Company Quick10K Filing
Quick10K
Wilhelmina
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$6.42 5 $33
10-Q 2019-09-30 Quarter: 2019-09-30
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-11-12 Earnings, Exhibits
8-K 2019-10-28 Leave Agreement
8-K 2019-08-13 Earnings, Exhibits
8-K 2019-06-01 Accountant, Shareholder Vote, Exhibits
8-K 2019-05-13 Earnings, Exhibits
8-K 2019-03-20 Earnings, Exhibits
8-K 2018-11-09 Earnings, Exhibits
8-K 2018-08-10 Earnings, Exhibits
8-K 2018-07-16 Enter Agreement, Exhibits
8-K 2018-06-19 Shareholder Vote
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RHI Half Robert 6,304
NCI Navigant Consulting 1,095
KELYA Kelly Services 961
RMR RMR Group 753
AMEH Apollo Medical 729
BBSI Barrett Business Services 643
AVCO Avalon Globocare 150
MHH Mastech Digital 65
ARC ARC Document Solutions 64
WHLM 2019-09-30
Part I
Item 1. Consolidated Financial Statements
Note 1. Basis of Presentation
Note 2. Business
Note 3. New Accounting Standards
Note 4. Foreign Currency Translation
Note 5. Line of Credit
Note 6. Commitments and Contingencies
Note 7. Income Taxes
Note 8. Treasury Shares
Note 9. Related Parties
Note 10. Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3.Quantitative and Qualitative Disclosures About Market Risk.
Item 4.Controls and Procedures.
Part II
Item 1.Legal Proceedings.
Item 1.A.Risk Factors.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3.Defaults Upon Senior Securities.
Item 4.Mine Safety Disclosures.
Item 5.Other Information.
Item 6.Exhibits.
EX-10.1 exh_101.htm
EX-31.1 exh_311.htm
EX-31.2 exh_312.htm
EX-32.1 exh_321.htm
EX-32.2 exh_322.htm

Wilhelmina Earnings 2019-09-30

WHLM 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 f10q_111219p.htm FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

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

 

For the quarterly period ended September 30, 2019

 

 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 001-36589

 

WILHELMINA INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)

 

Delaware 74-2781950
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

 

200 Crescent Court, Suite 1400, Dallas, Texas 75201
(Address of principal executive offices) (Zip Code)

 

(214) 661-7488
(Registrant’s telephone number, including area code)
 
n/a
(Former name, former address and former fiscal year, if changed since last report)

 

 

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

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.01 par value WHLM Nasdaq Capital Market

 

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.  [x] Yes  [ ] No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). [x] Yes  [  ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer  [  ] Accelerated filer [  ]
  Non-accelerated filer [ x ] Smaller reporting company [x]
  Emerging growth company [  ]  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   [  ] Yes  [x] No

 

As of November 12, 2019, the registrant had 5,170,121 shares of common stock outstanding.

 

 

 

 

 

 

 

 

 

 

1

 

WILHELMINA INTERNATIONAL, INC. AND SUBSIDIARIES

 

Quarterly Report on Form 10-Q

 

For the Three and Nine Months Ended September 30, 2019

 

PART I FINANCIAL INFORMATION 3
     
  Item 1. Financial Statements 3
     
    Consolidated Balance Sheets as of September 30, 2019 (Unaudited) and December 31, 2018 3
     
    Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited) 4
     
    Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited) 5
       
    Consolidated Statements of Cash Flow for the Nine Months Ended September 30, 2019 and 2018 (Unaudited) 6
     
    Notes to Consolidated Financial Statements (Unaudited) 7
     
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 11
     
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
     
  Item 4. Controls and Procedures 17
     
PART II OTHER INFORMATION 17
     
  Item 1. Legal Proceedings 17
   
  Item 1.A. Risk Factors 18
     
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 18
     
  Item 3. Defaults Upon Senior Securities 19
     
  Item 4. Mine Safety Disclosures 19
     
  Item 5. Other Information 19
     
  Item 6. Exhibits 19
     
SIGNATURES 20

 

 

 

2

 

PART I

 

FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements

WILHELMINA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data) 

 

    (Unaudited)        
   

September 30,

2019

   

December 31,

2018

 
ASSETS      
Current assets:          
Cash and cash equivalents  $5,521   $6,748 
Accounts receivable, net of allowance for doubtful accounts of $1,484 and $1,791, respectively   12,083    11,901 
Prepaid expenses and other current assets   274    197 
Total current assets   17,878    18,846 
           
Property and equipment, net of accumulated depreciation of $4,032 and $3,264, respectively   2,103    2,567 
Right of use assets-operating   1,602    - 
Right of use assets-finance   129    - 
Trademarks and trade names with indefinite lives   8,467    8,467 
Other intangibles with finite lives, net of accumulated amortization of $8,720 and $8,684, respectively   17    53 
Goodwill   13,192    13,192 
Other assets   113    114 
           
TOTAL ASSETS  $43,501   $43,239 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable and accrued liabilities  $3,824   $5,071 
Due to models   8,840    8,809 
Lease liabilities – operating, current   1,125    - 
Lease liabilities – finance, current   94    - 
Term loan – current   750    623 
Total current liabilities   14,633    14,503 
           
Long term liabilities:          
Net deferred income tax liability   654    631 
Lease liabilities – operating, non-current   623    - 
Lease liabilities – finance, non-current   44    - 
Term loan – non-current   1,435    2,000 
Total long term liabilities   2,756    2,631 
           
Total liabilities   17,389    17,134 
           
Shareholders’ equity:          
Common stock, $0.01 par value, 9,000,000 shares authorized; 6,472,038 shares issued at September 30, 2019 and December 31, 2018   65    65 
Treasury stock, 1,301,917 and 1,264,154 shares at September 30, 2019 and December 31, 2018, at cost   (6,320)   (6,093)
Additional paid-in capital   88,420    88,255 
Accumulated deficit   (55,853)   (56,029)
Accumulated other comprehensive loss   (200)   (93)

Total shareholders’ equity

 

   26,112    26,105 
           
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY  $43,501   $43,239 

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

3

WILHELMINA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the Three and Nine Months Ended September 30, 2019 and 2018

 (In thousands, except per share data)

(Unaudited)

 

   Three Months Ended  Nine Months Ended
   September 30,  September 30,
   2019  2018  2019  2018
Revenues:            
Service revenues  $17,224   $19,143   $57,199   $59,425 
License fees and other income   17    10    46    40 
Total revenues   17,241    19,153    57,245    59,465 
                     
Model costs   12,534    13,777    41,166    42,524 
                     
Revenues, net of model costs   4,707    5,376    16,079    16,941 
                     
Operating expenses:                    
Salaries and service costs   3,266    3,478    10,571    10,509 
Office and general expenses   1,042    1,067    3,301    3,643 
Amortization and depreciation   297    252    885    727 
Corporate overhead   251    298    834    895 
Total operating expenses   4,856    5,095    15,591    15,774 
Operating (loss) income   (149)   281    488    1,167 
                     
