Company Quick10K Filing
Quick10K
Wilhelmina
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$6.81 5 $36
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 2019-03-20 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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VIPS Vipshop Holdings 5,220
RVI Retail Value 636
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WHLM 2018-12-31
Part I
Item 1.Business
Item 1A.Risk Factors
Item 1B.Unresolved Staff Comments
Item 2.Properties
Item 3.Legal Proceedings
Item 4.Mine Safety Disclosures
Part II
Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.Selected Financial Data
Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.Quantitative and Qualitative Disclosures About Market Risk
Item 8.Financial Statements and Supplementary Data
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.Controls and Procedures
Item 9B.Other Information
Part III
Item 10.Directors, Executive Officers and Corporate Governance
Item 11.Executive Compensation
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.Certain Relationships and Related Transactions, and Director Independence
Item 14.Principal Accountant Fees and Services
Part IV
Item 15.Exhibits and Financial Statement Schedules
Item 16.Form 10-K Summary
Note 1. Business Activity
Note 2. Summary of Significant Accounting Policies
Note 3. Line of Credit
Note 4. Operating Leases
Note 5. Commitments and Contingencies
Note 6. Income Taxes
Note 7. Treasury Stock
Note 8. Related Parties
Note 9. Stock Options and Stock Purchase Warrants
Note 10. Benefit Plans
Note 11. Intangible Assets
EX-21.1 exh_211.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 2018-12-31

WHLM 10K Annual Report

Balance SheetIncome StatementCash Flow

10-K 1 f10k_032019p.htm FORM 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

_______________

 

FORM 10-K

(Mark One)

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

  For the Fiscal Year Ended December 31, 2018

 

[  ] 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)

(IRS Employer

Identification Number)

   
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)

 

Securities Registered Pursuant to Section 12(b) of the Act:

 

  Title of Each Class   Name of Each Exchange on which Registered  
  Common Stock, $0.01 Par Value   Nasdaq Capital Market  

 

Securities Registered Pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   [  ] Yes   [x] No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   [  ] Yes   [x] No

 

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

 

 1 

 

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x]

 

  

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 [  ] 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

 

The aggregate market value of the registrant’s outstanding common stock held by non-affiliates of the registrant computed by reference to the price at which the common stock was last sold, as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $11.6 million.

 

As of March 20, 2019, the registrant had 5,250,287 shares of common stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

The information required by Part III is incorporated by reference from the registrant’s definitive proxy statement to be filed with the Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report.

 

 

 

 

 

 

 

 

 

 

 2 

 

 

WILHELMINA INTERNATIONAL, INC. AND SUBSIDIARIES

 

Annual Report on Form 10-K

 

For the Year Ended December 31, 2018

 

    PAGE
  PART I  
     
ITEM 1. BUSINESS 4
ITEM 1A. RISK FACTORS 8
ITEM 1B. UNRESOLVED STAFF COMMENTS 8
ITEM 2. PROPERTIES 8
ITEM 3. LEGAL PROCEEDINGS 8
ITEM 4. MINE SAFETY DISCLOSURES 9
     
  PART II  
   
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 9
ITEM 6. SELECTED FINANCIAL DATA 10
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 15
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 15
ITEM 9A. CONTROLS AND PROCEDURES 15
ITEM 9B. OTHER INFORMATION 16
     
  PART III  
     
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 16
ITEM 11. EXECUTIVE COMPENSATION 16
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 16
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 16
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 16
     
  PART IV  
     
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 17
ITEM 16. FORM 10-K SUMMARY 20
     
SIGNATURES 21

 

 

 

 

 3 

 

 

FORWARD LOOKING STATEMENTS

 

This Annual Report on Form 10-K 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 Wilhelmina International, Inc. (together with its subsidiaries the “Company” or “Wilhelmina”) 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 forward-looking statements include, in particular, projections about the Company’s future results, statements about its plans, strategies, business prospects, changes and trends in its business and the markets in which it operates. Additionally, statements concerning future matters such as gross billing levels, revenue levels, expense levels, and other statements regarding matters that are not historical are forward-looking statements. Management cautions that these forward-looking statements relate to future events or the Company’s future financial performance and are subject to business, economic, and other risks and uncertainties, both known and unknown, that may cause actual results, levels of activity, performance, or achievements of its business or its industry to be materially different from those expressed or implied by any forward-looking statements. 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.

 

 

 PART I

 

ITEM 1.BUSINESS

 

DESCRIPTION OF THE WILHELMINA BUSINESS

 

Overview

 

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. The Company was incorporated in the State of Delaware in 1996.

 

 Organization and Operating Divisions

 

The Company acquired the predecessor companies constituting its current primary business in 2008. The Company conducts its business through operating divisions and subsidiaries engaged in fashion model management and other complementary businesses. These business activities are focused on the following key areas:

 

·Fashion model management
·Hair & make-up artist representation
·Celebrity management
·Licensing and branding associations
·Content creation, production, and casting

  

Fashion Model Management

 

Wilhelmina is focused on providing fashion modeling talent and social media influencer services to clients such as advertising agencies, branded consumer goods companies, fashion designers, magazine publications, retailers, department stores, product catalogs and Internet sites.

 

The fashion model/talent/influencer management industry can be divided into many subcategories, including advertising campaigns as well as catalog/e-commerce, runway, showroom and editorial work. Advertising work involves modeling for advertisements featuring consumer products such as cosmetics, clothing and other items to be placed in magazines and newspapers, on billboards and with other types of media. Catalog and e-commerce work involves modeling of products to be sold through promotional catalogs and Internet commerce sites. Runway work involves modeling at fashion shows, which primarily take place in Paris, Milan, London and New York City. Showroom work involves on-site modeling of products at client showrooms and other events and production “fit” work whereby a model serves as the sizing model for apparel items. Editorial work involves modeling for the cover and editorial sections of magazines.  

 

 4 

 

 

Clients pay for talent to appear in photo shoots for magazine features, print advertising, direct mail marketing, product catalogs and Internet sites, as well as to appear in runway shows to present new designer collections, fit modeling, and on-location presentations and events.  In addition, talent may also appear in film and television commercials. Wilhelmina develops and diversifies its talent portfolio through a combination of ongoing local, regional and international scouting and talent-search efforts to source new talent, as well as cooperating with other agencies that represent talent.

 

Within its fashion model management business, Wilhelmina has two primary sources of service revenue: (i) commissions paid by models as a percentage of their gross earnings; and (ii) service charges paid by clients in addition to booking fees, calculated as a percentage of the models’ booking fees.  Wilhelmina believes that its commission rates and service charges are comparable to those of its principal competitors.

 

Wilhelmina’s fashion model management operations are organized into divisions called “boards,” each of which specializes by the type of models it represents. Wilhelmina’s boards are generally described in the table below.

 

Board Name Location Target Market
Women NYC, LA, Miami, Chicago, London High-end female fashion models
Men NYC, LA, Miami, Chicago, London High-end male fashion models
Direct NYC, LA, Miami, Chicago, London Established/commercial male/female fashion models
Curve NYC, LA, Miami, London Full-figured female fashion models
Showroom NYC, Miami Live modeling and designer fit clothing modeling
Fitness NYC, LA Athletic models

 

        Each major board is headed by a director who manages the agents assigned to the board. The agents of each board act both as bookers (including promoting models, negotiating fees and contracting work) and as talent scouts/managers (including providing models with career and development guidance and helping them better market themselves). Although agents individually develop professional relationships with models, models are represented by a board collectively and not by a specific agent. Wilhelmina’s organization into boards enables Wilhelmina to provide clients with services tailored to their particular needs, to allow models to benefit from agents’ specialized experience in their particular markets, and to limit Wilhelmina’s dependency on any specialty market or agent.

