Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - Wilhelmina International, Inc.Financial_Report.xls
EX-32.1 - EXHIBIT 32.1 - Wilhelmina International, Inc.exh_321.htm
EX-31.1 - EXHIBIT 31.1 - Wilhelmina International, Inc.exh_311.htm
EX-32.2 - EXHIBIT 32.2 - Wilhelmina International, Inc.exh_322.htm
EX-31.2 - EXHIBIT 31.2 - Wilhelmina International, Inc.exh_312.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
[x]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2014

 
OR

[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from ________ to ________
 
Commission File Number 0-28536

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

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

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

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

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). [x] Yes   [  ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):
 
 
Large accelerated filer  [  ]
Accelerated filer [  ]
 
Non-accelerated filer [  ]
Smaller reporting company [x]
 
(Do not check if a smaller reporting company)
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   [  ] Yes  [x] No
 
As of May 14, 2014 the registrant had 117,406,051 shares of common stock outstanding.
 
 
 

 
WILHELMINA INTERNATIONAL, INC. AND SUBSIDIARIES
 
Quarterly Report on Form 10-Q
 
For the Three Months Ended March 31, 2014
 
     
 
     
   
     
   
     
   
     
   
     
 
     
 
     
 
     
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
 

 
PART I
 
 
WILHELMINA INTERNATIONAL, INC. AND SUBSIDIARIES
 
(In thousands, except share data)
 
ASSETS
  (Unaudited)        
   
March 31,
2014
   
December 31,
2013
 
Current assets:
           
Cash and cash equivalents
 
$
1,005
   
$
2,776
 
Accounts receivable, net of allowance for doubtful accounts of $571
   
13,047
     
11,327
 
Deferred tax asset
   
1,414
     
1,659
 
Prepaid expenses and other current assets
   
427
     
257
 
Total current assets
   
15,893
     
16,019
 
                 
Property and equipment, net of accumulated depreciation of $552 and $493
   
819
     
831
 
                 
Trademarks and trade names with indefinite lives
   
8,467
     
8,467
 
Other intangibles with finite lives, net of accumulated amortization of  $8,089 and $7,888
   
248
     
449
 
Goodwill
   
12,563
     
12,563
 
Restricted cash
   
222
     
222
 
Other assets
   
167
     
340
 
                 
Total assets
 
$
38,379
   
$
38,891
 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
                 
Current liabilities:
               
Accounts payable and accrued liabilities
 
$
3,048
   
$
2,969
 
Due to models
   
8,488
     
8,669
 
Total current liabilities
   
11,536
     
11,638
 
                 
Long term liabilities
               
Amegy credit facility
   
-
     
800
 
Deferred income tax liability
   
1,287
     
1,287
 
Total long-term liabilities
   
1,287
     
2,087
 
                 
Total liabilities
   
12,823
     
13,725
 
                 
Shareholders’ equity:
               
Preferred stock, $0.01 par value, 10,000,000 shares authorized; none outstanding
   
-
     
-
 
Common stock, $0.01 par value, 250,000,000 shares authorized; 117,406,651 shares issued and outstanding at March 31, 2014 and December 31, 2013
   
1,294
     
1,294
 
Treasury stock 12,034,101, at cost
   
(1,637
)
   
(1,637
)
Additional paid-in capital
   
85,418
     
85,360
 
Accumulated deficit
   
(59,519
)
   
(59,851
)
Total shareholders’ equity
   
25,556
     
25,166
 
                 
Total liabilities and shareholders’ equity
 
$
38,379
   
$
38,891
 
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
1

 
WILHELMINA INTERNATIONAL, INC. AND SUBSIDIARIES
 
(In thousands)
                                                                                                 
   
Three Months Ended
March 31,
 
   
2014
   
2013
 
Revenues
           
Revenues
 
$
18,136
   
$
13,915
 
License fees and other income
   
100
     
201
 
Total revenues
   
18,236
     
14,116
 
                 
Model costs
   
12,757
     
9,816
 
                 
Revenues net of model costs
   
5,479
     
4,300
 
                 
Operating expenses
               
Salaries and service costs
   
3,105
     
2,797
 
Office and general expenses
   
1,095
     
818
 
Amortization and depreciation
   
260
     
390
 
Corporate overhead
   
279
     
320
 
Total operating expenses
   
4,739
     
4,325
 
Operating income (loss)
   
740
     
(25
)
                 
Other income (expense):
               
Equity Earnings in Wilhelmina Kids & Creative Mgmt, LLC
   
(20
)    
17
 
Interest income
   
2
     
2
 
Interest expense
   
(8
)
   
(12
)
Total other income (expense)
   
(26
)    
7
 
                 
Income (loss) before provision for income taxes
   
714
     
(18
)
                 
Provision for income taxes: (expense) benefit
               
Current
   
(137
)
   
(38
)
Deferred
   
(245
)    
-
 
     
(382
)    
(38
)
                 
Net income (loss) applicable to common stockholders
 
$
332
   
$
(56
)
                 
                 
Basic income (loss) per common share
 
$
0.00
   
$
(0.00
)
Diluted income (loss) per common share
 
$
0.00
   
$
(0.00
)
                 
Weighted average common shares outstanding-basic
   
117,406
     
119,670
 
Weighted average common shares outstanding-diluted
   
118,337
     
120,500
 
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
2

 
WILHELMINA INTERNATIONAL, INC. AND SUBSIDIARIES
 
(In thousands)
                                               
   
Three Months Ended
March 31,
 
   
2014
   
2013
 
             
Cash flows from operating activities:
           
Net income (loss)
 
$
332
   
$
(56
)
Adjustments to reconcile net income to net cash provided by operating activities:
               
Amortization and depreciation
   
260
     
390
 
Share based payment expense
   
58
     
38
 
Deferred income taxes     245       -  
Changes in operating assets and liabilities:
               
(Increase) decrease in accounts receivable
   
(1,720
)
   
