* 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 COVID-19 pandemic had a material impact on revenues, as many customers cancelled or postponed bookings while non-essential business activities were temporarily barred in the cities where Wilhelmina operates. The decrease of 10.4% and 13.0%17.7% for the three and nine months ended September 30, 2017,March 31, 2021, when compared to the three and nine months ended September 30, 2016,March 31, 2020, was primarily due to reduced bookings resulting from COVID-19 (which impacted all three months of the first quarter of 2021, but only impacted the month of March in 2020), a decrease in core model bookings. The decrease in core model bookings, in United States was partially offset by an increase in core model bookingsand the closure of the hair and makeup artist division in the London office, bookings from the Aperture division and bookings from the Celebrity division.third quarter of 2020.

License Fees and Other Income

License fees and other income include management and administrative services fees, from an unconsolidated subsidiary, franchise revenues from independently owned model agencies that use the Wilhelmina trademark and various services provided by the Company. License fees decreasedincreased by 78.6% and 58.5%100.0% for the three and nine months ended September 30, 2017,March 31, 2021, when compared to three and nine months ended in September 30, 2016.March 31, 2020. The decreaseincrease was primarily due to endingthe timing of income from licensing agreements with affiliates.agreements.

Gross Profit Margin

Gross profit margin increased by 0.3%80 basis points for the three months ended September 30, 2017,March 31, 2021, when compared to the three months ended September 30, 2016March 31, 2020 primarily due to higher recovery of model chargebacks, an increasea change in higher margin celebrityboard revenue mix and a decreasereduction in client reimbursable expensestravel related model costs in 2017. For the nine months ended September 30, 2017, when compared to the nine months ended September 30, 2016, the gross profit margin remained relatively unchanged.2021.

Salaries and Service Costs

Salaries and service costs consist of payroll related costs and T&E required to deliver the Company’s services to its clients and talents. The 40.2% decrease in salaries and service costs of 7.0% and 8.5% forduring the three and nine months ended September 30, 2017,March 31, 2021, when compared to the three and nine months ended September 30, 2016March 31, 2020 was primarily due to severance paid toemployee layoffs in July 2020, temporary reductions in staff salaries, and the Company’s former Chief Executive Officerclosure of the hair and another employeemakeup artist division in 2016, changes in personnel to better align the numbersecond half of employees at each Wilhelmina office with the needs of each geographic region, and more effective management of T&E during the first nine months of 2017.2020.

Office and General Expenses

Office and general expenses consist of office and equipment rents, advertising and promotion, insurance expenses, administration and technology cost.  These costs are less directly linked to changes in the Company’s revenues than are salaries and service costs. The increasedecrease in office and general expenses of 1.4%19.0% for the three months ended September 30, 2017March 31, 2021 when compared to the three months ended September 30, 2016, wasMarch 31, 2020, were primarily due to costs associated with the Company’s 50th anniversaryreduced rent expense, legal expense, and other office related expenses in 2017 and higher bad debt expense. For the nine months ended September 30, 2017, when compared to the nine months ended in ended September 30, 2016, the decrease of 10.2% was primarily due to $233 thousand related to the recruiting of the Company’s Chief Executive Officer and Chief Financial Officer and $160 thousand of non-income tax expenses that were incurred during the first nine months of 2016.2021.

Amortization and Depreciation

Amortization and depreciation expense is incurred with respect to certain assets, including computer hardware, software, office equipment, furniture and other intangibles. Duringamortization of finance leases. Amortization and depreciation expense decreased by 9.5% for the three and nine months ended September 30, 2017, depreciation and amortization expense increased by 160.7% and 127.8%March 31, 2021 compared to the same periodsthree months ended March 31, 2020, primarily due reduced depreciation of the prior year, primarily related to the Company’s new accounting software being placedassets that became fully amortized in service during the fourth quarter of 2016.2020. Fixed asset purchases (mostly related to technology and computer equipment and technology)equipment) totaled approximately $122$4 thousand and $600$56 thousand during the three months ended March 31, 2021 and nine2020.