 

Most senior agents are employed pursuant to employment agreements that include noncompetition provisions such as a prohibition from working with Wilhelmina’s models and clients for a certain period of time after the end of the agent’s employment with Wilhelmina. Wilhelmina typically signs its models to three-year exclusive contracts, which it actively enforces.

 

The Aperture division operates in New York and Los Angeles, and offers models and actors representation for commercials, film, and television. 

 

Wilhelmina London Limited (“London”), a wholly owned subsidiary of Wilhelmina International, Inc., was acquired in January 2015. The London subsidiary establishes a footprint for the Company in Western Europe, provides a base of operations to service the Company’s European clients, and serves as a new talent development office for European models and artists.

 

The Company previously owned an unconsolidated 50% interest in Wilhelmina Kids & Creative Management LLC (“Kids”), a New York City-based modeling agency that specialized in representing child models/talents, from newborns to children 14 years of age. On December 9, 2016, the owners of Kids agreed to dissolve Kids and ceased related business operations of Kids. On March 1, 2017, the Company paid $0.1 million to another owner of Kids in accordance with the December 9, 2016 agreement to liquidate the enterprise. As a result, Wilhelmina no longer maintains a child models division.

 

Hair & Make-up Artist Representation

 

The Company represents artists in the hair, makeup, photography, and stylist arenas. These artists work on projects across the globe for well-known celebrities and companies in the media, advertising, retail, pharmaceutical and music industries. In addition, their work appears in top magazines and on the runways of major fashion houses. 

 

Celebrity Management

 

Wilhelmina’s celebrity division seeks to secure endorsement and spokesperson work for celebrities from the worlds of sports, music and entertainment. Celebrity has two primary sources of revenue: (i) commissions paid by talent as a percentage of their gross earnings; and (ii) royalties or a service charge paid by clients. Wilhelmina celebrity management works with emerging artists and established celebrity names to match them with leading fashion brands and companies.

 

 5 

 

 

Licensing & Branding Associations

 

Wilhelmina Licensing, LLC is a wholly-owned subsidiary that collects third-party licensing fees in connection with the licensing of the “Wilhelmina” name. Third-party licensees include several leading fashion model agencies in local markets in the U.S. and internationally. A consumer products license for fragrance and cosmetics is also in effect. The film and television business consists of occasional television syndication royalties and production series contracts. Also, from time to time, the Company conducts model search contests and other events in an effort to expand the Wilhelmina brand and recruit talent.

 

Content Creation, Production & Casting

 

The Wilhelmina Studio division offers services relating to content creation, production, casting, and influencer programming. With access to model and celebrity talent, photographers, directors, stylists, and makeup artists, Wilhelmina Studio serves as a one-stop shop for clients looking to establish fashion, beauty, and lifestyle relevancy.

 

 

Competition

 

The fashion model/talent management business is highly competitive. New York City, Los Angeles and Miami, as well as London, Paris, and Milan, are considered the most important markets for the fashion talent management industry.  Most of the leading international firms are headquartered in New York City. Wilhelmina’s principal competitors include other large fashion model management businesses in the U.S., including IMG Models, Elite Model Management, Ford Models, Inc., DNA Model Management, NEXT Model Management, The Lions Model Management, Women 360 Management, and New York Model Management. However, Wilhelmina is the only publicly-owned fashion talent management company in the world.

 

Competition also includes foreign agencies and smaller U.S. agencies in local markets that recruit local talent and cater to local market needs.  Several of the larger fashion talent firms operate offices in multiple cities and countries or have chosen to partner with local or foreign agencies.

 

The Company believes that its sources of revenue (mainly generated from commissions and service charges) are comparable to those of its principal competitors.  Therefore, for the Company to obtain a competitive advantage, it must develop and maintain a deep pool of talent and deliver high quality service to its clients.  The Company believes that through its scouting efforts, search contests, licensing network, advertising and television shows it is able to recruit a deeper pool of talent relative to its competitors. These recruitment tools, coupled with the broad range of fashion boards available to the Company’s talent, enable the Company to develop talent and generate a broader range of revenues relative to its principal competitors. While a broad range of talent and boards provides a level of stability to the business, certain talent may be more inclined to work with a boutique agency that may appear to tailor more specifically to their needs.

 

For more than 50 years, Wilhelmina and its predecessors have created long-standing client relationships and a number of business activities related to the fashion model management business that provide exposure to diverse markets and demographics. The Company has also developed a professional workforce with years of talent management experience.

 

 

Clients and Customers

 

        As of December 31, 2018, Wilhelmina represented a roster of approximately 2,200 active models and talent. Wilhelmina’s active models include Karolína Kurková, Francisco Lachowski, Audrey Marnay, Cyrielle Lalande, I-Hua Wu, Marlon Teixeira, Anne de Paula, Georgia Gibbs, Parker Gregory, Ninouk Akkerman, Anna de Rijk, Avie Acosta, Miss Fame, Hao Yun Xiang, Race Imboden, Wallette Watson, Marianna Dantec, Eli Cruz, Kailand Morris, Riley Harper, Lulu Bonfils, Luke Hemmings, Janis Ancens, Mikkel Jensen, Armando Cabral, Vanessa Cruz, Rayla Guimaraes Jacunda, RJ King, Ida Lundgren, Franisco Henriques, Dachuan Jin, Gracie Phillips, Mia Kang, Claudio Montiero, and Nathan Owens. Wilhelmina’s celebrity talent includes Nicki Minaj, Shawn Mendes, Machine Gun Kelly, Niall Horan, Kygo, Sophia Richie, Miles Richie, Rich the Kid, Rae Sremmurd, Charlie Puth, Maren Morris, 5 Seconds of Summer, Hopper Penn, Clara McGregor, and Leona Lewis.

 

Wilhelmina serves approximately 3,600 external clients. Wilhelmina’s customer base is highly diversified, with no one customer accounting for more than 3% of overall gross revenues. The top 100 clients of Wilhelmina together accounted for approximately 46% of overall gross revenues during 2018.

 

 6 

 

 

Governmental Regulations

 

Certain jurisdictions in which Wilhelmina operates, such as California and Florida, require that companies maintain a Talent Agency License in order to engage in the “talent agency” business. The talent agency business is generally considered the business of procuring engagements or any employment or placement of a talent, where the talent performs in his or her artistic capacity.  Where required, the Wilhelmina subsidiaries operating in these jurisdictions maintain Talent Agency Licenses issued by those jurisdictions.  

 

 

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, 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 Wilhelmina competes with other leading full service agencies, Wilhelmina believes it competed successfully in 2018.  

 

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

 

 

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 Wilhelmina Studio division’s 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 (including developing in-house art and social media departments) 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.

 

EMPLOYEES

 

As of December 31, 2018, the Company had 117 employees, 76 of whom were located in New York City, five of whom were located at Wilhelmina’s Miami office, three of whom were located at Wilhelmina’s Chicago office, 18 of whom were located at Wilhelmina’s Los Angeles office, 13 of whom were located at Wilhelmina’s London office and two of whom were located at the corporate headquarters in Dallas.

 

 

TRADEMARKS AND LICENSING

 

The “Wilhelmina” brand is essential to the success and competitive position of the Company. Wilhelmina’s trademark is vital to the licensing business because licensees pay for the right to use the trademark. The Company has invested significant resources in the “Wilhelmina” brands in order to obtain the public recognition that these brands currently enjoy. Wilhelmina relies upon domestic and international trademark laws, license agreements and nondisclosure agreements to protect the “Wilhelmina” brand name used in its business. Trademarks registered in the U.S. have a duration of ten years and are generally subject to an indefinite number of renewals for a like period on appropriate application.

