UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM ~~10-Q~~10-Q/A

(Amendment No. 1)

(Mark One)

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

~~[x]~~

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

For the quarterly period ended September 30, ~~2017~~2022

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

~~[ ]~~

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

For the transition period from ________ to ________

Commission File Number 001-36589

WILHELMINA INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

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

~~200 Crescent Court, Suite 1400,~~ 5420 Lyndon B Johnson Freeway, Box #25, Dallas, Texas	~~75201~~ 75240
(Address of principal executive offices)	(Zip Code)

(214) 661-7488

(Registrant’s telephone number, including area code)

n/a

(Former name, former address and former fiscal year, if changed since last report)

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

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ~~[x]~~☒ Yes ~~[ ]~~☐ No

Indicate by check mark whether the registrant has submitted electronically ~~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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

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

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

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

As of November ~~9, 2017,~~10, 2022, the registrant had ~~5,381,668~~5,157,344 shares of common stock outstanding.

EXPLANATORY NOTE

As reported in its Form 8-K filed December 6, 2022, Wilhelmina International, Inc. (“Wilhelmina” or the “Company”) has historically presented service revenues on a gross basis in its annual audited and interim reviewed consolidated statements of operations and comprehensive income (loss) on the basis of the good faith judgment of both its management and the audit committee of its board of directors (“Audit Committee”) that the Company is the principal in the contractual relationships with its end-user clients. However, the Staff of the Securities and Exchange Commission (“SEC”) has recently objected to this presentation and communicated that service revenues should be presented net of model costs based on their conclusion that the Company is only an agent in the arrangements with its end-user clients. On November 30, 2022, the Audit Committee determined that accepting the position of the SEC Staff was in the best interest of Wilhelmina’s shareholders. As a result, the Audit Committee concluded that the consolidated statements of operations and comprehensive income (loss) included in its Quarterly Report on Form 10-Q for the period year ended September 30, 2022, should no longer be relied upon. In light of this decision, the Company’s management has re-evaluated the Company’s disclosure controls and procedures and concluded that a material weakness exists in its internal control over financial reporting relating to the prior interpretation of generally accepted accounting principles in the United States of America (“GAAP”) that service revenues should be reported on a gross basis rather than a net basis.

The Company is filing this Amendment No. 1 on Form 10-Q/A (the “Amendment”) to its Quarterly Report on Form 10-Q for the period ended September 30, 2022, filed with the SEC on November 10, 2022 (the “Original Form 10-Q”), for the primary purpose of restating the Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2022 and 2021 to present service revenues on a basis net of model costs rather than on a gross basis. Corresponding changes have been made elsewhere in the Original Form 10-Q. This change in presentation results in reducing previously reported service revenues by an amount equal to model costs. Since model costs were previously shown as a deduction from total revenue, amounts previously reported as revenues net of model costs are now reflected as total revenue. This change in presentation has no impact on operating expenses, other expense (income), income before provision for income taxes, provision for income taxes, net income, basic or diluted net income per share, or total comprehensive income (loss) of the Company reflected in the Original Form 10-Q. Similarly, this change in presentation has no impact on the Consolidated Balance Sheets, Consolidated Statements of Shareholders’ Equity, or Consolidated Statements of Cash Flows of the Company contained in the Original Form 10-Q. This Amendment also reflects the conclusion that a material weakness exists in the Company’s internal control over financial reporting.

This Amendment amends and restates in its entirety the Original Form 10-Q. The following portions of this Amendment have been revised to reflect the foregoing changes to the Original Form 10-Q:

●

Part I. Item 1. Consolidated Financial Statements at “Consolidated Statements of Operations and Comprehensive Income (Loss)”;

●

Part I. Item 1. Consolidated Financial Statements at “Notes to the Consolidated Financial Statements” solely to add “Note 1A. Revision of Consolidated Statements of Operations and Comprehensive Income (Loss)”;

●

Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, at “Key Financial Indicators”;

