Wilhelmina International, Inc. - Quarter Report: 2014 September (Form 10-Q)

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

OR

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

For the transition period from ________ to ________

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)

	Large accelerated filer  [  ]	Accelerated filer [  ]
	Non-accelerated filer [  ]	Smaller reporting company [x]
	(Do not check if a smaller reporting company)

PART I	FINANCIAL INFORMATION		3
	Item 1.	Financial Statements	3
		Consolidated Balance Sheets – September 30, 2014 (unaudited) and December 31, 2013	3
		Unaudited Consolidated Statements of Operations - for the Three and Nine months ended September 30, 2014 and 2013	4
		Unaudited Consolidated Statements of Cash Flows - for the Nine months ended September 30, 2014 and 2013	5
		Notes to Unaudited Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
	Item 4.	Controls and Procedures	16
PART II	OTHER INFORMATION		17
	Item 1.	Legal Proceedings	17
	Item 1.A.	Risk Factors	17
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
	Item 3.	Defaults Upon Senior Securities	18
	Item 4.	Mine Safety Disclosures	18
	Item 5.	Other Information	18
	Item 6.	Exhibits	18
SIGNATURES			19

ASSETS
		(Unaudited) September 30, 2014				December 31,  2013
Current assets:
Cash and cash equivalents		$	3,798			$	2,776
Accounts receivable, net of allowance for doubtful accounts of $660 and $571			13,265				11,327
Deferred tax asset			1,025				1,659
Prepaid expenses and other current assets			349				257
Total current assets			18,437				16,019
Property and equipment, net of accumulated depreciation of $689 and $493			1,025				831
Trademarks and trade names with indefinite lives			8,467				8,467
Other intangibles with finite lives, net of accumulated amortization of  $8,178 and $7,888			159				449
Goodwill			12,563				12,563
Restricted cash			222				222
Other assets			208				340
Total assets		$	41,081			$	38,891
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	3,961			$	2,969
Due to models			9,416				8,669
Total current liabilities			13,377				11,638
Long term liabilities
Amegy credit facility			-				800
Deferred income tax liability			1,333				1,287
Total long-term liabilities			1,333				2,087
Total liabilities			14,710				13,725
Shareholders’ equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized; none outstanding			-				-
Common stock, $0.01 par value, 12,500,000 shares authorized; 5,870,115 shares issued and outstanding at September 30, 2014 and December 31, 2013			65				65
Treasury stock 601,705, at cost			(1,637	)			(1,637	)
Additional paid-in capital			86,735				86,589
Accumulated deficit			(58,792	)			(59,851	)
Total shareholders’ equity			26,371				25,166
Total liabilities and shareholders’ equity		$	41,081			$	38,891

 

		Three Months Ended								Nine Months Ended
		September 30, 2014				September 30, 2013				September 30, 2014				September 30, 2013
Revenues
Revenues		$	19,853			$	17,965			$	57,517			$	47,858
License fees and other income			100				134				300				507
Total revenues			19,953				18,099				57,817				48,365
Model costs			14,185				12,626				41,148				33,674
Revenues net of model costs			5,768				5,473				16,669				14,691
Operating expenses
Salaries and service costs			3,336				2,818				9,690				8,461
Office and general expenses			1,188				979				3,366				2,591
Amortization and depreciation			114				394				484				1,177
Corporate overhead			305				265				958				909
Total operating expenses			4,943				4,456				14,498				13,138
Operating income			825				1,017				2,171				1,553
Other income (expense):
Foreign currency loss			(34	)			-				(34	)			-
Equity in Earnings of 50% owned subsidiary earnings			(7	)			19				(22	)			21
Interest income			2				2				6				6
Interest expense			-				(13	)			(8	)			(41	)
			(39	)			8				(58	)			(14	)
Income before provision for income taxes			786				1,025				2,113				1,539
Provision for income taxes
Current			181				503				372				720
Deferred			269				-				682				-
			450				503				1,054				720
Net income applicable to common stockholders		$	336			$	522			$	1,059			$	819
Basic net income per common share		$	0.06			$	0.09			$	0.18			$	0.14
Diluted net income per common share		$	0.06			$	0.09			$	0.18			$	0.13
Weighted average common shares outstanding-basic			5,870				5,955				5,870				5,973
Weighted average common shares outstanding-diluted			5,968				6,052				5,968				6,071