 

 

 

  

 7 

 

 

ITEM 1A.RISK FACTORS

 

Not applicable to smaller reporting company.

 

 

ITEM 1B.UNRESOLVED STAFF COMMENTS

 

None.

 

 

ITEM 2.PROPERTIES

 

The Company’s corporate headquarters are currently located at 200 Crescent Court, Suite 1400, Dallas, Texas 75201, which are also the offices of Newcastle Capital Management, L.P. (“NCM”).  NCM is the general partner of Newcastle Partners L.P. (“Newcastle”), the Company’s largest shareholder. The Company occupies a portion of NCM’s space on a month-to-month basis at $2,500 per month, pursuant to a services agreement entered into between the parties on October 1, 2006.

  

The following table summarizes information with respect to the material facilities of the Company for leased office space and model apartments:

 

Description of Property Area (sq. feet) Lease Expiration
     
Office for New York-based operations – New York, NY 12,671 February 28, 2021
Office for California-based operations – Los Angeles, CA 3,605 July 31, 2021
Office for Florida-based operations – Miami, FL 2,100 March 31, 2021
Office for London-based operations – London, UK 995 July 19, 2020
Office for Illinois-based operations – Chicago, IL 1,800 June, 30 2021
Two model apartments – London, UK 2,600 2019-2021
Four model apartments – New York, NY 6,800 2019-2020
Two model apartments – Miami, FL 2,000 2021

 

The Company believes there is sufficient office space available at favorable leasing terms both to replace existing office space and to satisfy any additional needs the Company may have as a result of future expansion.

 

 

ITEM 3.LEGAL PROCEEDINGS

 

On October 24, 2013, a putative class action lawsuit was brought against the Company by former Wilhelmina model Alex Shanklin and others (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. Further, 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, and discovery in this action is continuing.  The Company believes the claims asserted in the Third Amended Complaint are without merit, and intends to continue to vigorously defend the action.

 

 8 

 

 

On June 6, 2016, another putative class action lawsuit was brought against the Company by former Wilhelmina model Shawn Pressley and others (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.  Discovery is proceeding, and Ms. Pressley has withdrawn from the case, leaving Roberta Little as the sole named plaintiff in the Pressley Litigation. The Company believes the claims asserted in the Pressley Litigation are without merit, and intends to continue to vigorously defend the action.

 

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 4.MINE SAFETY DISCLOSURES

 

Not applicable.

 

 

PART II

 

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

The Company’s $0.01 par value common stock has traded on the Nasdaq Capital Market under the symbol “WHLM” since September, 2014. Previously, the common stock was quoted in the over-the-counter market on the OTC Bulletin Board (“OTCBB”).

 

The following table shows the high and low sales prices of the common stock for each calendar quarter of 2017 and 2018.

 

Year Ended December 31, 2017:          
1st Quarter  $8.87   $7.10 
2nd Quarter  $8.24   $5.80 
3rd Quarter  $8.73   $5.67 
4th Quarter  $6.99   $6.22 
           
Year Ended December 31, 2018:          
1st Quarter  $7.54   $5.58 
2nd Quarter  $7.50   $5.40 
3rd Quarter  $7.00   $4.90 
4th Quarter  $6.93   $5.03 

 

 

 9 

 

 

Equity Compensation Plan Information

 

The following table provides information with respect to the Company’s equity compensation plans as of December 31, 2018:

 

Plan Category  Number of securities to be issued upon exercise of outstanding options, warrants and rights  Weighted-average exercise price of outstanding options, warrants and rights  Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
   (a)  (b)  (c)
Equity compensation plans approved by security holders   460,000   $7.34    340,000 
Equity compensation plans not approved by security holders            
Total   460,000   $7.34    340,000 

 

Additional information regarding equity compensation can be found in the notes to the consolidated financial statements.

 

 

Issuer Repurchases

 

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 fourth quarter ended December 31, 2018:

 

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
October 1-31, 2018   2,779   $6.55    1,206,270    293,730 
November 1-30, 2018   2,817   $5.58    1,209,087    290,913 
December 1-31, 2018   55,067   $6.88    1,264,154    235,846 
Total   60,663   $6.80           

 

 

Shareholders

 

As of March 20, 2019 there were 5,250,287 shares of the Company’s common stock outstanding held by 438 holders of record.   

 

Dividend Policy

 

The Company has not declared or paid any cash dividends on its common stock during the past two completed fiscal years.  The Board of Directors of the Company expects to continue this policy for the foreseeable future in order to retain cash for the continued expansion of the Company’s business. The Company’s credit agreement with Amegy Bank contains a covenant which could limit its ability to pay dividends on the common stock.

 

 

 

 

 

 10 

 

 

ITEM 6.SELECTED FINANCIAL DATA

 

Not applicable to smaller reporting company.

 

 

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

 

The following is a discussion of the Company’s financial condition and results of operations comparing the calendar years ended December 31, 2018 and 2017. This section should be read in conjunction with the Company’s Consolidated Financial Statements and the Notes thereto that are incorporated herein by reference and the other financial information included herein and the notes thereto.

 

 

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, and scouting and developing 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 the market share of its existing boards and further expand its geographic reach. There can be no assurance as to the effects on Wilhelmina of future economic circumstances, technological developments, client spending patterns, client creditworthiness and other developments and whether, or to what extent, Wilhelmina’s efforts to respond to them will be effective.

 

 

RESULTS OF OPERATIONS OF THE COMPANY FOR THE YEAR ENDED DECEMBER 31, 2018 COMPARED TO YEAR ENDED DECEMBER 31, 2017

 

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, 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.

 

 11 

 

 

Analysis of Consolidated Statements of Operations

For the Years Ended December 31, 2018 and 2017         
(in thousands)  2018  2017  % Change
2018 vs 2017
Service revenues   77,791    73,162    6.3%
License fees and other income   60    34    76.5%
TOTAL REVENUES   77,851    73,196    6.4%
Model costs   55,600    52,275    6.4%
REVENUES NET OF MODEL COSTS   22,251    20,921    6.4%
GROSS PROFIT MARGIN   28.6%   28.6%     
Salaries and service costs   14,015    14,103    -0.6%
Office and general expenses   4,748    5,132    -7.5%
Amortization and depreciation   990    906    9.3%
Corporate overhead   1,125    1,079    4.3%
OPERATING INCOME   1,373    (299)   * 
OPERATING MARGIN   1.8%   -0.4%     
Foreign exchange loss   (83)   (54)   53.7%
Interest expense   (101)   (128)   -21.1%
Loss from unconsolidated affiliate       (40)   -100.0%
INCOME (LOSS) BEFORE INCOME TAXES   1,189    (521)   * 
Current income tax expense   (224)   (362)   -38.1%
Deferred tax benefit (expense)   (109)   1,046    -110.4%
Effective tax rate   28.0%   -131.3%     
NET INCOME   856    163    * 

 

* Not Meaningful

 

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 6.3% increase in total service revenues for the year ended December 31, 2018 when compared to the year ended December 31, 2017 was primarily due to an increase in core model bookings and an increase in bookings in the Aperture and Wilhelmina Studio divisions.

 

License Fees and Other Income

 

License fees and other income include management and administrative services from an unconsolidated affiliate and franchise revenues from independently owned model agencies that use the Wilhelmina trademark and various services provided by the Company. License fees increased 76.5% for the year ended December 31, 2018, when compared to the year ended December 31, 2017, primarily due to the timing of payments received and increased fees from existing affiliates. 

 

Gross Profit Margin

 

Gross profit margins as a percentage of revenue for the year ended December 31, 2018, when compared to the year ended December 31, 2017 was relatively unchanged.