Goodwill Impairment

No goodwill impairment charges were incurred during the three months ended September 30, 2017, comparedMarch 31, 2021. In March 2020, the Company determined that recent declines in revenue, COVID-19 impacts on its retail clients, and declines in its stock price triggered the requirement for goodwill impairment testing. The results of the impairment test indicated that the carrying value of goodwill exceeded its estimated fair value. As a result, during March 2020, the Company recorded an impairment charge of $0.8 million related to $367 thousand and $1,118 thousand forits goodwill. Further declines in the three and nine months ended September 30, 2016.Company’s stock price could result in additional goodwill impairment charges.

Corporate Overhead

Corporate overhead expenses include director and executive officer compensation, insurance, legal, audit and professional fees, corporate office rent, travel, and travelother public company costs. Corporate overhead increaseddecreased by 22.9% and 6.4%20.7% for the three and nine months ended September 30, 2017 respectively,March 31, 2021, compared to the three and nine months ended September 30, 2016. The increase wasMarch 31, 2020, primarily due to increasea temporary reduction in professional services fees paid to corporate employees and an increase in corporate travel costs.the Company’s directors.

Operating Income and Operating Margin

Operating margin decreased by 2.4% and 2.1%income increased to $0.1 million for the three and nine months ended September 30, 2017, whenMarch 31, 2021, compared to an operating loss of $1.6 million for the three and nine months ended September 30, 2016,March 31, 2020. As a result, operating margin increased to 0.8% for the three months ended March 31, 2021, compared to negative 11.3% for the three months ended March 31, 2020. In both cases, the increase was primarily due to decreasesthe result of lower operating expenses in revenues outpacing reductions in operating expenses.2021, partially offset by lower revenue net of model costs.

Foreign Currency TranslationExchange

The Company realized $18 thousand and $54$68 thousand of foreign currency exchange loss during the three and nine months ended September 30, 2017, as compared to aMarch 31, 2021, and $65 thousand of foreign currency exchange gain of $1 thousand and $8 thousand during the three and nine months ended September 30, 2016. The foreignMarch 31, 2020. Foreign currency gain and loss is due to fluctuations in currencies primarily from Great Britain, Europe, and Europe.Latin America.

Unconsolidated SubsidiaryGain on Forgiveness of Loan

On March 27, 2021, the Company received notice from the Small Business Administration that $1.9 million of loans under the Paycheck Protection Program were forgiven. The losses from an unconsolidated subsidiary forCompany recorded this gain on forgiveness of loan during the first quarter of 2021.

Employee Retention Credit Income

During the three and nine months ended September 30, 2017, comparedMarch 31, 2021, the Company was eligible for employee retention credits under the CAA, as a refundable tax credit against certain employment taxes of up to gains for$7,000 per employee. For the same periodsthree months ended March 31, 2021, the Company recorded $0.4 million of the prior year, are the result of the dissolution of the unconsolidated subsidiary and discontinuation of its operations.employee retention credit funds receivable.

Interest Expense

Interest expense for the three and nine months ended September 30, 2017March 31, 2021 and March 31, 2020 was primarily attributable to accrued interest on a term loanloans drawn during the third quarter of 2016.2016 and 2018 and PPP loans drawn in 2020. See, “Liquidity and Capital Resources.”

Income and Loss before Income Taxes

Income before income taxes was $2.3 million for the three months ended March 31, 2021, compared to a $1.6 million loss before income taxes for the three months ended March 31, 2020. The income in 2021 was primarily due to the gain on forgiveness of loan, employee retention credits and operating income. The loss in 2020 was primarily due to operating losses and goodwill impairment expense.

Income Taxes

Generally, the Company’s combined effective tax rate is high relative to reported net income as a result of certain amounts ofvaluation allowances on deferred tax assets, amortization expense, foreign taxes, and corporate overhead not being deductible and income being attributable to certain states in which it operates. Currently, the majority of taxes being paid by the Company are state taxes, not federal taxes. The Company operates in four states which have relatively high tax rates: California, New York, Illinois and Florida. In addition, foreign taxes in the United Kingdom related to our London office are not deductible from U.S. federal taxes. The Company had income tax expense of $0.1 million for the three months ended March 31, 2021, compared to $1.1 million for the three months ended March 31, 2020. The higher income tax expense in 2020 was primarily due to a newly established valuation allowance against its deferred tax assets due to the effects of the COVID-19 pandemic on its business.

Net Income and Loss

Net income for the three months ended March 31, 2021 was $2.2 million compared to $2.7 million net loss for the three months ended March 31, 2020. The increase in net income was primarily due to an increase in operating income, gain on forgiveness of loan, employee retention credits, and the absence of any further valuation allowance on deferred tax assets in 2021.