		Nine months ended September 30,
		2014				2013
Cash flows from operating activities:
Net income		$	1,059			$	819
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and depreciation			484				1,177
Share based payment expense			155				99
Deferred income taxes			680				-
Changes in operating assets and liabilities:
(Increase) in accounts receivable			(1,938	)			(2,419)
Decrease (increase) in prepaid expenses and other current assets			40				(111	)
Increase in due to models			747				1,302
(Decrease) in foreign withholding claim			-				(428	)
Increase in accounts payable and accrued liabilities			984				966
Net cash provided by operating activities			2,211				1,405
Cash flows from investing activities:
Purchase of property and equipment			(389	)			(344	)
Net cash used in investing activities			(389	)			(344	)
Cash flows from financing activities:
(Decrease) in earnout liability			-				(20	)
Common stock repurchase			-				(307	)
Proceeds from Amegy line of credit			-				500
Repayment of Amegy line of credit			(800	)			(650	)
Net cash used in financing activities			(800	)			(477	)
Net increase in cash and cash equivalents			1,022				584
Cash and cash equivalents, beginning of period			2,776				1,145
Cash and cash equivalents, end of period		$	3,798			$	1,729
Supplemental disclosures of cash flow information
Cash paid for interest		$	8			$	41
Cash paid for income taxes		$	300			$	368
Supplemental disclosures of non cash flow information
Decrease in earnout liability from indemnification receivable offset		$	-			$	454

 

(in thousands, except per share data)

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.

 

 

 

 

 

 

 

 

 

•

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.).

 

•

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 and nine months ended September 30, 2014 and September 30, 2013, management fee and rental income from the unconsolidated affiliate amounted to approximately $28 and $81, respectively.

•

Franchise revenues from independently owned model agencies that use the Wilhelmina trademark name and various services provided by the Company.  During the three and nine months ended September 30, 2014, franchise fees totaled approximately $72 and $216, compared to approximately $78 and $244 for the three and nine months ended September 30, 2013, respectively.

•	Fees derived from participants in the Company’s model search contests, events and television syndication royalties.

•	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.

•	Royalties earned in the WAM business are reported on a net basis and have decreased.

•	Mother agency fees have increased relative to total revenues, which has caused margins to decrease.

•	The Company continues to recruit agents when available and invest in scouting, development, brand and marketing 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 declined to 16.7% for the nine months ended September 30, 2014, respectively, when compared 17.7% for the nine months ended September 30, 2013.

Depreciation and amortization expense is incurred with respect to certain assets, including computer hardware, software, office equipment, furniture, and other intangibles.  During the three and nine months ended September 30, 2014, depreciation and amortization expense totaled $114 and $484 (of which $45 and $290 relates to amortization of intangibles acquired in connection with the Wilhelmina Acquisition), compared to $394 and $1,177 of depreciation and amortization expense during the three and nine months ended September 30, 2013 (of which $357 and $1,071 relates to amortization of intangibles acquired in connection with the Wilhelmina Acquisition).  Fixed asset purchases (mostly related to technology and leasehold improvements) totaled approximately $389 and $339 during the nine months ended September 30, 2014 and September 30, 2013, respectively.

 

 

Item 1.

Legal Proceedings.

 

 

 

Item 1.A.

Risk Factors.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Item 3.

Defaults Upon Senior Securities.

Item 4.

Mine Safety Disclosures.

Item 5.

Other Information.

Item 6.

Exhibits.

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

	WILHELMINA INTERNATIONAL, INC.
	(Registrant)
Date:  November 13, 2014	By:	/s/ John P. Murray
	Name:	John P. Murray
	Title:	Chief Financial Officer (Principal Financial Officer)

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*

20