Other expense:                    
Foreign exchange gain (loss)   3    (17)   -    (64)
Interest expense   (27)   (26)   (89)   (73)
Total other expense   (24)   (43)   (89)   (137)
                     
(Loss) income before provision for income taxes   (173)   238    399    1,030 
                     
Provision for income taxes (expense) benefit:                    
Current   (47)   (80)   (200)   (220)
Deferred   54    50    (23)   (13)
Income tax (expense) benefit   7    (30)   (223)   (233)
                     
Net (loss) income  $(166)  $208   $176   $797 
                     
Other comprehensive expense:                    
Foreign currency translation adjustment   (76)   (24)   (107)   (56)
Total comprehensive (loss) income   (242)   184    69    741 
                     
Basic net (loss) income per common share  $(0.03)  $0.04   $0.03   $0.15 
Diluted net (loss) income per common share  $(0.03)  $0.04   $0.03   $0.15 
                     
Weighted average common shares outstanding-basic   5,176    5,309    5,189    5,353 
Weighted average common shares outstanding-diluted   5,176    5,318    5,189    5,361 

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

4

 

WILHELMINA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the Three and Nine Months Ended September 30, 2019 and 2018

(In thousands)

(Unaudited)

 

  

Common

Shares

 

Stock

Amount

 

Treasury

Shares

 

Stock

Amount

 

Additional

Paid-in

Capital

 

Accumulated

Deficit

  Accumulated Other Comprehensive Loss  Total
Balances at December 31, 2017   6,472   $65    (1,090)  $(4,893)  $87,892   $(56,885)  $4   $26,183 
Share based payment expense   -    -    -    -    109    -    -    109 
Net income to common shareholders   -    -    -    -    -    225    -    225 
Purchases of treasury stock   -    -    (6)   (36)   -    -    -    (36)
Foreign currency translation   -    -    -    -    -    -    43    43 
Balances at March 31, 2018   6,472   $65    (1,096)  $(4,929)  $88,001   $(56,660)  $47   $26,524 
Share based payment expense   -    -    -    -    87    -    -    87 
Net income to common shareholders   -    -    -    -    -    364    -    364 
Purchases of treasury stock   -    -    (7)   (46)   -    -    -    (46)
Foreign currency translation   -    -    -    -    -    -    (75)   (75)
Balances at June 30, 2018   6,472   $65    (1,103)  $(4,975)  $88,088   $(56,296)  $(28)  $26,854 
Share based payment expense   -    -    -    -    84    -    -    84 
Net income to common shareholders   -    -    -    -    -    208    -    208 
Purchases of treasury stock   -    -    (100)   (706)   -    -    -    (706)
Foreign currency translation   -    -    -    -    -    -    (24)   (24)
Balances at September 30, 2018   6,472   $65    (1,203)  $(5,681)  $88,172   $(56,088)  $(52)  $26,416 

 

 

  

Common

Shares

 

Stock

Amount

 

Treasury

Shares

 

Stock

Amount

 

Additional

Paid-in

Capital

 

Accumulated

Deficit

  Accumulated Other Comprehensive Loss  Total
Balances at December 31, 2018   6,472   $65    (1,264)  $(6,093)  $88,255   $(56,029)  $(93)  $26,105 
Share based payment expense   -    -    -    -    64    -    -    64 
Net loss to common shareholders   -    -    -    -    -    (109)   -    (109)
Purchases of treasury stock   -    -    (4)   (24)   -    -    -    (24)
Foreign currency translation   -    -    -    -    -    -    28    28 
Balances at March 31, 2019   6,472   $65    (1,268)  $(6,117)  $88,319   $(56,138)  $(65)  $26,064 
Share based payment expense   -    -    -    -    52    -    -    52 
Net income to common shareholders   -    -    -    -    -    451    -    451 
Purchases of treasury stock   -    -    (25)   (149)   -    -    -    (149)
Foreign currency translation   -    -    -    -    -    -    (59)   (59)
Balances at June 30, 2019   6,472   $65    (1,293)  $(6,266)  $88,371   $(55,687)  $(124)  $26,359 
Share based payment expense   -    -    -    -    49    -    -    49 
Net loss to common shareholders   -    -    -    -    -    (166)   -    (166)
Purchases of treasury stock   -    -    (9)   (54)   -    -    -    (54)
Foreign currency translation   -    -    -    -    -    -    (76)   (76)
Balances at September 30, 2019   6,472   $65    (1,302)  $(6,320)  $88,420   $(55,853)  $(200)  $26,112 

 

 

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

5

 

WILHELMINA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW

For the Nine Months Ended September 30, 2019 and 2018

 (In thousands)

(Unaudited)

                                                                                              

  

Nine Months Ended

September 30,

   2019  2018
Cash flows from operating activities:          
Net income:  $176   $797 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:          
Amortization and depreciation   885    727 
Share based payment expense   165    280 
Deferred income taxes   23    13 
Bad debt (recovery) expense   (1)   70 
Changes in operating assets and liabilities:          
Accounts receivable   (181)   (296)
Prepaid expenses and other current assets   (77)   (107)
Right of use assets-operating   802    - 
Other assets   1    20 
Due to models   31    (635)
Lease liabilities-operating   (854)   - 
Accounts payable and accrued liabilities   (1,038)   862 
Net cash (used in) provided by operating activities   (68)   1,731 
           
Cash flows used in investing activities:          
Purchases of property and equipment   (304)   (293)
Net cash used in investing activities   (304)   (293)
           
Cash flows (used in) provided by financing activities:          
Purchases of treasury stock   (227)   (788)
Payments on finance leases   (83)   - 
Proceeds from term loan   -    700 
Repayment of term loan   (438)   (390)
Net cash used in financing activities   (748)   (478)
           
Foreign currency effect on cash flows:   (107)   (56)
           
Net change in cash and cash equivalents:   (1,227)   904 
Cash and cash equivalents, beginning of period   6,748    4,256 
Cash and cash equivalents, end of period  $5,521   $5,160 
           
Supplemental disclosures of cash flow information:          
Cash paid for interest  $88   $71 
Cash paid (refund) of income taxes  $5   $(10)

 

The accompanying notes are an integral part of these consolidated financial statements

 

6

 

WILHELMINA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1.  Basis of Presentation

 

The interim consolidated financial statements included herein have been prepared by Wilhelmina International, Inc. (together with its subsidiaries, "Wilhelmina" or the "Company") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Although certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to those rules and regulations, all adjustments considered necessary in order to make the consolidated financial statements not misleading have been included. In the opinion of the Company’s management, the accompanying interim unaudited consolidated financial statements reflect all adjustments, of a normal recurring nature, that are necessary for a fair presentation of the Company’s consolidated balance sheets, statements of income and comprehensive income, statements of shareholders’ equity, and cash flows for the periods presented. These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018. Results of operations for the interim periods are not necessarily indicative of results that may be expected for any other interim periods or the full fiscal year.