13
 
Decrease (increase) in prepaid expenses and other current assets
   
3
 
   
(126
)
(Decrease) in due to models
   
(181
)
   
(625
)
(Decrease) in foreign withholding claim
   
-
     
(428
)
Increase in accounts payable and accrued liabilities
   
79
     
56
 
Net cash used by operating activities
   
(924
)    
(738
)
                 
Cash flows from investing activities:
               
Purchase of property and equipment
   
(47
)
   
(34
)
Net cash used in investing activities
   
(47
)
   
(34
)
                 
Cash flows from financing activities:
               
Decrease in earnout liability
   
-
     
(20
)
Proceeds from Amegy line of credit
   
-
     
500
 
Repayment of Amegy line of credit
   
(800
)
   
(250
)
Net cash used in financing activities
   
(800
)
   
230
 
                 
Net increase (decrease) in cash and cash equivalents
   
(1,771
)    
(542
)
Cash and cash equivalents, beginning of period
   
2,776
     
1,145
 
Cash and cash equivalents, end of period
 
$
1,005
   
$
603
 
                 
Supplemental disclosures of cash flow information
               
Cash paid for interest
 
$
8
   
$
12
 
Cash paid for income taxes
 
$
95
   
$
37
 
 
The accompanying notes are an integral part of these consolidated financial statements

 
3

 
WILHELMINA INTERNATIONAL, INC. AND SUBSIDIARIES
(in thousands, except per share data)
 
Note 1.  Basis of Presentation
 
The interim consolidated financial statements included herein have been prepared by Wilhelmina International, Inc. (“Wilhelmina” or the “Company”) and subsidiaries without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Although certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to those rules and regulations, all adjustments considered necessary in order to make the consolidated financial statements not misleading have been included.  In the opinion of the Company’s management, the accompanying interim unaudited consolidated financial statements reflect all adjustments, of a normal recurring nature, that are necessary for a fair presentation of the Company’s consolidated financial position, results of operations and cash flows for such periods.  It is recommended that these interim unaudited consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as amended.  Results of operations for the interim periods are not necessarily indicative of results that may be expected for any other interim periods or the full fiscal year.
 
Note 2.  Business Activity
 
Overview
 
The primary business of Wilhelmina is fashion model management, which is headquartered in New York City.  The Company’s predecessor was founded in 1967 by Wilhelmina Cooper, a renowned fashion model, and is 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 and Miami, as well as a growing network of licensees comprising leading modeling agencies in various local markets across the U.S. as well as in Thailand, Dubai, Vancouver and Tokyo.  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 customers and clients, including retailers, designers, advertising agencies and catalog companies.
 
Note 3.  Line of Credit
 
On October 24, 2012, the Company executed and closed the second amendment (the “Second Credit Agreement Amendment”) to its revolving facility with Amegy Bank National Association (“Amegy”). Borrowings under the facility are to be used for working capital and other general business purposes of the Company.
 
Under the terms of the Second Credit Agreement Amendment, (1) total availability under the revolving credit facility is $5,000, (2) the borrowing base is derived from 75% of eligible accounts receivable (as defined) and (3) the Company’s minimum net worth covenant is $22,000. In addition, the maturity date of the facility is October 15, 2015. The Company’s obligation to repay advances under the amended facility is evidenced by a second amended and restated promissory note (the “Second Amended and Restated Promissory Note”).  Under the terms of the Second Amended and Restated Promissory Note, the interest rate on borrowings is prime rate plus 1%.

As of May 14, 2014, the Company had no outstanding borrowings under the revolving credit facility.

Note 4.  Restricted Cash
 
At March 31, 2014 and 2013, the Company had approximately $222 of restricted cash that serves as collateral for the full amount of an irrevocable standby letter of credit.  The letter of credit serves as additional security under the lease extension relating to the Company’s office space in New York that expires in February 2021.
 
Note 5.  Commitments and Contingencies
 
On May 2, 2012, Sean Patterson, the former President of the Company’s subsidiary, Wilhelmina International, filed a lawsuit in the Supreme Court of the State of New York, County of New York, against the Company, Wilhelmina International and Mark Schwarz, the Company’s Chairman of the Board, asserting claims for alleged breach of Mr. Patterson’s expired employment agreement (the “Employment Agreement”) with Wilhelmina International, defamation, and declaratory relief with respect to the alleged invalidity and unenforceability of the Employment Agreement’s non-competition and non-solicitation provisions.  The Company and Wilhelmina International asserted counterclaims against Mr. Patterson for breach of the Employment Agreement, breach of fiduciary duty, and injunctive relief.  The parties are currently engaged in discovery. The Company believes Mr. Patterson’s claims are without merit and intends to vigorously defend itself and pursue the counterclaims.  On May 23, 2014, the court granted the defendants’ motion to dismiss Mr. Patterson’s defamation claim, and granted Mr. Patterson’s cross-motion for leave to file an amended defamation claim.
 
 
4

 
On October 10, 2012, an individual named Louisa Raske (“Raske”) commenced a purported class action lawsuit in New York State Supreme Court (New York County) against the Company's subsidiaries Wilhelmina International and Wilhelmina Models, Inc. (the “Wilhelmina Subsidiary Parties”), and others, as defendants (the “Raske Litigation”).  The Complaint asserted claims by Raske, individually, and on behalf of the purported class, for, among other things, breach of fiduciary duty, unjust enrichment, and conversion, arising out of the defendants’ allegedly unauthorized use of models’ images and the handling and reporting of funds received in connection therewith.   Other defendants in the Raske Litigation included other model management companies, advertising firms, and certain advertisers.  By Decision and Order dated September 6, 2013, amended September 12, 2013, the court granted the Wilhelmina Subsidiary Parties’ and the other defendants’ motions to dismiss the Complaint, and dismissed the Complaint, with prejudice, except as to the plaintiff’s claims for alleged unjust enrichment, which were dismissed without prejudice.    
  
