3. Variable Interest Entity (“VIE”)

VIEs are defined as entities in which equity investors (i) do not have the characteristics of a controlling financial interest, and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The entity that consolidates a VIE is known as its primary beneficiary, and is generally the entity with (i) the power to direct the activities that most significantly impact the VIE’s economic performance, and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE.

Three Lions meets the definition of a variable interest entity as the total equity investment at risk in Three Lions is not sufficient to permit Three Lions to finance its activities without further subordinated financial support by any parties, including the equity holders. Management determined that the entity was a variable interest entity primarily based on the current equity investment at risk in Three Lions totaling $3.34 million compared to capital in excess of that amount deemed necessary to develop and produce content, market and air the first revenue-generating event in 2014. Future capital contributions are required by the Company and the founders of Three Lions within 45 days and 120 days after March 18, 2013. For the Company, contributions of $1.85 million, scheduled for (and made by the Company on April 26, 2013) within 45 days, and $3.5 million within 120 days are required. The founders initially contributed $.185 million on March 18, 2013. In total, the Company’s contributions will total $8.5 million; and the founders’ contributions, which are also scheduled within 45 days and 120 days, will total $.5 million.

As the Company does not currently have sufficient cash on hand to make the final contribution, the Company will seek to raise capital through an offering of Simon Worldwide, Inc.’s common stock, subject to being registered with the U.S. Securities Exchange Commission. In the event that Simon cannot make the last contribution of $3.5 million, OA3 LLC has committed to provided such contribution to Three Lions in exchange for 9% equity interest in Three Lions. Collectively, Simon and OA3 LLC, a related party of Simon, will retain 60% of the interest in the economic returns of Three Lions.

The Company’s equity interests in Three Lions represent variable interests in a VIE. Due to certain requirements under the Operating Agreement of Three Lions, the Company, through its voting rights associated with its LLC units, does not have the sole power to direct the activities of Three Lions that most significantly impact Three Lion’s economic performance and the obligation to absorb losses of Three Lions that could potentially be significant to Three Lions or the right to receive benefits from Three Lions that could potentially be significant to Three Lions. Specifically, the Company shares power with the founders who control the common units of Three Lions to approve budgets and business plans and make key business decisions all of which require unanimous consent from all the executive board members (e.g., three members under Simon’s control and the two founders). As a result, the Company is not the primary beneficiary of Three Lions and thus does not consolidate it. However, the Company has significant influence over Three Lions and therefore, accounts for its ownership interest in Three Lions under the equity method of accounting.

At March 18, 2013, the Company’s initial contribution of $3.15 million is reduced by Simon’s absorption of its share of Three Lions’ operating losses from the period March 18 to March 31, 2013, which brings the carrying value of its Three Lions investment to $2.91 million. Also, as discussed in Note 6, the Company also issued a letter of credit on April 12, 2013 in the amount of $.2 million and with an expiration date of April 15, 2014, to guarantee payments on an office lease obtained by Three Lions. The Company’s investment, and guarantee, related to Three Lions totaled $3.35 million at March 31, 2012, representing the Company’s maximum exposures to loss.

A summary of the assets and liabilities as of March 31, 2013 and operating results for the 13 days then ended (since March 18, 2013, the date of the Operating Agreement), related to Three Lions are as follows (in thousands):


Current assets:
Cash and cash equivalents	$	2,568
Prepaid expenses and other current assets		9

Total current assets		2,577
Non-current assets		435

Total assets		3,012
Accounts payable and other current liabilities		82

Total liabilities		82

Net assets	$	2,930


Revenue	$	—
General and administrative expenses		(405	)

Operating loss		(405	)

Net loss	$	(405	)

Creditors of Three Lions do not have recourse against the general credit of the Company, regardless of whether they are accounted for as a consolidated entity.