 

Note 2.  Business

 

The primary business of Wilhelmina is fashion model management. These business operations are headquartered in New York City. The Company’s predecessor was founded in 1967 by Wilhelmina Cooper, a renowned fashion model, and became one of the oldest, best known and largest fashion model management companies in the world. Since its founding, Wilhelmina has grown to include operations located in Los Angeles, Miami, Chicago and London, as well as a network of licensees in various local markets in the U.S. and internationally. Wilhelmina provides traditional, full-service fashion model and talent management services, specializing in the representation and management of models, entertainers, artists, athletes and other talent, to various clients, including retailers, designers, advertising agencies, print and electronic media and catalog companies.

 

Note 3.  New Accounting Standards

 

ASU 2016-02, Leases. In 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance related to accounting for leases. The new guidance requires the recognition of right of use (“ROU”) assets and lease liabilities for those leases classified as operating leases under previous guidance. In 2018, the FASB also approved an amendment that would permit the option to adopt the new standard prospectively as of the effective date, without adjusting comparative periods presented. The new standard was effective for the Company beginning January 1, 2019. Wilhelmina has elected the optional transition approach to not apply the new lease standard in the comparative periods presented and also elected to not recognize short-term leases of 12 months or less on the balance sheet. Adoption of the standard resulted in the recognition of ROU assets of $2.6 million and lease liabilities of $2.8 million at January 1, 2019, primarily from recognition of ROU assets and lease liabilities related to our office space and model apartment leases. The adoption of the new standard did not have a material impact on the consolidated statement of operations or stockholder’s equity. During the first nine months of 2019, $83 thousand of lease payments historically included as rent expense within office and general expenses are now classified as amortization expense, and included within cash used in financing activities on the Company’s statement of cash flows. At September 30, 2019, the weighted-average remaining lease term was 1.6 years for operating leases and 1.7 years for finance type leases. At September 30, 2019, the weighted average discount rate was 4.8% for operating leases and 4.5% for finance type leases.

 

 

 

 

 

 

 

7

 

The following table presents additional information regarding Wilhelmina’s financing and operating leases for the three and nine month periods ended September 30, 2019 (in thousands):

 

  

Three months ended

September 30, 2019

 

Nine months ended

September 30, 2019

Finance lease expense          
Amortization of ROU assets  $27   $88 
Interest on lease liabilities   2    6 
Operating lease expense   281    878 
Short term lease expense   77    196 
Cash paid for amounts included in the measurement of lease liabilities for finance leases          
Financing cash flows   30    94 
Cash paid for amounts included in the measurement of lease liabilities for operating leases          
Operating cash flows   301    933 
ROU assets obtained in exchange for lease liabilities          
Finance leases   -    2,404 
Operating leases   -    210 

 

As of September 30, 2019, future maturities of lease liabilities were as follows (in thousands):

 

  

 

Operating

  Finance
July 1, 2019 to December 31, 2019  $303   $30 
2020   1,135    81 
2021   369    31 
Total   1,807    142 
Less: Present value discount   (59)   (4)
Lease liability  $1,748   $138 

 

Note 4.  Foreign Currency Translation

 

The functional currency of the London subsidiary is the British Pound. Assets and liabilities are translated into U.S. dollars at the exchange rates in effect at each balance sheet date, revenues and expenses are translated at average monthly exchange rates and resulting translation gains or losses are accumulated in other comprehensive income as a separate component of shareholders’ equity.

 

Note 5.  Line of Credit

 

The Company has a credit agreement with Amegy Bank which provides a $4.0 million revolving line of credit and previously provided up to a $3.0 million term loan which could be drawn through October 24, 2016. Amounts outstanding under the term loan reduce the availability under the revolving line of credit. The revolving line of credit is also subject to a borrowing base derived from 80% of eligible accounts receivable (as defined) and the Company’s minimum net worth covenant of $20.0 million. The revolving line of credit bears interest at prime plus 0.50% payable monthly. As of September 30, 2019, the Company had a $0.2 million irrevocable standby letter of credit outstanding under the revolving line of credit and had additional borrowing capacity of $1.6 million.

 

On August 16, 2016, the Company drew $2.7 million of the term loan and used the proceeds to fund the purchase of shares of its common stock in a private transaction. The term loan bears interest at 4.5% per annum and payable in monthly payments of interest only until November, 2016, followed by 47 equal monthly payments of principal and interest computed on a 60-month amortization schedule and a final payment of principal and interest due on October 24, 2020.

 

8

On July 16, 2018, the Company amended its Credit Agreement with Amegy Bank to provide for an additional term loan of up to $1.0 million that could be drawn by the Company through July 12, 2019, for the purpose of repurchases of its common stock. The additional term loan is evidenced by a promissory note bearing interest at 5.15% per annum and payable in monthly installments of interest only through July 12, 2019. Thereafter, the note is payable in monthly installments sufficient to fully amortize the outstanding principal balance in 60 months with the balance of principal and accrued interest due on July 12, 2023. The amendment also revised the calculation of the fixed charge coverage ratio for the three quarters following the maturity date of the previous term loan.

 

Amounts outstanding under the additional term loan further reduce the availability under the Company’s revolving line of credit with Amegy Bank. On August 1, 2018, the Company drew $0.7 million of the additional term loan and used the proceeds to fund the purchase of 100,000 shares of its common stock in a private transaction. On December 12, 2018, the Company drew $0.3 million of the additional term loan and used the proceeds to partially fund a purchase of 50,000 shares of its common stock in a private transaction. As of September 30, 2019, a total of $2.2 million was outstanding on the two term loans.

 

Note 6.  Commitments and Contingencies

 

On October 24, 2013, a putative class action lawsuit was brought against the Company by former Wilhelmina model Alex Shanklin and others, including Louisa Raske, Carina Vretman, Grecia Palomares and Michelle Griffin Trotter (the “Shanklin Litigation”), in New York State Supreme Court (New York County) by the same lead counsel who represented plaintiffs in a prior, now-dismissed action brought by Louisa Raske (the “Raske Litigation”).  The claims in the Shanklin Litigation initially included breach of contract and unjust enrichment allegations arising out of matters similar to the Raske Litigation, such as the handling and reporting of funds on behalf of models and the use of model images.  Other parties named as defendants in the Shanklin Litigation include other model management companies, advertising firms, and certain advertisers.  On January 6, 2014, the Company moved to dismiss the Amended Complaint in the Shanklin Litigation for failure to state a claim upon which relief can be granted and other grounds, and other defendants also filed motions to dismiss.  On August 11, 2014, the court denied the motion to dismiss as to Wilhelmina and other of the model management defendants.  Separately, on March 3, 2014, the judge assigned to the Shanklin Litigation wrote the Office of the New York Attorney General bringing the case to its attention, generally describing the claims asserted therein against the model management defendants, and stating that the case “may involve matters in the public interest.” The judge’s letter also enclosed a copy of his decision in the Raske Litigation, which dismissed that case. 