On October 24, 2013, a second purported class action lawsuit naming the Wilhelmina Subsidiary Parties was initiated in New York State Supreme Court (New York County) by the same lead counsel who represented plaintiffs in the Raske Litigation (the “Shanklin Litigation”).  The claims in the Shanklin Litigation include breach of contract and unjust enrichment and are alleged to arise out of matters relating to those matters involved in 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. The Company believes the new claims are without merit and intends to vigorously defend itself and its subsidiaries.  On January 6, 2014, the Wilhelmina Subsidiary Parties moved to dismiss the complaint in the Shanklin Litigation for failure to state a cause of action upon which relief can be granted and other grounds, and other defendants have also filed motions to dismiss.  The court has stayed all discovery in the case pending resolution of these motions.  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.
 
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, in the Company's opinion, to have a material adverse effect on its consolidated financial position or its results of operations.
 
As of March 31, 2014, a number of the Company’s employees were covered by employment agreements that vary in length from one to three years.  As of March 31, 2014, total compensation payable under the remaining contractual term of these agreements was approximately $2,366.  In addition, the employment agreements contain non-compete provisions ranging from six months to one year following the term of the applicable agreement. Therefore, subject to certain exceptions, as of March 31, 2014, invoking the non-compete provisions would require the Company to compensate additional amounts to the covered employees during the non-compete period in the amount of approximately $1,809. During the three months ended March 31, 2014 and 2013, the Company paid no compensation cost in connection with certain non-compete and contractual arrangements of former employees.
 
During 2010, the Company received IRS notices totaling approximately $726 related to foreign withholding claims for tax years 2006 and 2008.  As part of settlement negotiations with the IRS, the Company determined that approximately $197 of the foreign withholding claim for 2008 related to tax liabilities which the Company assumed as a result of  its acquisition of  Wilhelmina International and its affiliates in February 2009 (the “Wilhelmina Acquisition”).  To satisfy this liability, the Company paid the IRS, including penalties and interest of $26, a total of $223 during the year ended December 31, 2011. Since this amount was previously accrued as a liability at the Wilhelmina Acquisition date, no adjustment was required. During February 2013, the IRS division of Appeals concluded that there was no basis for abatement of the 2006 and 2008 foreign withholding claims, within the protective framework of reasonable cause, and therefore, closed the case. During March 2013, the Company paid approximately $454 in settlement of the foreign withholding claims for tax years 2006 and 2008. During March 2013, the Company offset approximately $454 of the Company’s remaining earnout obligation for losses incurred in the settlement of the foreign withholding claims for tax years 2006 and 2008. The Company is indemnified by certain of the selling parties in the Wilhelmina Acquisition for losses incurred as a result of such deficiency notice, and the selling parties have confirmed such responsibility to the Company.  Such indemnification was satisfied by offset to earn-out payments. 

Note 6.  Share Capital
 
 The Company has a shareholder’s rights plan (the “Rights Plan”). The Rights Plan provides for a dividend distribution of one preferred share purchase right (a “Right”) for each outstanding share of the Company's Common Stock, $.01 par value (the "Common Stock").  The terms of the Rights and the Rights Plan are set forth in a Rights Agreement, dated as of July 10, 2006, as amended, by and between the Company and The Bank of New York Trust Company, N.A., now known as The Bank of New York Mellon Trust Company, N.A., as Rights Agent (the “Rights Agreement”).
 
 
5

 
The Company’s Board of Directors adopted the Rights Plan to protect shareholder value by protecting the Company’s ability to realize the benefits of its net operating loss carryforwards (“NOLs”). In general terms, the Rights Plan imposes a significant penalty upon any person or group that acquires 5% or more of the outstanding Common Stock without the prior approval of the Company’s Board of Directors.  Shareholders that own 5% or more of the outstanding Common Stock as of the close of business on the Record Date (as defined in the Rights Agreement) may acquire up to an additional 1% of the outstanding Common Stock without penalty so long as they maintain their ownership above the 5% level (such increase subject to downward adjustment by the Company’s Board of Directors if it determines that such increase will endanger the availability of the Company’s NOLs).  In addition, the Company’s Board of Directors has exempted Newcastle Partners, L.P. (“Newcastle”), the Company’s largest shareholder, and may exempt any person or group that owns 5% or more if the Board of Directors determines that the person’s or group’s ownership will not endanger the availability of the Company’s NOLs.  A person or group that acquires a percentage of Common Stock in excess of the applicable threshold is called an “Acquiring Person”.  Any Rights held by an Acquiring Person are void and may not be exercised.  The Company’s Board of Directors authorized the issuance of one Right per each share of Common Stock outstanding on the Record Date.  If the Rights become exercisable, each Right would allow its holder to purchase from the Company one one-hundredth of a share of the Company’s Series A Junior Participating Preferred Stock, par value $0.01 (the “Preferred Stock”), for a purchase price of $10.00.  Each fractional share of Preferred Stock would give the shareholder approximately the same dividend, voting and liquidation rights as does one share of Common Stock.  Prior to exercise, however, a Right does not give its holder any dividend, voting or liquidation rights.

Standstill Agreement
 
On April 24, 2013, the Company and Ronald L. Chez (“Chez”), a shareholder of the Company, entered into a letter agreement (the “Standstill Agreement”), pursuant to which Chez and his Affiliates (as defined in the Standstill Agreement) agreed not to, without the prior approval of the Board of Directors of the Company, (a) beneficially own in excess of 10,000,000 shares of Common Stock of the Company nor (b) directly or indirectly, make any proposal or offer to acquire (other than pursuant to a confidential proposal to the Board of Directors of the Company), or agree to acquire or to become the beneficial owner of (i) any shares of Common Stock, (ii) any other securities of the Company convertible, exchangeable or exercisable into shares of Common Stock or (iii) any other voting securities of the Company, which, when added together with any such securities beneficially owned by Chez and his Affiliates immediately prior thereto, would provide Chez and his Affiliates with voting power in the aggregate in excess of 10,000,000 shares of Common Stock.
 