 

Salaries and Service Costs

 

Salaries and service costs consist of payroll and related costs and T&E costs required to deliver the Company’s services to its clients and talent. The 0.6% decrease in salaries and service costs during the year ended December 31, 2018 compared to the year ended December 31, 2017 was primarily due to a reduction in share based payment expense in 2018.

 

Office and General Expenses

 

Office and general expenses consist of office and equipment rents, advertising and promotion, insurance expenses, administration and technology cost.  During the year ended December 31, 2018, office and general expenses decreased 7.5% when compared to the year ended December 31, 2017, primarily due to reduced bad debt expenses, reduced legal fees, reduced insurance expenses, and reduced office supply expense.

 

 12 

 

 

Amortization and Depreciation

 

Amortization and depreciation expense is incurred with respect to certain assets, including computer hardware, software, office equipment, furniture, and intangibles. During 2018, amortization and depreciation expense totaled $1.0 million compared to $0.9 million in 2017, primarily due to new equipment being placed in service during 2017 and 2018 which will be depreciated going forward. Fixed asset purchases (mostly related to technology and computer equipment) totaled approximately $0.4 million in 2018 compared to $0.7 million in 2017.

 

Corporate Overhead

 

Corporate overhead expenses include director and executive officer compensation, legal, audit and professional fees, corporate office rent and travel. Corporate overhead increased by 4.3% for the year ended December 31, 2018, when compared to the year ended December 31, 2017, primarily due to higher stock exchange fees and SEC related compliance costs.  

 

Operating Margin

 

Operating margin increased to 1.8% for the year ended December 31, 2018 compared to -0.4% for the year ended December 31, 2017, primarily due to increases in service revenues and a decrease in total operating expenses, partially offset by higher model costs.

 

Foreign Currency Translation

 

The Company translates the assets and liabilities of its non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates in effect at the end of each period. Revenue and expenses for these subsidiaries are translated using rates that approximate those in effect during the period.  For the year ended December 31, 2018, the Company realized a loss on foreign currency of $83 thousand as compared to a loss of $54 thousand for the year ended December 31, 2017. The loss for the year ended December 31, 2018 and December 31, 2017, were primarily due to exchange rate fluctuations in the British Pound and the Euro.

 

Interest Expense

 

Interest expense for the years ended December 31, 2018 and December 31, 2017 was primarily attributable to accrued interest on term loans drawn during 2016 and 2018. See, “Liquidity and Capital Resources.”

 

Unconsolidated affiliate

 

As a result of the dissolution of an unconsolidated subsidiary and discontinuation of its operations, the Company recognized no impact for the year ended December 31, 2018, compared to a small loss during the year ended December 31, 2017.

 

Income before Income Taxes

 

Income before income taxes increased $1.7 million to income of $1.2 million for the year ended December 31, 2018, compared to a loss of $0.5 million for the year ended December 31, 2017, primarily as a result of increased revenues and a reduction in expenses.

 

Income Taxes

 

Generally, the Company’s combined effective tax rate is high relative to reported net income as a result of certain amounts of amortization and depreciation expense, stock based compensation, and corporate overhead not being deductible and income being attributable to certain states in which it operates. The Company operates in four states which have relatively high tax rates: California, New York, Illinois, and Florida. As of December 31, 2018, the Company had federal income tax loss carryforwards of $0.5 million.

 

The U.S. Tax Cuts and Jobs Act (“The Act”) reduced the U.S. statutory tax rate from 35% to 21% for years after 2017 and imposed a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Company remeasured all deferred taxes as of December 31, 2017 to reflect the reduced rate that will apply in future periods when these deferred taxes are settled or realized. We recognized a deferred tax benefit of $0.7 million attributable to the effects of the Tax Act in 2017. The Company’s deemed repatriation liability is not deemed material due to a foreign deficit.

 

Net Income

 

Net income increased to $0.9 million for the year ended December 31, 2018, from $0.2 million, for the year ended December 31, 2017, primarily due to an increase in operating income, partially offset by an increase in income tax expense.

 

 13 

 

 

Liquidity and Capital Resources

 

The Company’s cash balance increased to $6.7 million at December 31, 2018 from $4.3 million at December 31, 2017. The cash balance increased primarily as a result of $3.8 million net cash provided by operating activities, partially offset by $0.4 million cash used in investing activities, and $0.7 million cash used in financing activities.

 

Net cash provided by operating activities of $3.8 million was primarily the result of increases in net income and accounts payable and accrued liabilities and a decrease in accounts receivable, partially offset by a decrease in amounts due to models. The $0.4 million cash used in investing activities was attributable to purchases of property and equipment, including software, office furniture, and computer equipment. The $0.7 million of cash used in financing activities was attributable to purchase of treasury stock and principal payments on the Company’s term loan, partially offset by proceeds from the term loan.

 

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 December 31, 2018, 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 $1.2 million. The revolving line of credit presently expires October 24, 2019.

 

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, provided that such term loan is paid in full on or before its maturity date.

 

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 December 31, 2018, a total of $2.6 million was outstanding on the two term loans.

 

 

Off-Balance Sheet Arrangements

 

As of December 31, 2018, the Company had outstanding a $0.2 million irrevocable standby letter of credit under the Company’s 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.

 

 

Effect of Inflation

 

Inflation has not 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.

 

 14 

 

 

Critical Accounting Policies

 

See “Note 2, Summary of Significant Accounting Policies” in the audited financial statements included herewith.

 

 

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable to smaller reporting company.

 

 

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The consolidated financial statements of the Company and the related report of the Company’s independent registered public accounting firm thereon are included in this report at the pages indicated.

 

  Page
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets as of December 31, 2018 and 2017 F-3
Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2018 and 2017 F-4
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2018 and 2017 F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018 and 2017 F-6
Notes to the Consolidated Financial Statements F-7

 

 

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

 

None.

 

 

ITEM 9A.CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this report, the Company’s principal executive officer and principal financial officer evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on their evaluation of the Company’s disclosure controls and procedures, the Company’s principal executive officer and principal financial officer, with the participation of the Company’s management, have concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2018, to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) accumulated and communicated to management, including the Company’s principal executive officer and principal financial officer, as appropriate to allow for timely decisions regarding required disclosure.

 

Management’s Annual Report on Internal Control over Financial Reporting

 

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).  Under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018 based on the framework in Internal Control - Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, the Company’s management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2018.

 

        During the year ended December 31, 2018, there were no changes in the Company’s internal controls over financial reporting, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 15 

 

 

ITEM 9B.OTHER INFORMATION

 

None.

 

 

PART III

 

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The information required by Item 10 is incorporated by reference from the Company’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

 

ITEM 11.EXECUTIVE COMPENSATION

 

The information required by Item 11 is incorporated by reference from the Company’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

 

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The information required by Item 12 is incorporated by reference from the Company’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

 

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

The information required by Item 13 is incorporated by reference from the Company’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

 

 

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

The information required by Item 14 is incorporated by reference from the Company’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

 

 

 

 16 

 

 

PART IV

 

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a) Documents Filed as Part of Report

 

1.Financial Statements:
   
  The consolidated financial statements of the Company and the related report of the Company’s independent public accountants thereon have been filed under Item 8 hereof.
   
 2.Financial Statement Schedules:
   
  The information required by this item is not applicable.
   