 

Plaintiffs retained substitute counsel, who filed a Second and then Third Amended Complaint. Plaintiffs’ Third Amended Complaint asserts causes of action for alleged breaches of the plaintiffs' management contracts with the defendants, conversion, breach of the duty of good faith and fair dealing, and unjust enrichment.  The Third Amended Complaint also alleges that the plaintiff models were at all relevant times employees, and not independent contractors, of the model management defendants, and that defendants violated the New York Labor Law in several respects, including, among other things, by allegedly failing to pay the models the minimum wages and overtime pay required thereunder, not maintaining accurate payroll records, and not providing plaintiffs with full explanations of how their wages and deductions therefrom were computed.  The Third Amended Complaint seeks certification of the action as a class action, damages in an amount to be determined at trial, plus interest, costs, attorneys’ fees, and such other relief as the court deems proper.  On October 6, 2015, Wilhelmina filed a motion to dismiss as to most of the plaintiffs’ claims.  The Court entered a decision granting in part and denying in part Wilhelmina’s motion to dismiss on May 26, 2017.  The Court (i) dismissed three of the five New York Labor Law causes of action, along with the conversion, breach of the duty of good faith and fair dealing and unjust enrichment causes of action, in their entirety, and (ii) permitted only the breach of contract causes of action, and some plaintiffs’ remaining two New York Labor Law causes of action to continue, within a limited time frame.  The plaintiffs and Wilhelmina each appealed, and the decision was affirmed on May 24, 2018. On August 16, 2017, Wilhelmina timely filed its Answer to the Third Amended Complaint.

 

On June 6, 2016, another putative class action lawsuit was brought against the Company by former Wilhelmina model Shawn Pressley and others, including Roberta Little (the “Pressley Litigation”), in New York State Supreme Court (New York County) by the same counsel representing the plaintiffs in the Shanklin Litigation, and asserting identical, although more recent, claims as those in the Shanklin Litigation.  The Amended Complaint, asserting essentially the same types of claims as in the Shanklin action, was filed on August 16, 2017.  Wilhelmina filed a motion to dismiss the Amended Complaint on September 29, 2017, which was granted in part and denied in part on May 10, 2018.  Some New York Labor Law and contract claims remain in the case.  Pressley has withdrawn from the case, leaving Roberta Little as the sole remaining named plaintiff in the Pressley Litigation.  On July 12, 2019, the Company filed its Answer and Counterclaim against Little.

 

On May 1, 2019, the Plaintiffs in the Shanklin Litigation (except Raske) and the Pressley Litigation filed motions for class certification on their contract claims and the remaining New York Labor Law Claims. On July 12, 2019, Wilhelmina filed its opposition to the motions for class certification and filed a cross-motion for summary judgment against Shanklin, Vretman, Palomares, Trotter and Little, and a motion for summary judgment against Raske.  Wilhelmina’s reply papers in further support of its summary judgment motions were filed on October 23, 2019, and the class certification and summary judgment motions will next be fully briefed.  The Court has scheduled a hearing on all of the motions for December 4, 2019.  

 

9

The Company believes the claims asserted in the Shanklin and Pressley Litigations are without merit and intends to continue to vigorously defend the actions.

 

In addition to the legal proceedings disclosed herein, the Company is also engaged in various legal proceedings that are routine in nature and incidental to its business. None of these routine proceedings, either individually or in the aggregate, are believed likely, in the Company's opinion, to have a material adverse effect on its consolidated financial position or its results of operations.

 

Note 7.  Income Taxes

 

Generally, the Company’s combined effective tax rate is high relative to reported net income as a result of certain amortization expense, stock based compensation, and corporate overhead not being deductible and income being attributable to certain states in which it operates. In recent years, the majority of taxes being paid by the Company were state and foreign taxes, not federal U.S. taxes. The Company operates in four states which have relatively high tax rates: California, New York, Illinois, and Florida. As of September 30, 2019, the Company had federal income tax loss carryforwards of $0.5 million.

 

The U.S. Tax Cuts and Jobs Act (the “Tax Act”) enacted in December 2017 introduced significant changes to U.S. income tax law. Effective in 2018, the Tax Act reduced the U.S. statutory tax rate from 35% to 21% and created new taxes on certain foreign-sourced earnings and certain related-party payments. The Company’s repatriation liability is not deemed material due to a foreign deficit.

 

Note 8. Treasury Shares

 

During 2012, the Board of Directors authorized a stock repurchase program whereby the Company could repurchase up to 500,000 shares of its outstanding common stock. During 2013, the Board of Directors renewed and extended the Company’s share repurchase authority to enable it to repurchase up to an aggregate of 1,000,000 shares of common stock. In 2016, the Board of Directors increased by an additional 500,000 shares the number of shares of the Company’s common stock that may be repurchased under its stock repurchase program to an aggregate of 1,500,000 shares. The shares may be repurchased from time to time in the open market or through privately negotiated transactions at prices the Company deems appropriate. The program does not obligate the Company to acquire any particular amount of common stock and may be modified or suspended at any time at the Company’s discretion.

 

From 2012 through September 30, 2019, the Company has repurchased 1,301,917 shares of common stock at an average price of approximately $4.85 per share, for a total of approximately $6.3 million in repurchases under the stock repurchase program. During the first nine months of 2019, 37,763 shares were repurchased under the stock repurchase program for approximately $227 thousand.

 

Note 9.  Related Parties

 

The Executive Chairman of the Company, Mark E. Schwarz, is also the chairman, chief executive officer and portfolio manager of Newcastle Capital Management, L.P. (“NCM”). NCM is the general partner of Newcastle Partners L.P. (“Newcastle”), which is the largest shareholder of the Company. James Dvorak (Managing Director at NCM) also serves as a director of the Company.

 

The Company’s corporate headquarters are located at 200 Crescent Court, Suite 1400, Dallas, Texas 75201, which are also the offices of NCM. The Company occupies a portion of NCM space on a month-to-month basis at $2.5 thousand per month, pursuant to a services agreement entered into between the parties. Pursuant to the services agreement, the Company receives the use of NCM’s facilities and equipment and accounting, legal and administrative services from employees of NCM. The Company incurred expenses pursuant to the services agreement totaling approximately $23 thousand for the nine months ended both September 30, 2019 and 2018. The Company did not owe NCM any amounts under the services agreement as of September 30, 2019.

 

Note 10.  Subsequent Events

 

The Company’s revolving line of credit with Amegy Bank expired by its terms on October 24, 2019. On November 6, 2019, the Company and Amegy Bank executed a Twelfth Amendment to Credit Agreement and Fourth Amendment to Line of Credit Note (the “Twelfth Amendment”) which extended the revolving line of credit for three years until October 24, 2022. The Twelfth Amendment also increased the Company’s minimum net worth requirement from $20.0 million to $22.0 million and eliminated the requirement to provide annual tax returns.

 

 

10

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following is a discussion of the interim unaudited consolidated financial condition and results of operations for the Company and its subsidiaries for the three and nine months ended September 30, 2019 and 2018. It should be read in conjunction with the financial statements of the Company, the notes thereto and other financial information included elsewhere in this report, and the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains certain “forward-looking” statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. Such forward looking statements relating to the Company and its subsidiaries are based on the beliefs of the Company’s management as well as information currently available to the Company’s management.  When used in this report, the words “anticipate,” “believe,” “estimate,” “expect” and “intend” and words or phrases of similar import, as they relate to the Company or Company management, are intended to identify forward-looking statements.  Such statements reflect the current risks, uncertainties and assumptions related to certain factors including, without limitation, competitive factors, general economic conditions, the interest rate environment, governmental regulation and supervision, seasonality, changes in industry practices, one-time events and other factors described herein and in other filings made by the Company with the SEC.  Should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended.  The Company does not undertake any obligation to publicly update these forward-looking statements. As a result, you should not place undue reliance on these forward-looking statements.