The Company agreed to, within three (3) business days of the execution of the Standstill Agreement, promptly execute (and submit for signature by the Rights Agent) an amendment to the Rights Agreement, which amendment provides that Chez shall not be deemed to be an “Acquiring Person” under the Rights Agreement by virtue of (a) the acquisition of shares of Common Stock purchased by Chez and disclosed in the initial Schedule 13D with respect to his ownership of Company Common Stock filed by Chez on March 22, 2013 (the “Initial Chez 13D”) or (b) the acquisition of additional shares of Common Stock in one or more purchases which in the aggregate, when added together with the shares of Common Stock reflected in the Initial Chez 13D, do not exceed 10,000,000 shares of Common Stock.
 
The restrictions set forth in the Standstill Agreement will terminate upon the earlier of sixty (60) days following the expiration of the Rights Agreement or the earlier termination of the Rights Agreement (including pursuant to a redemption of the outstanding rights in accordance therewith) by the Company.
 
Amendment to Rights Agreement
 
On April 25, 2013, the Company entered into a Thirteenth Amendment (the “Thirteenth Amendment”) to the Rights Agreement. The Thirteenth Amendment, among other things, (i) amends the definition of Acquiring Person (as defined in the Rights Agreement) to provide that Chez shall not be deemed to be an Acquiring Person solely by virtue of (a) purchases by Chez, individually and through individual retirement accounts for his benefit, of shares of Common Stock which resulted in his beneficial ownership exceeding 4.99% of the Common Stock outstanding, as disclosed in the Initial Chez 13D (the “Reported Chez Purchases”) or (b) purchases by Chez, individually or through individual retirement accounts for his benefit, of a number of shares of Common Stock which in the aggregate, when added together with the number of shares of Common Stock beneficially owned by Chez as reflected in the Initial Chez 13D (i.e., 6,701,857 shares of Common Stock), shall not exceed ten million (10,000,000) shares of Common Stock (the “Permitted Additional Chez Purchases”), (ii) amends the definition of Triggering Event (as defined in the Rights Agreement) to provide that no Triggering Event shall result solely by virtue of any Reported Chez Purchases or Permitted Additional Chez Purchases, (iii) provides that a Distribution Date (as defined in the Rights Agreement) shall not be deemed to have occurred solely by virtue of any Reported Chez Purchases or Permitted Additional Chez Purchases and (iv) provides that no Reported Chez Purchases or Permitted Additional Chez Purchases shall be deemed to be events that cause the Rights to become exercisable. The Thirteenth Amendment also provides for certain other conforming and technical amendments to the terms and provisions of the Rights Agreement.

Note 7.  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 expense and corporate overhead not being deductible or attributable to states in which it operates. Currently, the majority of taxes being paid by the Company are state taxes, not federal taxes. The Company operates in three states which have relatively high tax rates: California, New York and Florida. The Company’s combined (federal and state) effective tax rate would be even higher if it were not for federal net operating loss carryforwards available to offset current federal taxable income. As of December 31, 2013, the Company had federal income tax loss carryforwards of approximately $3,500, which begin expiring in 2019. A portion of the Company’s federal net operating loss carryforwards were utilized to offset federal taxable income generated during the three months ended March 31, 2014. Realization of the Company’s carryforwards is dependent on future taxable income. As defined in the Internal Revenue Code, ownership changes may limit the amount of net operating loss carryforwards that can be utilized annually to offset future taxable income.

 
6

 
As of December 31, 2013, management determined that the deferred tax asset ("DTA") valuation allowance of approximately $2,500 should be reversed. The decision to reverse the DTA valuation allowance is based on the sustained profitability by the Company in recent years and management’s expectation of sufficient profitability in subsequent years to fully utlize the net operating losses. As a result of the DTA allowance reversal, net income for the year ended December 31, 2013 increased by approximately $2,170. These adjustments to the deferred tax asset valuation had no effect on net income for the three months ended March 31, 2014 and 2013.
 
Note 8.  Treasury Stock
 
During the year ended December 31, 2012, the Board of Directors authorized a stock repurchase program, whereby the Company could repurchase up to 10,000,000 shares of its outstanding Common Stock. During August 2013, the Board of Directors renewed and extended the Company’s share repurchase authority to enable it to repurchase up to an additional 10,000,000 shares of Common Stock.

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 the program may be modified or suspended at any time at the Company’s discretion.  The stock repurchase plan will be funded through the Company’s cash on hand and the Second Credit Agreement Amendment.

In total, the Company has repurchased 12,034,101 shares of Common Stock at an average price of approximately $0.136 per share, for a total of approximately $1,637 under the foregoing stock repurchase program. No shares were repurchased during the three months ended March 31, 2014.
 
Note 9.  Related Parties
 
As of March 31, 2014, Mark Schwarz, the Chairman, Chief Executive Officer and Portfolio Manager of Newcastle Capital Management, L.P. (“NCM”), and John Murray, Chief Financial Officer of NCM, held the following executive officer and board of director positions with the Company: Chairman of the Board and Executive Chairman, and Chief Financial Officer, respectively. NCM is the General Partner of Newcastle, which owns 48,614,513 shares of Common Stock. Clinton Coleman (Managing Director at NCM) and James Dvorak (Managing Director at NCM) also serve as directors 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 approximately $3 per month, pursuant to a services agreement entered into between the parties. Pursuant to the services agreement, the Company receives the use of NCM’s facilities and equipment and accounting, legal and administrative services from employees of NCM. The Company incurred expenses pursuant to the services agreement totaling approximately $30 for the three months ended March 31, 2014 and 2013. The Company owed NCM $0 as of March 31, 2014 and 2013, under the services agreement.
 
The Company has an agreement with an unconsolidated affiliate to provide management and administrative services, as well as sharing of space. Management fee and rental income from the unconsolidated affiliate amounted to approximately $28 for the three months ended March 31, 2014 and 2013.
 