●

Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, at “Analysis of Consolidated Statements of Operations”, but solely the following:

table comparing the three and nine months ended September 30, 2022 and 2021;

paragraph subtitled “Service Revenues”;

deleted paragraph subtitled “Gross Profit Margin”; and

paragraph subtitled “Operating Income and Loss and Operating Margin”;

●

Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, at “Critical Accounting Policies”, but solely the following;

paragraphs subtitled “Revenue Recognition”;

deleted paragraph subtitled “Model Costs”; and

paragraphs subtitled “Accounts Receivable and Allowance for Doubtful Accounts”;

●

Part I, Item 4. Controls and Procedures;

●

Part II. Item 6. Exhibits solely to add as Exhibits 31.3 and 31.4 the certifications required by Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended; and

●

Signatures page.

Except as described above, no other changes have been made to the Original Form 10-Q. Except as specifically noted, this Amendment does not reflect events occurring after the filing of the Original Form 10-Q, nor does it modify or update disclosures therein in any way other than as expressly stated herein. Among other things, forward-looking statements made in the Original Form 10-Q have not been revised to reflect any events that may have occurred or facts that may have become known after the filing of the Original Form 10-Q. Consequently, this Amendment should be read in conjunction with the Original Form 10-Q and the Company’s filings with the SEC subsequent to the filing of the Original Form 10-Q.

WILHELMINA INTERNATIONAL, INC. AND SUBSIDIARIES

Quarterly Report on Form 10-Q

For the Three and Nine Months Ended September 30, ~~2017~~2022

PART I	FINANCIAL INFORMATION		34

	Item 1.	Financial Statements	34

		Condensed Consolidated Balance ~~Sheet~~Sheets as of September 30, ~~2017~~2022 (Unaudited) and December 31, ~~2016~~2021	34

		Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30, ~~2017~~2022 and ~~2016~~2021 (Unaudited)	45

		Condensed Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited)	6

		Condensed Consolidated Statements of Cash Flow for the Nine Months Ended September 30, ~~2017~~2022 and ~~2016~~2021 (Unaudited)	57

		Notes to Condensed Consolidated Financial Statements (Unaudited)	68

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	913

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	1420

	Item 4.	Controls and Procedures	1520

PART II	OTHER INFORMATION		1621

	Item 1.	Legal Proceedings	1621

	Item 1.A.	Risk Factors	1622

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	1722

	Item 3.	Defaults Upon Senior Securities	1722

	Item 4.	Mine Safety Disclosures	1722

	Item 5.	Other Information	1722

	Item 6.	Exhibits	1823

SIGNATURES			1924

PART I

FINANCIAL INFORMATION

Item 1.Consolidated Financial Statements

WILHELMINA INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

							(Unaudited)
	(Unaudited) September 30, 2017			December 31, 2016			September 30, 2022			December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	2,640		$	5,688		$	10,529		$	10,251
Accounts receivable, net of allowance for doubtful accounts of $2,158 and $1,646, respectively		16,543			16,947
Accounts receivable, net of allowance for doubtful accounts of $1,647 and $1,580, respectively								10,890			8,858
Prepaid expenses and other current assets		287			847			218			91
Total current assets		19,470			23,482			21,637			19,200

Property and equipment, net of accumulated depreciation of $2,134 and $1,525, respectively		3,197			3,206
Property and equipment, net of accumulated depreciation of $1,186 and $4,094, respectively								164			168
Right of use assets-operating								1,386			1,745
Right of use assets-finance								154			199
Trademarks and trade names with indefinite lives		8,467			8,467			8,467			8,467
Other intangibles with finite lives, net of accumulated amortization of$8,589 and $8,527, respectively		147			210
Goodwill		13,192			13,192			7,547			7,547
Other assets		115			164			319			98

TOTAL ASSETS	$	44,588		$	48,721		$	39,674		$	37,424

LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	3,916		$	4,781		$	4,221		$	3,707
Due to models		10,975			14,217			8,958			8,090
Contingent consideration to seller - current		-			97
Term loan - current		519			502
Deferred revenue								-			535
Lease liabilities – operating, current								408			463
Lease liabilities – finance, current								61			64
Total current liabilities		15,410			19,597			13,648			12,859