 

OVERVIEW

 

The Company’s primary business is fashion model management and complementary business activities. The business of talent management firms, such as Wilhelmina, depends heavily on the state of the advertising industry, as demand for talent is driven by Internet, print and television advertising campaigns for consumer goods and retail clients. Wilhelmina believes it has strong brand recognition, which enables it to attract and retain top agents and talent to service a broad universe of clients. In order to take advantage of these opportunities and support its continued growth, the Company will need to continue to successfully allocate resources and staffing in a way that enhances its ability to respond to new opportunities. The Company continues to focus on tightly managing costs, recruiting top agents when available, and scouting and developing new talent.

 

Although Wilhelmina has a large and diverse client base, it is not immune to global economic conditions. The Company closely monitors economic conditions, client spending, and other industry factors and continually evaluates opportunities to increase its market share and further expand its geographic reach.  There can be no assurance as to the effects on Wilhelmina of future economic circumstances, client spending patterns, client creditworthiness and other developments and whether, or to what extent, Wilhelmina’s efforts to respond to them will be effective.

 

Trends and Opportunities

 

The Company expects that the combination of Wilhelmina’s main operating base in New York City, the industry’s capital, with the depth and breadth of its talent pool and client roster and its diversification across various talent management segments, together with its geographical reach, should make Wilhelmina’s operations more resilient to industry changes and economic swings than those of many of the smaller firms operating in the industry. Similarly, in the segments where the Company competes with other leading full-service agencies, Wilhelmina competed successfully during the first nine months of 2019.  

 

With total annual advertising expenditures on major media (newspapers, magazines, television, cinema, outdoor and Internet) exceeding approximately $200 billion in recent years, North America is by far the world’s largest advertising market.  For the fashion talent management industry, including Wilhelmina, advertising expenditures on magazines, television, Internet and outdoor are of particular relevance.

 

In recent periods, traditional retail clients in the fashion and beauty industry have had increased competition from digital, social, and new media, reducing their budgets for advertising and model talent. Wilhelmina reviews the mix of talent and resources available to best operate in the changing environment.

 

11

 

Strategy

 

Management’s strategy is to increase value to shareholders through the following initiatives:

 

increase Wilhelmina’s brand awareness and consideration among advertisers and potential talent;
expand the Wilhelmina network through strategic geographic market development;
expand the women’s high end fashion board;
expand the Aperture division’s representation in commercials, film, and television;
expand the content creation and production business;
expand celebrity and social media influencer representation; and
promote model search contests and events and partner on media projects (television, film, books, etc.).

 

Due to the ubiquity of the Internet as a standard business tool, the Company has increasingly sought to harness the opportunities of the Internet and other digital media to improve its communications with clients and to facilitate the effective exchange of fashion model and talent information. The Company continues to make significant investments in technology in pursuit of gains in efficiency and better communications with clients.  At the same time, the Internet presents challenges for the Company, including (i) the cannibalization of traditional print media businesses, and (ii) pricing pressures with respect to digital media photo shoots and client engagements.

 

Key Financial Indicators

 

In addition to net income, the key financial indicators that the Company reviews to monitor its business are revenues, model costs, operating expenses and cash flows.

 

The Company analyzes revenue by reviewing the mix of revenues generated by the different “boards”, each a specific division of the fashion model management operations which specializes by the type of model it represents, by geographic locations and from significant clients. Wilhelmina’s primary sources of revenue include: (i) revenues from principal relationships where the gross amount billed to the client is recorded as revenue when earned and collectability is reasonably assured; and (ii) separate service charges, paid by clients in addition to the booking fees, which are calculated as a percentage of the models’ booking fees and are recorded as revenues when earned and collectability is reasonably assured. See “Critical Accounting Policies - Revenue Recognition.”

 

Wilhelmina provides professional services. Therefore, salary and service costs represent the largest part of the Company’s operating expenses. Salary and service costs are comprised of payroll and related costs and travel, meals and entertainment (“T&E”) to deliver the Company’s services and to enable new business development activities.

 

 

 

 

 

 

 

 

12

 

Analysis of Consolidated Statements of Operations and Service Revenues

(in thousands)  Three Months Ended  Nine Months Ended   
   September 30  September 30  % Change  September 30  September 30  % Change
   2019  2018  2019 vs 2018  2019  2018  2019 vs 2018
Service revenues   17,224    19,143    (10.0%)   57,199    59,425    (3.7%)
License fees and other income   17    10    70.0%   46    40    15.0%
TOTAL REVENUES   17,241    19,153    (10.0%)   57,245    59,465    (3.7%)
Model costs   12,534    13,777    (9.0%)   41,166    42,524    (3.2%)
REVENUES NET OF MODEL COSTS   4,707    5,376    (12.4%)   16,079    16,941    (5.1%)
GROSS PROFIT MARGIN   27.3%   28.1%        28.1%   28.5%     
Salaries and service costs   3,266    3,478    (6.1%)   10,571    10,509    0.6%
Office and general expenses   1,042    1,067    (2.3%)   3,301    3,643    (9.4%)
Amortization and depreciation   297    252    17.9%   885    727    21.7%
Corporate overhead   251    298    (15.8%)   834    895    (6.8%)
OPERATING (LOSS) INCOME   (149)   281    (153.0%)   488    1,167    (58.2%)
OPERATING MARGIN   (0.9%)   1.5%        0.9%   2.0%     
Foreign exchange gain (loss)   3    (17)   117.6%   -    (64)   100%
Interest expense   (27)   (26)   (3.8%)   (89)   (73)   21.9%
INCOME BEFORE INCOME TAXES   (173)   238    (172.7%)   399    1,030    (61.3%)
Income tax benefit (expense)   7    (30)   123.3%   (223)   (233)   (4.3%)
Effective tax rate   4.0%   12.6%        55.9%   22.6%     
NET (LOSS) INCOME   (166)   208    (179.8%)   176    797    (77.9%)

 

 Service Revenues

 

The Company’s service revenues fluctuate in response to its clients’ willingness to spend on advertising and the Company’s ability to have the desired talent available. The decreases of 10.0% and 3.7% for the three and nine months ended September 30, 2019, when compared to the three and nine months ended September 30, 2018, were primarily due to a decrease in bookings in the Wilhelmina Studios division and core model bookings in the United States, partially offset by an increase in core model bookings in the London office and bookings from the Aperture division. The decrease in core model bookings in the United States was primarily due to staff turnover.

 

License Fees and Other Income

 

License fees and other income include franchise revenues from independently owned model agencies that use the Wilhelmina trademark and various services provided by the Company. License fees increased by 70.0% and 15.0% for the three and nine months ended September 30, 2019, when compared to three and nine months ended September 30, 2018. The increases were primarily due to the timing of income from licensing agreements.