 
The following is a discussion of the interim unaudited consolidated financial condition and results of operations for the Company and its subsidiaries for the three months ended March 31, 2014 and 2013.  It should be read in conjunction with the financial statements of the Company, the notes thereto and other financial information included elsewhere in this report, and the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, as amended.
 
Forward-Looking Statements
 
This Quarterly Report on Form 10-Q contains certain “forward-looking” statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995 and information relating to the Company and its subsidiaries that 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 its subsidiaries or Company management, are intended to identify forward-looking statements.  Such statements reflect the current risks, uncertainties and assumptions related to certain factors including, without limitation, competitive factors, general economic conditions, the interest rate environment, governmental regulation and supervision, seasonality, changes in industry practices, one-time events and other factors described herein and in other filings made by the Company with the SEC.  Based upon changing conditions, 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.
 
 
7

 
OVERVIEW
 
 
The Company’s primary business is fashion model management, which is headquartered in New York City.  The Company’s predecessor was founded in 1967 by Wilhelmina Cooper, a renowned fashion model, and is one of the oldest, best known and largest fashion model management companies in the world.  Since its founding, it has grown to include operations located in Los Angeles and Miami, as well as a growing network of licensees comprising leading modeling agencies in various local markets across the U.S., as well as in Thailand, Dubai, Vancouver and Tokyo. The Company 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 customers and clients, including retailers, designers, advertising agencies and catalog companies.
 
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 TV 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 these new opportunities. The Company continues to focus on cutting costs, recruiting top agents when available and scouting and developing new talent.
 
Although Wilhelmina has a large and diverse client base, it is not immune to global economic conditions. Wilhelmina closely monitors economic conditions, client spending and other factors and continually looks for ways to reduce costs, manage working capital and conserve cash.  There can be no assurance as to the effects on Wilhelmina of future economic circumstances, client spending patterns, client credit worthiness and other developments and whether, or to what extent, Wilhelmina’s efforts to respond to them will be effective.
 
Trends and Opportunities
 
The Company expects that the combination of Wilhelmina’s main operating base in New York City, the industry’s capital, with the depth and breadth of its talent pool and client roster and its diversification across various talent management segments, together with its geographical reach should make Wilhelmina’s operations more resilient to industry changes and economic swings than those of many of the smaller firms operating in the industry.  Similarly, in the segments where Wilhelmina competes with other leading full service agencies, Wilhelmina competed successfully during the first quarter of 2014.  

With total advertising expenditures on major media (newspapers, magazines, television, cinema, outdoor and Internet) exceeding approximately $160 billion in recent years, North America is by far the world’s largest advertising market.  For the fashion talent management industry, including Wilhelmina, advertising expenditures on magazines, television, Internet and outdoor are of particular relevance.
 
Strategy
 
Management’s strategy is to increase value to shareholders through the following initiatives:
 
 
develop Wilhelmina into a global brand;
 
expand the women’s high end fashion board;
 
expand the Wilhelmina Artist Management, LLC (“WAM”) business;
 
strategic acquisitions;
 
licensing the “Wilhelmina” name to leading model management agencies;
 
licensing the “Wilhelmina” brand in connection with consumer products, cosmetics and other beauty products; and
 
promoting model search contests, and events and partnering on media projects (television, film, books, etc.).
 
 
8

 
Due to the increasing 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 their 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 customers.  At the same time, the Internet presents challenges for the Company, including (i) the cannibalization of traditional print advertising business and (ii) pricing pressures with respect to photo shoots and client engagements.
 
RESULTS OF OPERATIONS OF THE COMPANY FOR THE THREE MONTHS ENDED MARCH 31, 2014 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2013
 
The key financial indicators that the Company reviews to monitor the business are gross billings, revenues, model costs, operating expenses and cash flows.
 
The Company analyzes revenue by reviewing the mix of revenues generated by the different “boards” (each a specific division of the fashion model management operations which specializes by the type of model it represents (Women, Men, Select, Media, Runway, Curve, Lifestyle, Kids, etc.)) of the business, revenues by geographic locations and revenues from significant clients.  Wilhelmina has three primary sources of revenue: revenues from principal relationships whereby the gross amount billed to the client is recorded as revenue, when the revenues are earned and collectability is reasonably assured; revenues from agent relationships whereby the commissions paid by models as a percentage of their gross earnings are recorded as revenue when earned and collectability is reasonably assured; and 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.  Gross billings are an important business metric that ultimately drive revenues, profits and cash flows.
 
Because Wilhelmina provides professional services, 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 T&E (travel, meals and entertainment) to deliver the Company’s services and to enable new business development activities.
 
 

 
 
9

 
Analysis of Consolidated Statements of Operations and Gross Billings
 
(in thousands)

   
Three Months Ended
 
   
March 31
   
March 31
   
Percent Change
 
   
2014
   
2013
   
2014 vs 2013
 
                   
GROSS BILLINGS
    18,552       14,890       24.6 %
                         
Revenues
    18,136       13,915       30.3 %
License fees and other income
    100       201       (50.2 %)
TOTAL REVENUES
    18,236       14,116       29.2 %
Model costs
    12,757       9,816       29.9 %
REVENUES NET OF MODEL COSTS
    5,479       4,300       27.5 %
GROSS PROFIT MARGIN
    30.0 %     30.5 %        
Salaries and service costs
    3,105       2,797       11.0 %
Office and general expenses
    1,095       818       31.2 %
Amortization and depreciation
    260       390       (33.3 %)
Corporate overhead
    279       320       (12.8 %)
OPERATING INCOME
    740       (25 )     3168.0 %
OPERATING MARGIN
    4.1 %     -0.2 %        
Interest income
    2       2          
Interest expense
    (8 )     (12 )     (33.3 %)
Equity Earnings in affiliate
    (20 )     17          
INCOME BEFORE INCOME TAXES
    714       (18 )     4216.7 %
Income taxes expense
    (382 )     (38 )     473.7 %
Effective tax rate
    53.5 %     211.1 %        
NET INCOME
    332       (56 )     1033.9 %
 
Gross Billings
 
Generally, the Company’s gross billings fluctuate in response to its clients’ willingness to spend on advertising and the Company’s ability to have the desired talent available.

