammola dated November 20, 1998

 10.9.1 (2)(8)     Amendment No. 1 to Severance Agreement between the Company
                   and Dominic F. Mammola dated March 29, 1999
</TABLE>

86

<PAGE>

<TABLE>
<S>                <C>
 10.10  (10)       Registration Rights Agreement between the Company and
                   Overseas Toys, L.P.

 10.11  (10)       Management Agreement between the Company and The Yucaipa
                   Companies

 10.12  (2)(9)     Employment Agreement between the Company and Allan Brown,
                   dated September 1, 1999

 10.13  (2)(9)     Employment Agreement between the Company and Patrick Brady,
                   dated September 1, 1999

 10.14  (10)       Lease agreement dated as of July 29, 1999, between TIAA
                   Realty, Inc. and the Company

 10.15  (2)(10)    Life Insurance Agreement dated as of September 29, 1997 by
                   and between the Company and Frederic N. Gaines, Trustee of
                   the Allan I. Brown Insurance Trust, under Declaration of
                   Trust dated September 29, 1997

 10.16  (2)(11)    Promissory Note and Pledge Agreement by Allan Brown in
                   favor of the Company dated July 10, 2000

 10.17  (2)(13)    Promissory Note and Pledge Agreement by Allan Brown in
                   favor of the Company dated October 18, 2000

 10.18  (12)       Subordinated Promissory Note by Rockridge Partners, Inc. in
                   favor of the Company dated February 15, 2001

 10.19  (14)       Credit and Security Agreement dated as of June 6, 2001 and
                   entered into by and between the Company and City National
                   Bank

 10.20  (15)       Retention and Amendment Agreement dated as of August 29,
                   2001 between the Company and Allan I. Brown

 10.21 (15)        Form of Retention Agreement dated as of August 28, 2001
                   between the Company and each of George Golleher,
                   Anthony Kouba and Joseph Bartlett

 10.22 (16)        Termination, Severance and General Release Agreement
                   between the Company and Allan Brown, dated March 18,
                   2002

 10.23 (16)        Amended Consulting Agreement and General Release
                   between the Company and Eric Stanton, dated March 1,
                   2002

 10.24 (16)        Settlement and General Release Agreement between the
                   Company and Vivian Foo, dated March 15, 2002

 10.25 (16)        Indemnification Trust Agreement between the Company and
                   Development Specialists, Inc. as Trustee, dated March
                   1, 2002

 10.26 (16)        Promissory Note and Pledge Agreement by Allan Brown
                   in favor of the Company dated June 9, 1997

 10.27             Letter Agreement, dated October 9, 2002, to terminate and
                   settle the Management Agreement between the Company and
                   Yucaipa, filed herewith

 21.1 (16)         List of Subsidiaries

 99.1              Amended Cautionary Statement for Purposes of the "Safe
                   Harbor" Provisions of the Private Securities Litigation
                   Reform Act of 1995, filed herewith

 99.2  (2)(9)      Termination Agreement among the Company, Patrick Brady,
                   Allan Brown, Gregory Shlopak, Eric Stanton, and Eric
                   Stanton Self-Declaration of Revocable Trust
</TABLE>

87

<PAGE>

<TABLE>
<S>                <C>
 99.3              Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
                   to section 906 of the Sarbanes-Oxley Act of 2002,filed herewith
</TABLE>

----------

(1)   Filed as an exhibit to the Registrant's Registration Statement on Form S-1
      (Registration No. 33-63118) or an amendment thereto and incorporated
      herein by reference.

(2)   Management contract or compensatory plan or arrangement.

(3)   Filed as an exhibit to the Annual Report on Form 10-K for the year ended
      December 31, 1994 and incorporated herein by reference.

(4)   Filed as an exhibit to the Registrant's Registration Statement on Form
      10-Q dated March 31, 1995 and incorporated herein by reference.

(5)   Filed as an exhibit to the Registrant's Registration Statement on Form S-8
      (Registration No. 333-45655) and incorporated herein by reference.

(6)   Filed as an exhibit to the Annual Report on Form 10-K for the year ended
      December 31, 1997 and incorporated herein by reference.

(7)   Filed as an exhibit to the Registrant's Report on Form 8-K dated December
      31, 1998 and incorporated herein by reference.

(8)   Filed as an exhibit to the Annual Report on Form 10-K for the year ended
      December 31, 1998 and incorporated herein by reference.

(9)   Filed as an exhibit to the Registrant's Report on Form 8-K dated September
      1, 1999 and incorporated herein by reference.

(10)  Filed as an exhibit to the Annual Report on Form 10-K for the year ended
      December 31, 1999 and incorporated herein by reference.

(11)  Filed as an exhibit to the Registrant's Registration Statement on Form
      10-Q dated September 30, 2000 and incorporated herein by reference.

(12)  Filed as an exhibit to the Registrant's Report on Form 8-K dated February
      15, 2001 and incorporated herein by reference.

(13)  Filed as an exhibit to the Annual Report on Form 10-K for the year ended
      December 31, 2000 and incorporated herein by reference.

(14)  Filed as an exhibit to the Registrant's Registration Statement on Form
      10-Q dated June 30, 2001 and incorporated herein by reference.

(15)  Filed as an exhibit to the Registrant's Registration Statement on Form
      10-Q dated September 30, 2001 and incorporated herein by reference.

(16)  Filed as an exhibit to the original report on Form 10-K for the year ended
      December 31, 2001, filed on March 29, 2002, and incorporated herein by
      reference.

88