 

Gross Profit Margin

 

Gross profit margin decreased by 80 and 40 basis points for the three and nine months ended September 30, 2019, when compared to the three and nine months ended September 30, 2018 primarily due to a change in board revenue mix and an increase in revenue from the Aperture division, which is lower margin than traditional core model bookings.

 

 Salaries and Service Costs

 

Salaries and service costs consist of payroll related costs and T&E required to deliver the Company’s services to its clients and talents. The 6.1% decrease in salaries and service costs during the three months ended September 30, 2019, when compared to the three months ended September 30, 2018 was primarily the result of a decrease in employee salaries due to a lag in filling open positions, as well as a reduction in share based payment expense. Salaries and service costs for the nine months ended September 30, 2019 were relatively stable from the nine months ended September 30, 2018.

 

13

 

Office and General Expenses

 

Office and general expenses consist of office and equipment rents, advertising and promotion, insurance expenses, administration and technology cost.  These costs are less directly linked to changes in the Company’s revenues than are salaries and service costs. The decrease in office and general expenses of 2.3% and 9.4% for the three and nine months ended September 30, 2019 when compared to the three and nine months ended September 30, 2018, were primarily due to reduced rent expense, computer expense and bad debt expenses, as well as the reclassification of certain lease payments as amortization expense under the new lease accounting rules.

 

Amortization and Depreciation

 

Amortization and depreciation expense is incurred with respect to certain assets, including computer hardware, software, office equipment, furniture, and certain intangibles. Amortization and depreciation expense increased by 17.9% and 21.7% for the three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018, primarily due to new equipment which will be depreciated going forward, and certain lease payments previously included within office and general expenses which are now classified as amortization under the new lease accounting rules. Fixed asset purchases (mostly related to technology and computer equipment) totaled approximately $97 thousand and $304 thousand during the three and nine months ended September 30, 2019, compared to $89 thousand and $293 thousand for the three and nine months ended September 30, 2018.

 

Corporate Overhead

 

Corporate overhead expenses include director and executive officer compensation, legal, audit and professional fees, corporate office rent, travel, and other public company costs. Corporate overhead decreased by 15.8% and 6.8% for the three and nine months ended September 30, 2019, compared to the three and nine months ended September 30, 2018, primarily due to lower securities compliance costs.

 

Operating Margin

 

Operating margin decreased by 240 and 110 basis points for the three and nine months ended September 30, 2019, when compared to the three and nine months ended September 30, 2018, primarily due to the decreased gross profit margin partially offset by lower operating expenses.

 

Foreign Currency Translation

 

The Company realized $3 thousand of foreign currency exchange gains during the three months ended September 30, 2019, and $17 thousand of foreign currency exchange loss during the three months ended September 30, 2018. The Company realized $0 and $64 thousand of foreign currency exchange loss for the nine months ended September 30, 2019 and September 30, 2018. Foreign currency gain and loss is due to fluctuations in currencies from Great Britain, Europe, and Latin America.

 

Interest Expense

 

Interest expense for the three and nine months ended September 30, 2019 and September 30, 2018 was primarily attributable to accrued interest on term loans drawn during 2016 and 2018. See, “Liquidity and Capital Resources.”

 

Income before Income Taxes

 

Loss before income taxes was $173 thousand for the three months ended September 30, 2019, compared to $238 thousand of income before income taxes for the three months ended September 30, 2018, primarily due to the decrease in operating income. Income before income taxes decreased to $399 thousand for the nine months ended September 30, 2019, compared to $1.0 million for the nine months ended September 30, 2018, primarily due to the decrease in operating income.

 

Income Taxes

 

Generally, the Company’s combined effective tax rate is high relative to reported net income as a result of certain amortization expense, foreign taxes, and corporate overhead not being deductible and income being attributable to certain states in which it operates. Currently, the majority of taxes being paid by the Company are state and foreign taxes, not federal U.S. taxes. The Company operates in four states which have relatively high tax rates: California, New York, Illinois and Florida. In addition, foreign taxes in the United Kingdom related to our London office are not deductible from U.S. federal taxes.

 

14

 

Net Income

 

Net loss for the three months ended September 30, 2019 was $166 thousand compared to $208 thousand of net income for the same period of the prior year. The decrease in net income was primarily due to the decrease in operating income. Net income for the nine months ended September 30, 2019 was $176 thousand compared to $797 thousand for the same period of the prior year. The decrease in net income was primarily due to the decrease in operating income.

 

Liquidity and Capital Resources

 

The Company’s cash balance decreased to $5.5 million at September 30, 2019 from $6.7 million at December 31, 2018. The cash balances decreased as a result of $0.1 million net cash used in operating activities, $0.3 million net cash used in investing activities and $0.8 cash used in financing activities.

 

Net cash used in operating activities of $0.1 million was primarily the result of increases in accounts receivable and decreases in lease liabilities and accounts payable and accrued liabilities, partially offset by a decrease in right of use assets. The $0.3 million of cash used in investing activities was attributable to purchases of property and equipment, including software, office furniture, and computer equipment. The $0.8 million of cash used in financing activities was attributable to principal payments on the Company’s term loan, purchases of treasury stock, and payments on finance leases.

 

The Company’s primary liquidity needs are for working capital associated with performing services under its client contracts and servicing its term loan. Generally, the Company incurs significant operating expenses with payment terms shorter than its average collections on billings. Based on 2019 budgeted and year-to-date cash flow information, management believes that the Company has sufficient liquidity to meet its projected operational expenses and capital expenditure requirements for the next twelve months.

 

Amegy Bank Credit Agreement

 

The Company has a credit agreement with Amegy Bank which provides a $4.0 million revolving line of credit and previously provided up to a $3.0 million term loan which could be drawn through October 24, 2016. Amounts outstanding under the term loan reduce the availability under the revolving line of credit. The revolving line of credit is also subject to a borrowing base derived from 80% of eligible accounts receivable (as defined) and the Company’s minimum net worth covenant of $20.0 million. The revolving line of credit bears interest at prime plus 0.50% payable monthly. As of September 30, 2019, the Company had a $0.2 million irrevocable standby letter of credit outstanding under the revolving line of credit and had additional borrowing capacity of $1.6 million.

 

On August 16, 2016, the Company drew $2.7 million of the term loan and used the proceeds to fund the purchase of shares of its common stock in a private transaction. The term loan bears interest at 4.5% per annum and is payable in monthly payments of interest only until November, 2016, followed by 47 equal monthly payments of principal and interest computed on a 60-month amortization schedule and a final payment of principal and interest due on October 24, 2020.

 

On July 16, 2018, the Company amended its Credit Agreement with Amegy Bank to provide for an additional term loan of up to $1.0 million that could be drawn by the Company through July 12, 2019, for the purpose of repurchases of its common stock. The additional term loan is evidenced by a promissory note bearing interest at 5.15% per annum and payable in monthly installments of interest only through July 12, 2019. Thereafter, the note is payable in monthly installments sufficient to fully amortize the outstanding principal balance in 60 months with the balance of principal and accrued interest due on July 12, 2023. The amendment also revised the calculation of the fixed charge coverage ratio for the three quarters following the maturity date of the previous term loan.