 The 25% increase in total gross billings were driven by a 31% increase in the gross billings across the core modeling somewhat offset by a decline in the gross billings of the WAM business. All boards of the core modeling business experienced positive growth during the three months ended March 31, 2014 when compared to the three months ended March 31, 2013.

Revenues
 
The increase in revenues for the three months ended March 31, 2014 when compared to the three months ended March 31, 2013 were driven by an expanded developed talent pool and our customers increased interest in booking the Company's talent.

License Fees and Other Income
 
License fees and other income include the following:

Product licensing agreements between the Company, its clients and talent, whereby the Company participates in the sharing of royalties. During the three months ended March 31, 2013, royalties from these licensing agreements (which have since expired) totaled approximately $72.

An agreement between the Company and an unconsolidated affiliate to provide management and administrative services, as well as sharing of space.  For each of the three months ended March 31, 2014 and March 31, 2013, management fee and rental income from the unconsolidated affiliate amounted to approximately $28.
 
 
10

 
Franchise revenues from independently owned model agencies that use the Wilhelmina trademark name and various services provided by the Company.  During the three months ended March 31, 2014, franchise fees totaled approximately $72, compared to approximately $102 for the three months ended March 31, 2013.
 
Fees derived from participants in the Company’s model search contests, events and television syndication royalties.  
 
Gross Profit Margin
 
Fluctuations in gross profit margin, between periods, are predominantly due to the following:
 
The mix of revenues being derived from talent relationships, which require the reporting of revenues gross (as a principal) versus net (as an agent). Model costs consist of costs associated with relationships with models where the key indicators suggest that the Company acts as a principal.  

An increase or decrease in mother agency fees, relative to model costs.
 
An increase or decrease in the rate of recovery of advances to models (for the cost of producing initial portfolios and other out-of-pocket costs). These costs are expensed as incurred and repayments of such costs are credited to model costs in the period received.
 
Gross profit margins were slightly lower during the three months ended March 31, 2014, when compared to the three months ended March 31, 2013, as a result of the following:
 
Royalties earned in the WAM business are reported on a net basis and have decreased.
 
The rate of recovery of certain costs advanced to models (which cause margins to increase) and additional cost associated with mother agency fees (which causes margins to decrease), had little net effect on the changes in gross profit margin.
 
Salaries and Service Costs
 
Salaries and service costs consist of payroll and related costs and T&E (travel, meals and entertainment) costs required to deliver the Company’s services to its customers and talent. The following factors contributed to the increases in salaries and service costs when comparing the three months ended March 31, 2014 to the three months ended March 31, 2013:

The Company continues to recruit agents when available and invest in scouting and developing activities. The Company believes these investments are necessary to support its continued growth.

Consistent with the Company’s continued focus on containing costs, the amount of salaries and service costs as a percentage of revenue for the three months ended March 31, 2014 declined to 17.0% from 19.8% for the three months ended March 31, 2013.  

Office and General Expenses
 
Office and general expenses consist of office and equipment rents, advertising and promotion, insurance expenses, administration and technology cost.  These costs are less directly linked to changes in the Company’s revenues than are salaries and service costs. 

During the three months ended March 31, 2014, office and general expenses increased, when compared to the three months ended March 31, 2013, due to costs associated with legal and professional fees, consulting and technology. The Company continues to invest in technology to improve delivery of model management services to its talent.
 
The amount of office and general expenses as a percentage of revenue for the three months ended March 31, 2014 declined to 5.6% from 5.8% for the three months ended March 31, 2013.  

Amortization and Depreciation
 
Depreciation and amortization expense is incurred with respect to certain assets, including computer hardware, software, office equipment, furniture, and other intangibles.  During the three months ended March 31, 2014, depreciation and amortization expense totaled $260 (of which $201 relates to amortization of intangibles acquired in connection with the Wilhelmina Acquisition), compared to $390 of depreciation and amortization expense during the three months ended March 31, 2013 (of which $357 relates to amortization of intangibles acquired in connection with the Wilhelmina Acquisition).  Fixed asset purchases (mostly related to technology) totaled approximately $47 and $34 during the three months ended March 31, 2014 and March 31, 2013, respectively.
 
 
11

 
Corporate Overhead
 
Corporate overhead expenses include public company costs, director and executive officer compensation, directors’ and officers’ insurance, legal, audit and professional fees, corporate office rent and travel.  Corporate overhead decreased for the three months ended March 31, 2014, when compared to the three months ended March 31, 2013, mostly due to a decline in legal and professional fees.
 
Operating Margin

Operating margins increased for the three months ended March 31, 2014, when compared to the three months ended March 31, 2013, as a result of an increase in revenues from the core modeling business and the results of certain management initiatives to decrease operating expenses as a percentage of revenues.

Asset Impairment Charge
 
Each 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 three months ended March 31, 2014 and March 31, 2013.
 
Interest Expense
 
The decrease in interest expense for the three months ended March 31, 2014, when compared to the three months ended March 31, 2013, is the result of a decrease in average borrowings under the Second Credit Agreement Amendment.
 
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 expense and corporate overhead not being deductible or attributable to states in which it operates. Currently, the majority of taxes being paid by the Company are state taxes, not federal taxes. The Company operates in three states which have relatively high tax rates: California, New York and Florida. The Company’s combined (federal and state) effective tax rate would be even higher if it were not for federal net operating loss carryforwards available to offset current federal taxable income. As of December 31, 2013, the Company had federal income tax loss carryforwards of approximately $3,500, which begin expiring in 2019. A portion of the Company’s federal net operating loss carryforwards were utilized to offset federal taxable income generated during the three months ended March 31, 2014. Realization of the Company’s carryforwards is dependent on future taxable income. As defined in the Internal Revenue Code, ownership changes may limit the amount of net operating loss carryforwards that can be utilized annually to offset future taxable income.