Liquidity and Capital Resources

The Company’s cash balance increased to $5.7 million at March 31, 2021 from $5.6 million at December 31, 2020. The cash balance increased primarily as a result of $0.3 million net cash provided by operating activities, partially offset by $0.1 million cash used in financing activities.

Net cash provided by operating activities of $0.3 million was primarily the result of net income and increases in amounts due to models and accounts payable and accrued liabilities, partially offset by increases in accounts receivable and prepaid and other assets. The $0.1 million of cash used in financing activities was primarily attributable to principal payments on the Company’s Amegy Bank term loan, and payments on finance leases.

The Company’s primary liquidity needs are for working capital associated with performing services under its client contracts.contracts and servicing its remaining term loan. Generally, the Company incurs significant operating expenses with payment terms shorter than its average collections on billings. The COVID-19 pandemic has had an impact on the Company’s cash flows during the quarter ended March 31, 2021, primarily due to reduced bookings and modeling jobs and delayed payments from customers. The Company has taken actions to address the impact of COVID-19 by reducing expenses and has the ability to implement more significant cost savings measures if the adverse effects of the pandemic persist for an extended period. Based on 2021 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.

The Company’s cash balance decreased to $2.6 million at September 30, 2017, from $5.7 million at December 31, 2016. For the nine months ended September 30, 2017, cash balances decreased primarily as a result of cash flows used by operations of $2.2 million, capital expenditures of $0.6 million, and $0.4 million for repayment on the Amegy Bank term loan.

The Company’s use of cash for operating activities included employee bonus payments, payment of accrued non-income taxes, final payment to the former London owner, final payment to another owner of a dissolved unconsolidated subsidiary, and payments due to models/talents during the first nine months of 2017.Credit Agreement

The Company has a credit agreement with Amegy Bank providingwhich originally provided a $4.0 million revolving line of credit and 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 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.covenant. The revolving line of credit bears interest at prime plus 0.5%0.50% payable monthly. As of September 30, 2017,March 31, 2021, 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 $1.5$1.8 million. The revolving line of credit presently expires on October 24, 2018.2022.

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.stock in a private transaction. The term loan bearsbore interest at 4.5% per annum and iswas 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 aschedule. A final $0.6 million payment of principal and interest duewas paid on October 24,28, 2020.

On May 4, 2017,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 was 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. Amounts outstanding under the additional term loan 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 March 31, 2021, a total of $0.7 million was outstanding on the term loan.

Reduced outstanding accounts receivable available as collateral under the Company’s credit agreement with Amegy Bank has limited access to additional financing. Net losses in recent periods have also impacted compliance with the financial covenants under the Amegy Bank credit agreement, further impeding the Company’s ability to obtain additional financing. On March 26, 2020, the Company entered into a SeventhThirteenth Amendment to Credit Agreement (the “Thirteenth Amendment”) with Amegy Bank. The Thirteenth Amendment amended the minimum net worth covenant to require the Company to maintain tangible net worth (as defined therein) of $4.0 million, determined on a quarterly basis. Under the Thirteenth Amendment, Amegy Bank reducingalso waived an existing default caused by the Company’s failure to satisfy the previously required $20.0 million minimum net worth covenant as of December 31, 2019. On May 12, 2020, the Company entered into a Fourteenth Amendment to Credit Agreement (the “Fourteenth Amendment”) with Amegy Bank. The Fourteenth Amendment amended the line of credit to reduce the maximum borrowing capacity to $3.0 million. Under the Fourteenth Amendment, Amegy Bank also waived an existing default caused by the Company’s failure to satisfy both the minimum fixed charge coverage ratio through DecemberMarch 31, 2017.2020 and minimum tangible net worth as of March 31, 2020. The Company obtained a waiverwaivers from Amegy Bank of its failurefailures to satisfy the fixed coverage ratio for the quarter ended June 30, 2017. On August 1, 2017, the Company entered into an Eighth Amendment to Credit Agreement with Amegy Bank eliminating the requirement to test the fixed charge coverage ratio, the minimum tangible net worth, and the borrowing base for the quarterquarters ended June 30, 2020 and September 30, 2017.2020. On November 10, 2020, the Company entered into a Fifteenth Amendment to Credit Agreement (the “Fifteenth Amendment”) with Amegy Bank. The Fifteenth Amendment waived the minimum tangible net worth covenant until December 31, 2021, after which a minimum tangible net worth of $1.5 million will be required. The Fifteenth Amendment also revised the calculation of the fixed charge coverage ratio such that it will be tested at December 31, 2020 based on the preceding six month period, tested at March 31, 2021 based on the preceding nine month period, and tested at June 30, 2021 and subsequent periods using a twelve month rolling period.