 3.Exhibits:
   
  The exhibits listed below are filed as part of or incorporated by reference in this report. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 17 

 

 

 

 

Exhibit
Number
  Description of Exhibits
     
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   Mutual Support Agreement, dated August 25, 2008, by and among Newcastle Partners, L.P., Dieter Esch, Lorex Investments AG, Brad Krassner and Krassner Family Investments Limited Partnership (incorporated by reference from Annex D to the Proxy Statement on Schedule 14A filed December 22, 2008).
10.2   First Amendment to Mutual Support Agreement, dated October 18, 2010, by and among Newcastle Partners, L.P., Dieter Esch, Lorex Investments AG, Brad Krassner and Krassner Family Investments Limited Partnership (incorporated by reference from Exhibit 10.2 to Form 8-K filed October 21, 2010).
10.3   Credit Agreement, dated as of April 20, 2011, by and between Wilhelmina International, Inc. and Amegy Bank National Association (incorporated by reference from Exhibit 10.1 to Form 8-K filed May 5, 2011).
10.4   Promissory Note, dated as of April 20, 2011, by and between Wilhelmina International, Inc. for the benefit of Amegy Bank National Association (incorporated by reference from Exhibit 10.2 to Form 8-K filed May 5, 2011).
10.5   Pledge and Security Agreement, dated as of April 20, 2011, by and between Wilhelmina International, Inc., the guarantor signatories thereto and Amegy Bank National Association (incorporated by reference from Exhibit 10.3 to Form 8-K filed May 5, 2011).
10.6   Guaranty, dated as of April 20, 2011, by the guarantor signatories thereto for the benefit of Amegy Bank National Association (incorporated by reference from Exhibit 10.4 to Form 8-K filed May 5, 2011).
10.7   First Amendment to Credit Agreement, dated January 1, 2012, by and among Wilhelmina International, Inc., the guarantor signatories thereto and Amegy Bank National Association (incorporated by reference from Exhibit 10.1 to Form 8-K filed January 19, 2012).
10.8   Amended and Restated Line of Credit Promissory Note, dated as of January 1, 2012, by Wilhelmina International, Inc. for the benefit of Amegy Bank National Association (incorporated by reference from Exhibit 10.2 to Form 8-K filed January 19, 2012).
10.9   First Amendment to Pledge and Security Agreement, dated as of January 1, 2012, by and among Wilhelmina International, Inc., the guarantor signatories thereto and Amegy Bank National Association (incorporated by reference from Exhibit 10.3 to Form 8-K filed January 19, 2012).  
10.10   Second Amendment to Credit Agreement, dated as of October 24, 2012, by and between Wilhelmina International, Inc. and Amegy Bank National Association (incorporated by reference from Exhibit 10.1 to Form 8-K filed October 30, 2012).

 

 18 

 

 

10.11   Second Amended and Restated Line of Credit Promissory Note, dated as of October 24, 2012, by Wilhelmina International, Inc. for the benefit of Amegy Bank National Association (incorporated by reference from Exhibit 10.2 to Form 8-K filed October 30, 2012).  
10.12   Second Amendment to Pledge and Security Agreement, dated as of October 24, 2012, by and among Wilhelmina International, Inc., the guarantor signatories thereto and Amegy Bank National Association (incorporated by reference from Exhibit 10.3 to Form 8-K filed October 30, 2012).
10.13   Third Amendment to Pledge and Security Agreement, dated as of July 31, 2014, by and among Wilhelmina International, Inc., the guarantor signatories thereto and Amegy Bank National Association (incorporated by reference from Exhibit 10.30 to Form 10-K filed March 27, 2015).  
10.14   Fourth Amendment to Credit Agreement, dated November 10, 2015, by and among Wilhelmina International, Inc., the guarantor signatories thereto and Amegy Bank National Association (incorporated by reference from Exhibit 10.32 to Form 10-Q filed November 16, 2015).  
10.15     Third Amended and Restated Line of Credit Promissory Note, dated November 10, 2015, by and among Wilhelmina International, Inc., the guarantor signatories thereto and Amegy Bank National Association (incorporated by reference from Exhibit 10.33 to Form 10-Q filed November 16, 2015).
10.16   Term Loan Promissory Note, dated November 10, 2015, by and among Wilhelmina International, Inc., the guarantor signatories thereto and Amegy Bank National Association (incorporated by reference from Exhibit 10.34 to Form 10-Q filed November 16, 2015).  
10.17   Third Amendment to Pledge and Security Agreement, dated November 10, 2015, by and among Wilhelmina International, Inc., the guarantor signatories thereto and Amegy Bank National Association (incorporated by reference from Exhibit 10.35 to Form 10-Q filed November 16, 2015).
10.18   Fifth Amendment to Credit Agreement dated May 13, 2016, by and among Wilhelmina International, Inc., Amegy Bank National Association and the guarantors signatory thereto (incorporated by reference from Exhibit 10.1 to Form 8-K filed May 17, 2016).
10.19   Sixth Amendment to Credit Agreement and First Amendment to Line of Credit Note dated November 9, 2016, between Wilhelmina International, Inc. and Amegy Bank (incorporated by reference from Exhibit 10.2 to Form 10-Q filed November 14, 2016).
10.20   Seventh Amendment to Credit Agreement dated May 4, 2017, by and among Wilhelmina International, Inc., the guarantor signatories thereto, and Amegy Bank (incorporated by reference from Exhibit 10.1 to Form 8-K filed May 8, 2017).
10.21   Eighth Amendment to Credit Agreement and Waiver dated August 1, 2017, by and among Wilhelmina International, Inc., the guarantor signatories thereto, and Amegy Bank (incorporated by reference from Exhibit 10.1 to Form 8-K filed August 4, 2017).
10.22   Ninth Amendment to Credit Agreement and Second Amendment to Line of Credit Note dated October 24, 2017, by and among Wilhelmina International, Inc., the guarantor signatories thereto, and Amegy Bank (incorporated by reference from Exhibit 10.2 to Form 10-Q filed November 9, 2017).
10.23   Tenth Amendment to Credit Agreement dated July 12, 2018, by and among Wilhelmina International, Inc., ZB, N.A. dba Amegy Bank and the guarantors signatory thereto (incorporated by reference to Exhibit 10.1 to Form 8-K filed July 17, 2018).
10.24   Promissory Note dated July 12, 2018, by and between Wilhelmina International, Inc. and ZB, N.A. dba Amegy Bank (incorporated by reference to Exhibit 10.2 to Form 8-K files July 17, 2018).
10.25   Eleventh Amendment to Credit Agreement and Third Amendment to Line of Credit Note dated October 24, 2018, by and among Wilhelmina International, Inc., ZB, N.A. dba Amegy Bank and the guarantors signatory thereto (incorporated by reference to Exhibit 10.3 to Form 10-Q filed November 9, 2018).
*10.26   Wilhelmina International, Inc. 2015 Incentive Plan (incorporated by reference from Exhibit 10.1 to Form 8-K filed June 16, 2015).
*10.27   Form of Stock Option Grant Agreement (incorporated by reference from Exhibit 10.21 to Form 10-K filed March 23, 2017).
*10.28   Employment Agreement, dated as of January 26, 2016, by and between Wilhelmina International, Inc. and William Wackermann (incorporated by reference from Exhibit 10.1 to the Form 8-K filed February 1, 2016).

 

 19 

 

 

*10.29   Amended and Restated Employment Agreement dated June 29, 2016, between Wilhelmina International, Inc. and William J Wackermann (incorporated by reference from Exhibit 10.1 to Form 8-K filed June 30, 2016).
*10.30   Letter agreement dated April 4, 2016 between Wilhelmina International, Inc. and James McCarthy (incorporated by reference from Exhibit 10.1 to Form 8-K filed April 25, 2016).
21.1   List of Subsidiaries (filed herewith).
31.1   Certification of Principal Executive Officer in Accordance with Section 302 of the Sarbanes-Oxley Act (filed herewith).
31.2   Certification of Principal Financial Officer in Accordance with Section 302 of the Sarbanes-Oxley Act (filed herewith).
32.1   Certification of Principal Executive Officer in Accordance with Section 906 of the Sarbanes-Oxley Act (filed herewith).
32.2   Certification of Principal Financial Officer in Accordance with Section 906 of the Sarbanes-Oxley Act (filed herewith).