As of December 31, 2013, management determined that the deferred tax asset ("DTA") valuation allowance of approximately $2,500 should be reversed. The decision to reverse the DTA valuation allowance was based on the sustained profitability by the Company in recent years and management’s expectation of sufficient profitability in subsequent years to fully utlize the net operating losses. As a result of the DTA allowance reversal, net income for the year ended December 31, 2013 increased by approximately $2,170. These adjustments to the deferred tax asset valuation had no effect on net income for the three months ended March 31, 2014 and 2013.

Liquidity and Capital Resources
 
The Company’s cash balance decreased to $1,005 at March 31, 2014, from $2,776 at December 31, 2013. For the three months ended March 31, 2014, cash balances decreased as a result of cash flows used by operations of approximately $924 and an $800 payment on the Amegy credit facility. Cash flows used by operations were negatively impacted by the collections of accounts receivables. Revenues (particularly in February and March 2014) increased significantly  and, typically, the collection of customer receivables averages greater than 60 days, while the Company incurs significant operating expenses with shorter payment terms.

Amegy Credit Agreement
  
On October 24, 2012, the Company executed and closed the Second Credit Agreement Amendment to its revolving facility with Amegy. Borrowings under the facility are to be used for working capital and other general business purposes of the Company.
 
 
12

 
Under the terms of the Second Credit Agreement Amendment, (1) total availability under the revolving credit facility is $5,000, (2) the borrowing base is derived from 75% of eligible accounts receivable (as defined) and (3) the Company’s minimum net worth covenant is $22,000. In addition, the maturity date of the facility is October 15, 2015. The Company’s obligation to repay advances under the amended facility is evidenced by the Second Amended and Restated Promissory Note.  Under the terms of the Second Amended and Restated Promissory Note, the interest rate on borrowings is prime rate plus 1% .

As of May 14, 2014, the Company had no outstanding borrowings under the revolving credit facility.
 
The Second Credit Agreement Amendment contains certain representations and warranties and affirmative and negative covenants.  Amounts outstanding under the Credit Agreement may be accelerated and become immediately due and payable upon the occurrence of an event of default.  All indebtedness and other obligations of the Company under the Second Credit Agreement Amendment are secured by all of the assets of the Company and its subsidiaries, provided, however, that the collateral does not include the intellectual property of the Company or the stock or equity interests in the Company’s subsidiaries.

Off-Balance Sheet Arrangements

As of March 31, 2014 and 2013, the Company had $222 of restricted cash that serves as collateral for an irrevocable standby letter of credit. The letter of credit serves as additional security under the lease extension 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.
 
 
Critical Accounting Policies
 
Revenue Recognition
 
In compliance with generally accepted accounting principles when reporting revenue gross as a principal versus net as an agent, the Company assesses whether it, 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 talent where the key indicators suggest the Company acts as a principal, the Company records the gross amount billed to the client as revenue when earned and collectability is reasonably assured and the related costs incurred to the model or talent as model or talent cost.  In other model and talent relationships, where the Company believes the key indicators suggest it acts as an agent on behalf of the model or talent, the Company records revenue net of pass-through model or talent cost.
 
The Company also recognizes management fees as revenues for providing services to other modeling agencies as well as consulting income in connection with services provided to a television production network according to the terms of the contract.  The Company recognizes royalty income when earned based on terms of the contractual agreement.  Revenues received in advance are deferred and amortized using the straight-line method over periods pursuant to the related contract.
 
The Company also records fees from licensees when the revenues are earned and collectability is reasonably assured.

Advances to models for the cost of producing initial portfolios and other out-of-pocket costs are expensed to model costs as incurred.  Any repayments of such costs are credited to model costs in the period received.
 
Goodwill and Intangible Assets
 
Goodwill and intangible assets consist primarily of goodwill and buyer relationships resulting from a business acquisition.  Goodwill and intangible assets with indefinite lives are no longer subject to amortization, but rather to an annual assessment of impairment by applying a fair-value based test.
 
Management’s assessments of the recoverability and impairment tests of goodwill and intangible assets involve critical accounting estimates.  These estimates require significant management judgment, include inherent uncertainties and are often interdependent; therefore, they do not change in isolation.  Factors that management must estimate include, among others, the economic life of the asset, sales volume, prices, inflation, cost of capital, marketing spending, tax rates and capital spending.  These factors are even more difficult to predict when global financial markets are highly volatile.  When performing impairment tests, the Company estimates the fair values of the assets using management’s best assumptions, which it believes would be consistent with what a hypothetical marketplace participant would use.  Estimates and assumptions used in these tests are evaluated and updated as appropriate.  The variability of these factors depends on a number of conditions, including uncertainty about future events, and thus the accounting estimates may change from period to period.  If other assumptions and estimates had been used when these tests were performed, impairment charges could have resulted.
 
 
13

 
Basis of Presentation
 
The financial statements include the consolidated accounts of Wilhelmina and its wholly owned subsidiaries.  All significant inter-company accounts and transactions have been eliminated in consolidation.
 
Accounts Receivable and Allowance for Doubtful Accounts
 
Accounts receivable are accounted for at fair value, do not bear interest and are short-term in nature.  The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability to collect on accounts receivable.  Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to the valuation allowance.  Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.  The Company generally does not require collateral.
 
Income Taxes
 
Income taxes are accounted for under the asset and liability method.  Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.  Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  The Company continually assesses the need for a tax valuation allowance based on all available information.  As of March 31, 2014, and as a result of this assessment, the Company does not believe that its deferred tax assets are more likely than not to be realized.  In addition, the Company continuously evaluates its tax contingencies.

Accounting for uncertainty in income taxes recognized in an enterprise’s financial statements requires a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  Also, consideration should be given to de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  There was no change to the net amount of assets and liabilities recognized in the consolidated balance sheets as a result of the Company’s tax positions.
 