 

Amounts outstanding under the additional term loan further reduce the availability under the Company’s revolving line of credit with Amegy Bank. On August 1, 2018, the Company drew $0.7 million of the additional term loan and used the proceeds to fund the purchase of 100,000 shares of its common stock in a private transaction. On December 12, 2018, the Company drew $0.3 million of the additional term loan and used the proceeds to partially fund a purchase of 50,000 shares of its common stock in a private transaction. As of September 30, 2019, a total of $2.2 million was outstanding on the two term loans.

 

Off-Balance Sheet Arrangements

 

As of September 30, 2019, the Company had outstanding a $0.2 million irrevocable standby letter of credit under the revolving credit facility with Amegy Bank. The letter of credit serves as security under the lease relating to the Company’s office space in New York City that expires February 2021.

 

15

Effect of Inflation

 

Inflation has not historically been a material factor affecting the Company’s business. General operating expenses, such as salaries, employee benefits, insurance and occupancy costs are subject to normal inflationary pressures.

 

Critical Accounting Policies

 

Basis of Presentation

 

The consolidated financial statements include the accounts of Wilhelmina and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

 

Revenue Recognition

 

In compliance with generally accepted accounting principles in United States of America, when reporting revenue gross as a principal versus net as an agent, the Company assesses whether the Company, the model or the talent is the primary obligor. The Company evaluates the terms of its model, talent and client agreements as part of this assessment. In addition, the Company gives appropriate consideration to other key indicators such as latitude in establishing price, discretion in model or talent selection and credit risk the Company undertakes. The Company operates broadly as a modeling agency and in those relationships with models and talents where the key indicators suggest the Company acts as a principal, the Company records the gross amount billed to the client as revenue when earned and collectability is reasonably assured, and the related costs incurred to the model or talent as model or talent cost. In other model and talent relationships, where the Company believes the key indicators suggest the Company acts as an agent on behalf of the model or talent, the Company records revenue when earned and collectability is reasonably assured, net of pass-through model or talent cost.

 

The Company also recognizes management fees as revenues for providing services to other modeling agencies as well as consulting income in connection with services provided to a television production network according to the terms of the contract.  The Company recognizes royalty income when earned based on terms of the contractual agreement. Revenues received in advance are deferred and amortized using the straight-line method over periods pursuant to the related contract. The Company also records fees from licensees when the revenues are earned and collectability is reasonably assured.

 

Advances to models for the cost of initial portfolios and other out-of-pocket costs, which are reimbursable only from collections from the Company’s clients as a result of future work, are expensed to model costs as incurred. Any repayments of such costs are credited to model costs in the period received.

 

Goodwill and Intangible Assets

 

Goodwill consists primarily of customer and talent relationships arising from past business acquisitions. Intangible assets with finite lives are amortized over useful lives ranging from two to seven years. Goodwill and intangible assets with indefinite lives are not subject to amortization, but rather to an annual assessment of impairment by applying a fair-value based test. A significant amount of judgment is required in estimating fair value and performing goodwill impairment tests.

 

The Company annually assesses whether the carrying value of its intangible assets exceeds their fair value and, if necessary, records an impairment loss equal to any such excess. Each interim reporting period, the Company assesses whether events or circumstances have occurred which indicate that the carrying amount of an intangible asset exceeds its fair value. If the carrying amount of the intangible asset exceeds its fair value, an asset impairment charge will be recognized in an amount equal to that excess. No asset impairment charges were incurred during the nine months ended September 30, 2019 or September 30, 2018.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are accounted for at net realizable value, do not bear interest, and are short-term in nature. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability to collect on accounts receivable. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to the valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. The Company generally does not require collateral.

 

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Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company continually assesses the need for a tax valuation allowance based on all available information. As of September 30, 2019, the Company believes that its deferred tax assets are more likely than not to be realized. In addition, the Company continuously evaluates its tax contingencies.

 

Accounting for uncertainty in income taxes recognized in an enterprise’s financial statements requires a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Also, consideration should be given to de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. There was no change to the net amount of assets and liabilities recognized in the consolidated balance sheets as a result of the Company’s tax positions.

 

Item 3.Quantitative and Qualitative Disclosures About Market Risk.

 

Not required for smaller reporting company

 

Item 4.Controls and Procedures.

 

The Company maintains disclosure controls and procedures designed to ensure that information it is required to disclose in the reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. The Company’s disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

The Company’s management, including the Company’s principal executive officer and principal financial officer have evaluated the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report. During the most recent fiscal quarter, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

  

PART II

 

OTHER INFORMATION

 

Item 1.Legal Proceedings.

 

On October 24, 2013, a putative class action lawsuit was brought against the Company by former Wilhelmina model Alex Shanklin and others, including Louisa Raske, Carina Vretman, Grecia Palomares and Michelle Griffin Trotter (the “Shanklin Litigation”), in New York State Supreme Court (New York County) by the same lead counsel who represented plaintiffs in a prior, now-dismissed action brought by Louisa Raske (the “Raske Litigation”).  The claims in the Shanklin Litigation initially included breach of contract and unjust enrichment allegations arising out of matters similar to the Raske Litigation, such as the handling and reporting of funds on behalf of models and the use of model images.  Other parties named as defendants in the Shanklin Litigation include other model management companies, advertising firms, and certain advertisers.  On January 6, 2014, the Company moved to dismiss the Amended Complaint in the Shanklin Litigation for failure to state a claim upon which relief can be granted and other grounds, and other defendants also filed motions to dismiss.  On August 11, 2014, the court denied the motion to dismiss as to Wilhelmina and other of the model management defendants.  Separately, on March 3, 2014, the judge assigned to the Shanklin Litigation wrote the Office of the New York Attorney General bringing the case to its attention, generally describing the claims asserted therein against the model management defendants, and stating that the case “may involve matters in the public interest.” The judge’s letter also enclosed a copy of his decision in the Raske Litigation, which dismissed that case. 

 

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Plaintiffs retained substitute counsel, who filed a Second and then Third Amended Complaint. Plaintiffs’ Third Amended Complaint asserts causes of action for alleged breaches of the plaintiffs' management contracts with the defendants, conversion, breach of the duty of good faith and fair dealing, and unjust enrichment.  The Third Amended Complaint also alleges that the plaintiff models were at all relevant times employees, and not independent contractors, of the model management defendants, and that defendants violated the New York Labor Law in several respects, including, among other things, by allegedly failing to pay the models the minimum wages and overtime pay required thereunder, not maintaining accurate payroll records, and not providing plaintiffs with full explanations of how their wages and deductions therefrom were computed.  The Third Amended Complaint seeks certification of the action as a class action, damages in an amount to be determined at trial, plus interest, costs, attorneys’ fees, and such other relief as the court deems proper.  On October 6, 2015, Wilhelmina filed a motion to dismiss as to most of the plaintiffs’ claims.  The Court entered a decision granting in part and denying in part Wilhelmina’s motion to dismiss on May 26, 2017.  The Court (i) dismissed three of the five New York Labor Law causes of action, along with the conversion, breach of the duty of good faith and fair dealing and unjust enrichment causes of action, in their entirety, and (ii) permitted only the breach of contract causes of action, and some plaintiffs’ remaining two New York Labor Law causes of action to continue, within a limited time frame.  The plaintiffs and Wilhelmina each appealed, and the decision was affirmed on May 24, 2018. On August 16, 2017, Wilhelmina timely filed its Answer to the Third Amended Complaint.