           

*Includes compensatory plan or arrangement.

 

 

 

ITEM 16.FORM 10-K SUMMARY

 

Not applicable.

 

 

 

 

 

 

 

 

 20 

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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:  March 20, 2019      
  By: /s/ William J. Wackermann  
   Name William J. Wackermann  
   Title: Chief Executive Officer  
    (Principal Executive Officer)  

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 20th day of March 2019.

 

/s/ Mark E. Schwarz    Director and
Mark E. Schwarz    Executive Chairman
        
     
/s/ William J. Wackermann    Chief Executive Officer
William J. Wackermann    Principal Executive Officer
       
      
/s/ James A. McCarthy    Chief Financial Officer
James A. McCarthy    Principal Financial Officer
     
        
/s/ Clinton J. Coleman    Director
Clinton J. Coleman      
        
        
/s/ James A. Dvorak    Director
James A. Dvorak      
       
      
/s/ Horst-Dieter Esch    Director
Horst-Dieter Esch      
       
      
/s/ Mark E. Pape    Director
Mark E. Pape      
       
      
/s/ James C. Roddey    Director
James C. Roddey      
     
     
/s/ Jeffrey R. Utz   Director
Jeffrey R. Utz    

 

 

 

 

 

 21 

 

 

WILHELMINA INTERNATIONAL, INC. AND SUBSIDIARIES

 

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

  Page
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets as of December 31, 2018 and 2017 F-3
Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2018 and 2017 F-4
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2018 and 2017 F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018 and 2017 F-6
Notes to Consolidated Financial Statements F-7

 

 

 

 

 

 

 

 

 

 

 

 

 

 F-1 

 

 

MONTGOMERY COSCIA GREILICH LLP

972.748.0300 p

972.748.0700 f

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and Shareholders of

Wilhelmina International, Inc. and Subsidiaries:

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Wilhelmina International, Inc. and subsidiaries (collectively the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of income and comprehensive income, shareholders’ equity, and cash flows for the years ended December 31, 2018 and 2017, and the related notes to the consolidated financial statements (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 

 

 

/s/ Montgomery Coscia Greilich, LLP

 

 

We have served as the Company’s auditor since 2012 

 

Plano, TX

March 20, 2019

 

 

 

 

 

 F-2 

 

 

WILHELMINA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of December 31, 2018 and 2017

(In thousands, except share data) 

 

   2018  2017
ASSETS          
Current assets:          
Cash and cash equivalents  $6,748   $4,256 
Accounts receivable, net of allowance for doubtful accounts of $1,791 and $2,171, respectively   11,901    13,627 
Prepaid expenses and other current assets   197    180 
Total current assets   18,846    18,063 
           
Property and equipment, net of accumulated depreciation of $3,264 and $2,349, respectively   2,567    3,039 
           
Trademarks and trade names with indefinite lives   8,467    8,467 
Other intangibles with finite lives, net of accumulated amortization of$8,684 and $8,609 respectively   53    128 
Goodwill   13,192    13,192 
Other assets   114    137 
           
TOTAL ASSETS  $43,239   $43,026 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable and accrued liabilities  $5,071   $3,985 
Due to models   8,809    10,190 
Term loan - current   623    524 
Total current liabilities   14,503    14,699 
           
Long term liabilities:          
Net deferred income tax liability   631    521 
Term loan - non-current   2,000    1,623 
Total long-term liabilities   2,631    2,144 
           
Total liabilities   17,134    16,843 
           
Shareholders’ equity:          
Common stock, $0.01 par value, 9,000,000 shares authorized; 6,472,038 shares issued at December 31, 2018 and December 31, 2017   65    65 
Treasury stock, 1,264,154 and 1,090,370 at December 31, 2018 and December 31, 2017, at cost   (6,093)   (4,893)
Additional paid-in capital   88,255    87,892 
Accumulated deficit   (56,029)   (56,885)
Accumulated other comprehensive income   (93)   4 
Total shareholders’ equity   26,105    26,183 
           
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY  $43,239   $43,026 

 

 

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

 

 

 F-3 

 

 

WILHELMINA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

For the Years Ended December 31, 2018 and 2017

(In thousands, except per share data)

 

   2018  2017
Revenues          
Service revenues  $77,791   $73,162 
License fees and other income   60    34 
Total revenues   77,851    73,196 
           
Model costs   55,600    52,275 
           
Revenues net of model costs   22,251    20,921 
           
Operating expenses          
Salaries and service costs   14,015    14,103 
Office and general expenses   4,748    5,132 
Amortization and depreciation   990    906 
Corporate overhead   1,125    1,079 
Total operating expenses   20,878    21,220 
Operating income (loss)   1,373    (299)
           
Other expense:          
Foreign exchange loss   (83)   (54)
Loss from unconsolidated affiliate       (40)
Interest expense   (101)   (128)
Total other expense   (184)   (222)
           
Income (loss) before income taxes   1,189    (521)
           
Provision for income taxes:          
Current   (224)   (362)
Deferred   (109)   1,046 
Income tax benefit (expense)   (333)   684 
           
           
Net income  $856   $163 
           
Other comprehensive income          
Foreign currency translation benefit (expense)   (97)   54 
Total comprehensive income  $759   $217 
           
Basic net income per common share  $0.16   $0.03 
Diluted net income per common share  $0.16   $0.03 
           
Weighted average common shares outstanding-basic   5,328    5,382 
Weighted average common shares outstanding-diluted   5,328    5,382 

 

 

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

 

 F-4 

 

 

WILHELMINA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the Years Ended December 31, 2018 and 2017

(In thousands)

 

   Common
Shares
  Stock
Amount
  Treasury
Shares
  Stock
Amount
  Additional
Paid-in
Capital
  Accumulated
Deficit
  Accumulated
Other
Comprehensive
Loss
  Total
Balances at December 31, 2016   6,472   $65    (1,090)  $(4,893)  $87,336   $(57,048)  $(50)  $25,410 
Share based payment expense                   556            556 
Net income to common shareholders                       163        163 
Purchases of treasury stock                                
Foreign currency translation                           54    54 
Balances at December 31, 2017   6,472   $65    (1,090)  $(4,893)  $87,892   $(56,885)  $4   $26,183 
Share based payment expense                   363            363 
Net income to common shareholders                       856        856 
Purchases of treasury stock           (174)   (1,200)               (1,200)
Foreign currency translation                           (97)   (97)
Balances at December 31, 2018   6,472   $65    (1,264)  $(6,093)  $88,255   $(56,029)  $(93)  $26,105 

 

 

 

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

 

 F-5 

 

 

WILHELMINA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2018 and 2017

 (In thousands)

                                               

   2018  2017
Cash flows from operating activities:          
Net income:  $856   $163 
Adjustments to reconcile net income to net cash used in operating activities:          
Amortization and depreciation   990    906 
Share based payment expense   363    556 
Bad debt expenses   58    172 
Changes in operating assets and liabilities:          
Accounts receivable   1,668    3,148 
Prepaid expenses and other current assets   (17)   667 
Other assets   23    27 
Due to models   (1,381)   (4,027)
Accounts payable and accrued liabilities   1,086    (796)
Contingent liability to seller       (97)
Deferred income taxes   110    (1,046)
Net cash provided by (used in) operating activities   3,756    (327)
           
Cash flows from investing activities:          
Purchases of property and equipment   (443)   (657)
Net cash used in investing activities   (443)   (657)
           
Cash flows from financing activities:          
Purchases of treasury stock   (1,200)    
Proceeds from term loan   1,000     
Payments on term loan   (524)   (502)
Net cash used in financing activities   (724)   (502)
           
Foreign currency effect on cash flows:   (97)   54 
           
Net change in cash and cash equivalents:   2,492    (1,432)
Cash and cash equivalents, beginning of period   4,256    5,688 
Cash and cash equivalents, end of period  $6,748   $4,256 
           
           
Supplemental disclosures of cash flow information:          
Cash paid for interest  $99   $110 
Cash refund of income taxes  $44   $376 

 

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

 

 F-6 

 

 

WILHELMINA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2018 and 2017

 

Note 1.  Business Activity

 

Overview

 

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 2.  Summary of Significant Accounting Policies

 

The consolidated financial statements are prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”). The following is a summary of significant policies used in the preparation of the accompanying financial statements.