 
Not applicable.
 
 
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 management, have concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2014 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.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met.  In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.  Given these and other inherent limitations of control systems, there is only reasonable assurance that the Company’s controls will succeed in achieving their stated goals under all potential future conditions.  The Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2014.
 
 
14

 
Changes in Internal Control Over Financial Reporting
 
As of the end of the period covered by this report, there were no changes in the Company’s internal controls over financial reporting, or in other factors that could significantly affect these controls, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
 
OTHER INFORMATION
 
 
On May 2, 2012, Sean Patterson, the former President of the Company’s subsidiary, Wilhelmina International, filed a lawsuit in the Supreme Court of the State of New York, County of New York, against the Company, Wilhelmina International and Mark Schwarz, the Company’s Chairman of the Board, asserting claims for alleged breach of Mr. Patterson’s expired employment agreement (the “Employment Agreement”) with Wilhelmina International, defamation, and declaratory relief with respect to the alleged invalidity and unenforceability of the Employment Agreement’s non-competition and non-solicitation provisions.  The Company and Wilhelmina International asserted counterclaims against Mr. Patterson for breach of the Employment Agreement, breach of fiduciary duty, and injunctive relief.  The parties are currently engaged in discovery. The Company believes Mr. Patterson’s claims are without merit and intends to vigorously defend itself and pursue the counterclaims.  On May 23, 2014, the court granted the defendants’ motion to dismiss Mr. Patterson’s defamation claim, and granted Mr. Patterson’s cross-motion for leave to file an amended defamation claim.
 
On October 10, 2012, an individual named Louisa Raske (“Raske”) commenced a purported class action lawsuit in New York State Supreme Court (New York County) against the Company's subsidiaries Wilhelmina International and Wilhelmina Models, Inc. (the “Wilhelmina Subsidiary Parties”), and others, as defendants (the “Raske Litigation”).  The Complaint asserted claims by Raske, individually, and on behalf of the purported class, for, among other things, breach of fiduciary duty, unjust enrichment, and conversion, arising out of the defendants’ allegedly unauthorized use of models’ images and the handling and reporting of funds received in connection therewith.   Other defendants in the Raske Litigation included other model management companies, advertising firms, and certain advertisers.  By Decision and Order dated September 6, 2013, amended September 12, 2013, the court granted the Wilhelmina Subsidiary Parties’ and the other defendants’ motions to dismiss the Complaint, and dismissed the Complaint, with prejudice, except as to the plaintiff’s claims for alleged unjust enrichment, which were dismissed without prejudice.    
  
On October 24, 2013, a second purported class action lawsuit naming the Wilhelmina Subsidiary Parties was initiated in New York State Supreme Court (New York County) by the same lead counsel who represented plaintiffs in the Raske Litigation (the “Shanklin Litigation”).  The claims in the Shanklin Litigation include breach of contract and unjust enrichment and are alleged to arise out of matters relating to those matters involved in 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. The Company believes the new claims are without merit and intends to vigorously defend itself and its subsidiaries.  On January 6, 2014, the Wilhelmina Subsidiary Parties moved to dismiss the complaint in the Shanklin Litigation for failure to state a cause of action upon which relief can be granted and other grounds, and other defendants have also filed motions to dismiss.  The court has stayed all discovery in the case pending resolution of these motions.  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.
 
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, in the Company's opinion, to have a material adverse effect on its consolidated financial position or its results of operations.

Item 1.A.
 
Not applicable.
 

None.

 
None.
 
 
15

 
 
Not applicable.
 
 
None.
 
Item 6.
 
The following is a list of exhibits filed as part of this Form 10-Q:
 
Exhibit No.
Description
   
31.1
Certification of Principal Executive Officer in Accordance with Section 302 of the Sarbanes-Oxley Act.*
31.2
Certification of Principal Financial Officer in Accordance with Section 302 of the Sarbanes-Oxley Act.*
32.1
Certification of Principal Executive Officer in Accordance with Section 906 of the Sarbanes-Oxley Act.*
32.2
Certification of Principal Financial Officer in Accordance with Section 906 of the Sarbanes-Oxley Act.*
101. INS
XBRL Instance Document*
101.SCH
XBRL Taxonomy Extension Schema*
101.CAL
XBRL Taxonomy Extension Calculation Linkbase*
101.DEF
XBRL Taxonomy Extension Definition Linkbase*
101.LAB
XBRL Taxonomy Extension Label Linkbase*
101.PRE
XBRL Taxonomy Extension Presentation Linkbase*
________________
* Filed herewith
 

 
 
16

 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
WILHELMINA INTERNATIONAL, INC.
 
 
(Registrant)
 
     
     
Date:  May 15, 2014
By:
/s/ John P. Murray
 
 
Name:
John P. Murray
 
 
Title:
Chief Financial Officer
(Principal Financial Officer)
 

 
 
 
 
17

 
EXHIBIT INDEX
 
Exhibit No.
Description
   
31.1
Certification of Principal Executive Officer in Accordance with Section 302 of the Sarbanes-Oxley Act.*
31.2
Certification of Principal Financial Officer in Accordance with Section 302 of the Sarbanes-Oxley Act.*
32.1
Certification of Principal Executive Officer in Accordance with Section 906 of the Sarbanes-Oxley Act.*
32.2
Certification of Principal Financial Officer in Accordance with Section 906 of the Sarbanes-Oxley Act.*
101. INS
XBRL Instance Document*
101.SCH
XBRL Taxonomy Extension Schema*
101.CAL
XBRL Taxonomy Extension Calculation Linkbase*
101.DEF
XBRL Taxonomy Extension Definition Linkbase*
101.LAB
XBRL Taxonomy Extension Label Linkbase*
101.PRE
XBRL Taxonomy Extension Presentation Linkbase*
________________
* Filed herewith

 
 
 
18