Paycheck Protection Program Loan

On April 15, 2020, Wilhelmina International, Ltd. (the “Borrower”), a wholly-owned subsidiary of the Company, executed a Business Loan Agreement and a Promissory Note each dated April 13, 2020 (collectively, the “Sub PPP Loan Documents”), with respect to a loan in the amount of $1.8 million (the “Sub PPP Loan”) from Amegy Bank. The Sub PPP Loan was obtained pursuant to the PPP. The Sub PPP Loan originally matured on April 13, 2022 and bore interest at a rate of 1.00% per annum. As allowed under the Paycheck Protection Flexibility Act, the Sub PPP Loan was extended to mature on April 13, 2025. On March 27, 2021, the Company believes its cashreceived notice from the SBA that the Sub PPP loan, including $17 thousand accrued interest, had been fully forgiven, resulting in $1.9 million of gain on hand combinedforgiveness of loan recorded during the first quarter of 2021.

On April 18, 2020, the Company executed a Business Loan Agreement and a Promissory Note each dated April 17, 2020 (collectively, the “Parent PPP Loan Documents”), with cashrespect to a loan in the amount of $128 thousand (the “Parent PPP Loan”) from operationsAmegy Bank. The Parent PPP Loan was also obtained pursuant to the PPP. The Parent PPP Loan originally matured on April 17, 2022 and bore interest at a rate of 1.00% per annum. As allowed under the Paycheck Protection Flexibility Act, the Parent PPP Loan was extended to mature on April 17, 2025. On April 3, 2021, the Company received notice from the SBA that the Parent PPP Loan, including $1 thousand accrued interest, had been fully forgiven. Since the loan was forgiven after the end of the first quarter of 2021, the Parent PPP Loan liability remained on the Company’s balance sheet at March 31, 2021, and the availability underCompany has recorded $129 thousand of gain on forgiveness of loan in the revolving credit facility will be sufficient to fund operations for the next 12 months.second quarter of 2021.

Off-Balance Sheet Arrangements

As of September 30, 2017,March 31, 2021, 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 servesserved as security under the lease relating to the Company’s office space in New York City that expiresexpired on February 2021.

The Company expects to terminate the letter of credit once the final office utility fees are billed and paid during the second quarter of 2021.

Effect of Inflation

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

Critical Accounting Policies

Basis of Presentation

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

Revenue Recognition

In complianceThe Company has adopted the requirements of Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”). ASC 606 establishes a principle for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services.

Our revenues are derived primarily from fashion model bookings, and representation of social media influencers and actors for commercials, film, and television. Our performance obligations are primarily satisfied at a point in time when the talent has completed the contractual requirements.

A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The performance obligations for most of the Company’s core modeling bookings are satisfied on the day of the event, and the “day rate” total fee is agreed in advance when the customer books the model for a particular date. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation based on the estimated relative standalone selling price.

Model Costs

Model costs include amounts owed to talent, including taxes required to be withheld and remitted directly to taxing authorities, commissions owed to other agencies, and related costs such as those paid for photography. Costs are accrued in the period in which the event takes place consistent with when the revenue is recognized. The Company typically enters into contractual agreements with models under which the Company is obligated to pay talent upon collection of fees from the customer.

Share Based Compensation

Share-based compensation expense is estimated at the grant date based on the award’s fair value as calculated by the Black-Scholes option pricing model and is recognized on a straight line basis as an expense over the requisite service period, which is generally accepted accounting principlesthe vesting period. The determination of the fair value of share-based awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include the estimated volatility over the expected term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rates, estimated forfeitures and expected dividends.