 

Principles of Consolidation and Basis of Presentation

 

The financial statements include the consolidated accounts of Wilhelmina and its wholly owned subsidiaries. Wilhelmina also previously owned a non-consolidated 50% interest in Wilhelmina Kids & Creative Management LLC which was accounted for under the equity method of accounting. All significant inter-company accounts and transactions have been eliminated in consolidation.

 

Revenue Recognition

 

In compliance with GAAP, 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 the revenues are 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 the revenues are earned and collectability is reasonably assured, net of pass-through model or talent cost.

 

The Company recognizes royalty income when earned based on terms of the contractual agreement. 

 

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.

 

Use of Estimates

 

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates that affect the amounts reported in the consolidated financial statements and the accompanying notes. Accounting estimates and assumptions discussed herein are those that management considers to be the most critical to an understanding of the consolidated financial statements because they inherently involve significant judgments and uncertainties. All of these estimates reflect management’s judgment about current economic and market conditions and their effects based on information available as of the date of these consolidated financial statements. If such conditions persist longer or deteriorate further than expected, it is reasonably possible that the judgments and estimates could change, which may result in future impairments of assets among other effects.

 

 F-7 

 

 

Cash Equivalents

 

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.

 

 

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 allowance. At December 31, 2018, the Company had an allowance of $1.8 million, and recorded a $0.1 million bad debt charge to earnings. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the allowance and a credit to accounts receivable.  The Company generally does not require collateral.

 

 Concentrations of Credit Risk

 

The balance sheet items that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents and accounts receivable.  The Company maintains its cash balances in several different financial institutions in New York, Los Angeles, Miami, and London. Balances in accounts other than “noninterest-bearing transaction accounts” are insured up to Federal Deposit Insurance Corporation (“FDIC”) limits of $250 thousand per institution. At December 31, 2018, the Company had cash balances in excess of FDIC insurance coverage of approximately $5.3 million. Balances in London accounts are covered by Financial Services Compensation Scheme (“FSCS”) limits of £75 thousand or approximately $0.1 million per institution. At December 31, 2018, the Company had cash balances in excess of FSCS coverage of approximately $1.4 million. Concentrations of credit risk with accounts receivable are mitigated by the Company’s large number of clients and their dispersion across different industries and geographical areas. The Company performs ongoing credit evaluations of its clients and maintains an allowance for doubtful accounts based upon the expected collectability of all accounts receivable.

 

Property and Equipment

 

Property and equipment are stated at cost. Depreciation and amortization, based upon the estimated useful lives (ranging from two to seven years) of the assets or terms of the leases, are computed by use of the straight-line method. Leasehold improvements are amortized based upon the shorter of the terms of the leases or asset lives. When property and equipment are retired or sold, the cost and accumulated depreciation and amortization are eliminated from the related accounts and gains or losses, if any, are reflected in the consolidated statement of operations.

 

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined that impairment has occurred, the amount of the impairment is charged to operations.

 

For the years ended December 31, 2018 and 2017, depreciation expense totaled $0.9 million and $0.8 million, respectively. Depreciation expense increased primarily due to the Company’s new assets being placed into service in 2017 and 2018.

 

 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 eight 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 years ended December 31, 2018 and 2017.

 

 F-8 

 

 

 Advertising

 

The Company expenses all advertising costs as incurred. Advertising expense for the year ended December 31, 2018 approximated $33 thousand, relatively consistent with $39 thousand of advertising expense for the year ended December 31, 2017.

 

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 base 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 December 31, 2018, the Company believes that its deferred tax assets are more likely than not to be realized, and therefore, no valuation allowance has been recorded.

 

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. Tax positions are subject to change in the future, as a number of years may elapse before a particular matter for which an established reserve is audited and finally resolved. Federal tax returns for tax years 2015 through 2017 remained open for examination as of December 31, 2018.

 

Stock-Based Compensation

 

The Company utilizes stock-based awards as a form of compensation for certain officers. The Company records compensation expense for all awards granted. The Company uses the Black-Scholes valuation model and straight-line amortization of compensation expense over the requisite service period for each separately vesting portion of the grants.

 

Fair Value Measurements

 

The Company has adopted the provisions of ASC 820, “Fair Value Measurements” (“ASC 820”), for financial assets and financial liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosure about fair value measurements. ASC 820 applies to all financial instruments that are being measured and reported on a fair value basis. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy that prioritizes the inputs used in valuation methodologies into the following three levels:

 

Level 1 Inputs-Unadjusted: quoted prices in active markets for identical assets or liabilities.
Level 2 Inputs-Observable: inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 Inputs-Unobservable: inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or other valuation techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

 

Recent Accounting Pronouncements

 

Accounting Standard Update (“ASU”) 2014-09, Revenue from Contracts with Customers. On January 1, 2018, Wilhelmina adopted the new accounting standard which requires that a contract’s transaction price, which is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, is to be allocated to each performance obligation in the contract based on relative standalone selling prices and recognized as revenue, when, or as, the performance obligation is satisfied.

 

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 will be effective for the Company beginning January 1, 2019. Wilhelmina will elect the optional transition approach to not apply the new lease standard in the comparative periods presented. We expect adoption of the standard will result in the recognition of ROU assets and lease liabilities for operating leases of approximately $2.5 million to $3.0 million at January 1, 2019, with the most significant impact from recognition of ROU assets and lease liabilities related to our office space and model apartment leases. The adoption of the new standard is not expected to have a material impact on the consolidated statement of income, stockholder’s equity and cash flows.

 

 F-9 

 

 

Note 3.  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 December 31, 2018, 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 $1.2 million. The revolving line of credit presently expires October 24, 2019.

 

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, provided that such term loan is paid in full on or before its maturity date.

 

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 December 31, 2018, a total of $2.6 million was outstanding on the two term loans.

 

Note 4.  Operating Leases

 

The Company is obligated under non-cancelable lease agreements for the rental of office space and various other lease agreements for the leasing of office equipment. These operating leases expire at various dates through 2021. In addition to the minimum base rent, the office space lease agreements provide that the Company shall pay its pro-rata share of real estate taxes and operating costs as defined in the lease agreement. The Company also leases certain corporate office space from an affiliate.

 

 

The following table summarizes future minimum payments under the current lease agreements:

 

Years Ending December 31  Amount
(in thousands)
2019  $1,482 
2020   1,196 
2021   399 
Total  $3,077 

 

Rent expense totaled approximately $1.9 million and $1.7 million for the years ended December 31, 2018 and 2017 respectively.

 

 F-10 

 

 

Note 5.  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 (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. Further, 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, and discovery in this action is continuing.  The Company believes the claims asserted in the Third Amended Complaint are without merit, and intends to continue to vigorously defend the action.