 

On June 6, 2016, another putative class action lawsuit was brought against the Company by former Wilhelmina model Shawn Pressley and others, including Roberta Little (the “Pressley Litigation”), in New York State Supreme Court (New York County) by the same counsel representing the plaintiffs in the Shanklin Litigation, and asserting identical, although more recent, claims as those in the Shanklin Litigation.  The Amended Complaint, asserting essentially the same types of claims as in the Shanklin action, was filed on August 16, 2017.  Wilhelmina filed a motion to dismiss the Amended Complaint on September 29, 2017, which was granted in part and denied in part on May 10, 2018.  Some New York Labor Law and contract claims remain in the case.  Pressley has withdrawn from the case, leaving Roberta Little as the sole remaining named plaintiff in the Pressley Litigation.  On July 12, 2019, the Company filed its Answer and Counterclaim against Little.

 

On May 1, 2019, the Plaintiffs in the Shanklin Litigation (except Raske) and the Pressley Litigation filed motions for class certification on their contract claims and the remaining New York Labor Law Claims. On July 12, 2019, Wilhelmina filed its opposition to the motions for class certification and filed a cross-motion for summary judgment against Shanklin, Vretman, Palomares, Trotter and Little, and a motion for summary judgment against Raske.  Wilhelmina’s reply papers in further support of its summary judgment motions were filed on October 23, 2019, and the class certification and summary judgment motions will next be fully briefed.  The Court has scheduled a hearing on all of the motions for December 4, 2019.  

 

The Company believes the claims asserted in the Shanklin and Pressley Litigations are without merit and intends to continue to vigorously defend the actions.

 

In addition to the legal proceedings disclosed herein, the Company is also engaged in various legal proceedings that are routine in nature and incidental to its business. None of these routine proceedings, either individually or in the aggregate, are believed likely, in the Company's opinion, to have a material adverse effect on its consolidated financial position or its results of operations.

 

Item 1.A.Risk Factors.

 

Not required for smaller reporting company.

 

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

 

During 2012, the Board of Directors authorized a stock repurchase program whereby the Company could repurchase up to 500,000 shares of its outstanding common stock. During 2013, the Board of Directors renewed and extended the Company’s share repurchase authority to enable it to repurchase up to an aggregate of 1,000,000 shares of common stock. In 2016, the Board of Directors increased by an additional 500,000 shares the number of shares of the Company’s common stock which may be repurchased under its stock repurchase program to an aggregate of 1,500,000 shares. The shares may be repurchased from time to time in the open market or through privately negotiated transactions at prices the Company deems appropriate. The program does not obligate the Company to acquire any particular amount of common stock and may be modified or suspended at any time at the Company’s discretion. The following table furnishes information for purchases made pursuant to the stock repurchase program during the quarter ended September 30, 2019:

 

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Period 

Total Number of Shares Purchased

 

Average

Price Paid

Per Share

 

Total Number of Shares Purchased as Part of the Publicly Announced Plans

 

Maximum Number of Shares that May Yet Be Purchased Under the Plans

July 1-31, 2019   3,845   $6.03    1,296,465    203,535 
August 1-31, 2019   -   $-    1,296,465    203,535 
September 1-30, 2019   5,452   $5.73    1,301,917    198,083 
Total   9,297   $5.85           

 

Item 3.Defaults Upon Senior Securities.

 

None.

 

Item 4.Mine Safety Disclosures.

 

Not applicable.

 

Item 5.Other Information.

 

The Company’s revolving line of credit with Amegy Bank expired by its terms on October 24, 2019. On November 6, 2019, the Company and Amegy Bank executed a Twelfth Amendment to Credit Agreement and Fourth Amendment to Line of Credit Note (the “Twelfth Amendment”) which extended the revolving line of credit for three years until October 24, 2022. The Twelfth Amendment also increased the Company’s minimum net worth requirement from $20.0 million to $22.0 million and eliminated the requirement to provide annual tax returns.

 

The foregoing description of the Twelfth Amendment is qualified in its entirety by reference to the definitive agreement filed as an exhibit hereto and incorporated herein by this reference. 

 

Item 6.Exhibits.

 

The following is a list of exhibits filed as part of this Form 10-Q:

 

Exhibit No. Description
   

3.1

Restated Certificate of Incorporation of Wilhelmina International, Inc. (incorporated by reference from Exhibit 3.1 to Form S-1/A, filed January 30, 2012).

3.2 Certificate of Amendment of the Restated Certificate of Incorporation of Wilhelmina International, Inc. (incorporated by reference from Exhibit 3.1 to the Form 8-K, filed July 15, 2014).
3.3 Certificate of Amendment of the Restated Certificate of Incorporation of Wilhelmina International, Inc. (incorporated by reference from Exhibit 3.1 to Form 8-K filed July 12, 2017).
3.4 Amended and Restated Bylaws of Wilhelmina International, Inc. (incorporated by reference from Exhibit 3.2 to Form 8-K, filed May 24, 2011).
4.1 Form of Stock Certificate of Common Stock of Billing Concepts Corp. (incorporated by reference from Exhibit 4.1 to Form 10-Q, filed May 15, 1998).
10.1 Twelfth Amendment to Credit Agreement and Fourth Amendment to Line of Credit Note dated as of October 24, 2019, by and among Wilhelmina International, Inc., ZB, N.A. dba Amegy Bank, and the guarantors signatory thereto.*
31.1 Certification of Principal Executive Officer in Accordance with Section 302 of the Sarbanes-Oxley Act. *
31.2 Certification of Principal Financial Officer in Accordance with Section 302 of the Sarbanes-Oxley Act. *
32.1 Certification of Principal Executive Officer in Accordance with Section 906 of the Sarbanes-Oxley Act. *
32.2 Certification of Principal Financial Officer in Accordance with Section 906 of the Sarbanes-Oxley Act. *
101.INS XBRL Instance Document *
101.SCH XBRL Taxonomy Extension Schema *
101.CAL XBRL Taxonomy Extension Calculation Linkbase *
101.DEF XBRL Taxonomy Extension Definition Linkbase *
101.LAB XBRL Taxonomy Extension Label Linkbase *
101.PRE XBRL Taxonomy Extension Presentation Linkbase *

________________

* Filed herewith

 

 

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SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  WILHELMINA INTERNATIONAL, INC.  
  (Registrant)  
     
     
Date:  November 12, 2019 By:  /s/ James A. McCarthy  
  Name: James A. McCarthy  
  Title:

Chief Financial Officer

(Principal Financial Officer)

 

 

 

 

 

 

 

 

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