Income Taxes

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

The Company also recognizes management fees as revenuesDeferred tax assets are recognized for providing services to other modeling agencies as well as consulting income in connection with services provided to a television production network accordingunused tax losses, unused tax credits, and deductible temporary differences to the terms ofextent that it is probable that future taxable profits will be available against which they can be used. Unused tax loss carry-forwards are reviewed at each reporting date and a valuation allowance is established if it is doubtful we will generate sufficient future taxable income to utilize 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.loss carry-forwards.

Advances to modelsIn determining the amount of current and deferred income tax, we take into account whether additional taxes, interest, or penalties may be due. Although we believe that we have adequately reserved for our income taxes, we can provide no assurance that the cost of initial portfolios and other out-of-pocket costs, which are reimbursable only from collections fromfinal tax outcome will not be materially different. To the Company’s clients as a result of future work, are expensed to model costs as incurred. Any repayments ofextent that the final tax outcome is different than the amounts recorded, such costs are credited to model costsdifferences will affect the provision for income taxes in the period received.

Goodwillin which such determination is made and Intangible Assets

Goodwill consists primarily of customercould have a material impact on our financial condition and talent relationships arising from past business acquisitions. Intangible assets with finite lives are amortized over useful lives ranging from two to seven years. Goodwill and intangible assets with indefinite lives are no longer 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 three and nine months ended September 30, 2017 and September 30, 2016.operating results.

Accounts Receivable and Allowance for Doubtful Accounts

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

Income TaxesGoodwill and Intangible Asset Impairment Testing

Income taxes are accounted for underThe Company performs impairment testing at least annually and more frequently if events and circumstances indicate that the asset and liability method. Deferred income tax assets and liabilities aremight be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the reporting unit’s fair value. The Company sometimes utilizes an independent valuation specialist to assist with the determination of fair value. In accordance with ASU 2017-03, effective January 1, 2020, only a one-step quantitative impairment test is performed, whereby a goodwill impairment loss will be measured as the excess of a reporting unit’s carrying amount over its fair value. If the carrying amount of the reporting unit’s goodwill exceeds its fair value, an impairment loss is recognized for any excess of the future tax consequences attributablecarrying amount of the reporting unit’s goodwill.

Whenever events or circumstances change, entities have the option to differences betweenfirst make a qualitative evaluation about the financial statement carrying amountslikelihood 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 ratesgoodwill impairment. If impairment is recognized in income in the period that includes the enactment date. The Company continually assesses the need for a tax valuation allowance based on all available information. As of September 30, 2017, and as a result of this assessment, the Company believes that its deferred tax assets aredeemed more likely than not, to be realized.management would perform the goodwill impairment test. Otherwise, the goodwill impairment test is not required. In addition,assessing the qualitative factors, the Company continuously evaluates its tax contingencies.

Accounting for uncertainty in income taxes recognized in an enterprise’s financial statements requires a recognition thresholdassesses relevant events and measurement attribute forcircumstances that may impact the financial statement recognitionfair value 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 netcarrying amount of assetsthe reporting unit. The identification of relevant events and liabilities recognized incircumstances and how these may impact a reporting unit’s fair value or carrying amount involve significant judgments and assumptions. The judgment and assumptions include the consolidated balance sheets as a resultidentification of macroeconomic conditions, industry and market considerations, overall financial performance, Company specific events and share price trends, an assessment of whether each relevant factor will impact the Company’s tax positions.impairment test positively or negatively, and the magnitude of any such impact

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Not required for smaller reporting company

Item 4.  Controls and Procedures.

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

The Company’s management, including the Company’s principal executive officer and principal financial officer or persons performing similar functions, have evaluated the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the Company’s principal executive officer and principal financial officer or persons performing similar functions, have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

During the most recent fiscal quarter, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1.  Legal Proceedings.