 

On June 6, 2016, another putative class action lawsuit was brought against the Company by former Wilhelmina model Shawn Pressley and others (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.  Discovery is proceeding, and Ms. Pressley has withdrawn from the case, leaving Roberta Little as the sole named plaintiff in the Pressley Litigation. The Company believes the claims asserted in the Pressley Litigation are without merit, and intends to continue to vigorously defend the action.

 

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 6.  Income Taxes

 

The following table summarizes the income tax (expense) benefit for the years ended December 31, 2018 and 2017 (in thousands):

 

   2018  2017
Current:          
Federal  $   $ 
State   (26)   (149)
Foreign   (198)   (213)
Current Total   (224)   (362)
Deferred:          
Federal   (153)   994 
State   44    52 
Foreign        
Deferred Total   (109)   1,046 
Total  $(333)  $684 

 

 F-11 

 

 

The income tax benefit (expense) differs from the amount computed by applying the statutory federal and state income tax rates to the net income before income tax.  The following table shows the reasons for these differences (in thousands):

 

   2018  2017
Computed income tax benefit (expense) at statutory rate  $(377)  $180 
Increase in taxes resulting from:          
Permanent and other deductions, net   (34)   (95)
Foreign income taxes   55    (32)
State income taxes, net of federal benefit   26    (62)
Deferred tax effects   (3)   693 
Total income tax benefit (expense)  $(333)  $684 

 

 

The following table shows the tax effect of significant temporary differences, which comprise the deferred tax asset and liability (in thousands):

 

   2018  2017
Deferred tax asset:          
Net operating loss carryforward  $114   $395 
Foreign tax credits   483    380 
Accrued expenses   649    578 
Allowance for doubtful accounts   144    173 
Stock-based compensation   336    242 
Other intangible assets   45    54 
Total deferred income tax asset   1,771    1,822 
Deferred tax liability:          
Property and equipment   (545)   (589)
Intangible assets-brand name   (1,079)   (1,079)
Goodwill   (497)   (447)
Other intangible assets   (281)   (229)
Total deferred income tax liability   (2,402)   (2,344)
Net deferred tax liability  $(631)  $(522)

 

The Company has $0.5 million of federal net operating loss carryforwards, which expire in 2037. Additionally, the Company has $0.5 million of U.S. federal foreign tax credit carryforwards, which expire between 2023 and 2028.

 

The U.S. Tax Cuts and Jobs Act (Tax Act) was enacted on December 22, 2017 and 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, which are referred to as the global intangible low-taxed income tax and base erosion tax, respectively.

 

In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”) provisions of the Tax Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The Company elected to treat any potential GILTI inclusions as a period cost.

 

Deferred tax effects

 

The Tax Act reduced the U.S. statutory tax rate from 35% to 21% for years after 2017. Accordingly, we remeasured our deferred taxes as of December 31, 2017 to reflect the reduced rate that will apply in future periods when these deferred taxes are settled or realized. We recognized a deferred tax benefit of $0.7 million as of December 31, 2017 to reflect the reduced U.S. tax rate and other effects of the Tax Act.

 

 F-12 

 

 

Note 7.  Treasury Stock

 

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.

 

From 2012 through December 31, 2018, the Company repurchased an aggregate of 1,264,154 shares of common stock at an average price of approximately $4.82 per share, for a total of approximately $6.1 million in repurchases under the stock repurchase program. During the year ended December 31, 2018, 173,784 shares were repurchased at an average price of $6.91 per share. The repurchase of an additional 235,846 shares is presently authorized under the stock repurchase program.

 

Note 8.  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 A. 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 $2,500 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 administrative services from employees of NCM. The Company incurred expenses pursuant to the services agreement totaling approximately $30 thousand for each of the years ended December 31, 2018 and 2017. The Company did not owe NCM any amounts under the services agreement as of December 31, 2018.

 

 

Note 9.  Stock Options and Stock Purchase Warrants

 

During 2012, shareholders of the Company approved the 2011 Incentive Plan which authorized the issuance of up to 300,000 shares of the Company’s common stock pursuant to stock options, restricted stock, stock appreciation rights and other equity incentives awarded to directors, officers, consultants, advisors and employees of the Company. During 2015, shareholders of the Company approved the 2015 Incentive Plan which authorized the issuance of up to an additional 500,000 shares of the common stock pursuant to stock options, restricted stock, stock appreciation rights and other equity incentives awarded to directors, officers, consultants, advisors and employees of the Company. Stock option awards under the 2011 Incentive Plan and the 2015 Incentive Plan (collectively, the “Incentive Plans”) are granted at the market value of the common stock on the date of grant, have vesting periods of five years, and expire to the extent unexercised after ten years.

 

Under the Incentive Plans, no stock option awards were granted during 2018 and stock option awards covering 230,000 shares of the common stock were granted during 2017. No stock options were exercised during either 2018 or 2017.

 

The following table shows a summary of stock option transactions under the Incentive Plans during 2018 and 2017:

 

   Number
of Shares
  Weighted Average
Exercise Price
Outstanding, January 1, 2017   230,000   $6.70 
Granted   230,000    7.98 
Exercised        
Forfeited or expired        
Outstanding, December 31, 2017   460,000   $7.34 
Granted        
Exercised        
Forfeited or expired        
Outstanding, December 31, 2018   460,000   $7.34 

 

Total unrecognized compensation expense on options outstanding as of December 31, 2018 was $0.4 million. Options to purchase 138,000 shares of common stock were exercisable as of December 31, 2018.

 

 F-13 

 

 

The Company estimates the fair value of each stock option granted on the date of grant using the Black-Scholes option pricing model. Expected volatilities are based on the historical volatility of Wilhelmina’s and similar companies’ common stock for a period equal to the expected term. The risk-free interest rates for periods within the contractual term of the options are based on rates for U.S. Treasury Notes with maturity dates corresponding to the options’ expected lives on the dates of grant. Expected term is determined based on the option term of ten years.

 

 

Note 10.  Benefit Plans

 

The Company has established a 401(k) Plan for eligible employees of the Company. Generally, all employees of the Company who are at least twenty-one years of age are eligible to participate in the 401(k) Plan. The 401(k) Plan is a defined contribution plan which provides that participants may make voluntary salary deferral contributions, on a pretax basis, between 1% and 100% of their compensation in the form of voluntary payroll deductions, up to a maximum amount as indexed for cost-of-living adjustments. The Company may make discretionary contributions. No discretionary contributions were made during the years ended December 31, 2018 and 2017.

 

 

Note 11.  Intangible Assets

 

The following table summarizes the intangible assets for the years ended December 31, 2018 and 2017 (in thousands):

 

Intangible assets subject
to amortization:
  Gross
Cost
  Accumulated
Amortization
  Weighted-average
amortization period
(in years)
2018 Intangibles:               
Customer lists  $3,204   $(3,194)   5.0 
Non-compete agreements   1,054    (1,054)   6.5 
Talent and model contractual relationships   2,846    (2,803)   3.8 
Employee contractual relationships   1,633    (1,633)   5.0 
Total  $8,737   $(8,684)   5.1 
                
2017 Intangibles:               
Customer lists  $3,204   $(3,191)   5.0 
Non-compete agreements   1,054    (1,054)   6.5 
Talent and model contractual relationships   2,846    (2,731)   3.8 
Employee contractual relationships   1,633    (1,633)   5.0 
Total  $8,737   $(8,609)   5.1 

 

Amortization expense totaled $0.1 million for each of the years ended December 31, 2018 and 2017. The remaining unamortized balance of $53 thousand will be amortized over the next four years.

 

 

 

 

F-14