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

Plaintiffs retained substitute counsel, who filed a Second and then Third Amended Complaint. Plaintiffs’ Third Amended Complaint asserts causes of action for alleged breaches of the plaintiffs' management contracts with the defendants, conversion, breach of the duty of good faith and fair dealing, and unjust enrichment.  The Third Amended Complaint also alleges that the plaintiff models were at all relevant times employees, and not independent contractors, of the model management defendants, and that defendants violated the New York Labor Law in several respects, including, among other things, by allegedly failing to pay the models the minimum wages and overtime pay required thereunder, not maintaining accurate payroll records, and not providing plaintiffs with full explanations of how their wages and deductions therefrom were computed.  The Third Amended Complaint seeks certification of the action as a class action, damages in an amount to be determined at trial, plus interest, costs, attorneys’ fees, and such other relief as the court deems proper.  On October 6, 2015, Wilhelmina filed a motion to dismiss as to most of the plaintiffs’ claims, and oral argument on the motion was heard by the Court in June 2016.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 haveeach appealed, the decision. The parties appeared before the Court for a status conference on July 18, 2017, and the Court directed the defendants to answer the Third Amended Complaint bydecision was affirmed on May 24, 2018. On August 16, 2017.2017, Wilhelmina timely filed its Answer to the Third Amended Complaint on that date, 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.Complaint.

On June 6, 2016, another putative class action lawsuit was brought against the Company by former Wilhelmina model Shawn Pressley and others, including Roberta Little (the “Pressley Litigation”), in New York State Supreme Court (New York County) by the same counsel representing the plaintiffs in the Shanklin Litigation, and asserting identical, although more recent, claims as those in the Shanklin Litigation.  On June 14, 2016, the Court stayed all proceedings in the Pressley Litigation until a decision was issued on the motion to dismiss in the Shanklin Litigation. At the court conference on July 18, 2017 (mentioned above), the judge directed the plaintiffs to file an amended complaint in the Pressley Litigation, if any, by August 16, 2017, and directed the defendants to move against or answer such amended complaint by September 29, 2017.  The Amended Complaint, asserting essentially the same types of claims as in the Shanklin action, was filed on August 16,^th, and 2017.  Wilhelmina filed a motion to dismiss the Amended Complaint on September 29, 2017. Briefing2017, which was granted in part and denied in part on May 10, 2018.  Some New York Labor Law and contract claims remain in the motion to dismiss is continuing,case.  Pressley has withdrawn from the case, leaving Roberta Little as the sole remaining named plaintiff in the Pressley Litigation.  On July 12, 2019, the Company filed its Answer and Counterclaim against Little.

On May 1, 2019, the Plaintiffs in the Shanklin Litigation (except Raske) and the Pressley Litigation filed motions for class certification on their contract claims and the remaining New York Labor Law Claims. On July 12, 2019, Wilhelmina filed its opposition to the motions for class certification and filed a cross-motion for summary judgment against Shanklin, Vretman, Palomares, Trotter and Little, and a motion is scheduledfor summary judgment against Raske. 

By Order Dated May 8, 2020 (the “Class Certification Order”), the Court denied class certification in the Pressley case, denied class certification with respect to the breach of contract and alleged unpaid usage claims, granted class certification as to the New York Labor Law causes of action asserted by Vretman, Palomares and Trotter, and declined to rule on Wilhelmina’s motions for summary judgment, denying them without prejudice to be submittedre-filed at a later date. The Court has directed the parties to the Court on November 16, 2017. Discoverynon-binding mediation and that process is proceeding in this case. underway.

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

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

Item 1.A.Risk Factors.

Not required for smaller reporting company.

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

During 2012, the Board of Directors authorized a stock repurchase program whereby the Company could repurchase up to 500,000 shares of its outstanding common stock. During 2013, the Board of Directors renewed and extended the Company’s share repurchase authority to enable it to repurchase up to an aggregate of 1,000,000 shares of common stock.

On August 12, 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. No shares were repurchasedThe Company did not make any purchase pursuant to the stock repurchase program during the nine monthsquarter ended September 30, 2017.March 31, 20201.

Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  Mine Safety Disclosures.

Not applicable.

Item 5.  Other Information.

On November 8, 2017, the Company and Amegy Bank executed a Ninth Amendment to Credit Agreement and Second Amendment to Line of Credit Note (the “Ninth Amendment”) to be effective as of October 24, 2107. The Ninth Amendment extends the maturity date of the Company’s $4.0 million revolving line of credit for one year until October 24, 2018. The Ninth Amendment also increases the fee payable to Amegy upon issuance of any letter of credit from 1.0% to 1.25% of the face amount of such letter of credit (but not less than $1,000). The foregoing description of the Ninth Amendment is qualified in its entirety by reference to the definitive agreement filed as an exhibit hereto and incorporated herein by this reference.Not applicable.

Item 6.  Exhibits.

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

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* Filed herewith

SIGNATURES

SIGNATURES

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

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