Long term liabilities:
Deferred income tax liability		1,532			1,567
Term loan - non-current		1,756			2,147
Total long-term liabilities		3,288			3,714
Deferred income tax, net								985			2,048
Lease liabilities – operating, non-current								1,080			1,361
Lease liabilities – finance, non-current								100			143
Total long term liabilities								2,165			3,552

Total liabilities		18,698			23,311			15,813			16,411

Shareholders’ equity:
Common stock, $0.01 par value, 9,000,000 and 12,500,000 shares authorized; 6,472,038 shares issued at September 30, 2017 and December 31, 2016		65			65
Treasury stock, 1,090,370 at September 30, 2017 and December 31, 2016, at cost		(4,893	)		(4,893	)
Common stock, $0.01 par value, 9,000,000 shares authorized; 6,472,038 shares issued at September 30, 2022 and December 31, 2021								65			65
Treasury stock, 1,314,694 shares at September 30, 2022 and December 31, 2021, at cost								(6,371	)		(6,371	)
Additional paid-in capital		87,748			87,336			88,745			88,580
Accumulated deficit		(57,065	)		(57,048	)		(57,691	)		(61,238	)
Accumulated other comprehensive income (loss)		35			(50	)
Total shareholders’ equity		25,890			25,410
Accumulated other comprehensive loss								(887	)		(23	)
Total shareholders’ equity								23,861			21,013

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	44,588		$	48,721
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY							$	39,674		$	37,424

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

For the Three and Nine Months Ended September 30, ~~2017~~2022 and ~~2016~~2021

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

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

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

~~Note 4.~~ Foreign Currency Translation

The functional currency of ~~London~~our subsidiary in the United Kingdom is the British Pound. Assets and liabilities are translated into U.S. dollars at the exchange rates in effect at each balance sheet ~~date, revenues and expenses~~date. Results of operations are translated atusing the weighted average ~~monthly~~ exchange rates ~~and resulting~~during reporting periods. Related translation ~~gains or losses~~adjustments are accumulated in ~~other comprehensive income as~~ a separate component of ~~shareholders’ equity.~~stockholder’s equity and transaction gains and losses are recognized in the consolidated statements of income and comprehensive income when realized.

Note 4.Debt

~~Note 5. Line~~As of ~~Credit~~

~~The~~September 30, 2022, the Company ~~has~~had a credit agreement with Amegy Bank ~~providing~~which provided a ~~$4.0~~$3.0 million revolving line of credit, ~~and up to a $3.0 million term loan which could be drawn through October 24, 2016. 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~~bore interest at prime plus ~~0.5%~~0.50% payable monthly. ~~As of September 30, 2017, the~~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 million.~~ $3.0 million at September 30, 2022. The Company was in compliance with its bank covenants as of September 30, 2022. The revolving line of credit ~~expires on~~ expired October 24, ~~2018.~~2022.

On July 16, 2018, the Company amended its credit agreement with Amegy Bank to provide for a 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. On August ~~16, 2016,~~ 1, 2018, the Company drew ~~$2.7~~$0.7 million of the additional term loan and used the proceeds to fund the purchase of 100,000 shares of its common ~~stock. The~~stock in a private transaction. On December 12, 2018, the Company drew $0.3 million of the additional term loan ~~bears~~and used the proceeds to partially fund a purchase of 50,000 shares of its common stock in a private transaction. On August 31, 2021, the Company prepaid, without penalty, the $0.6 million remaining balance of the additional term loan. As of September 30, 2022, there was no outstanding balance on the term 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 federal Paycheck Protection Program (the “PPP”). The Sub PPP Loan originally matured on April 13, 2022 and bore interest at ~~4.5%~~a rate of 1.00% per ~~annum and is payable in monthly payments of interest only until November 2016, followed by 47 equal monthly payments of principal and interest computed~~annum. As allowed under the Paycheck Protection Flexibility Act, the Sub PPP Loan was extended to mature on ~~a 60-month amortization schedule and a final payment of principal and interest due on October 24, 2020.~~

April 13, 2025. On ~~May 4, 2017,~~ March 27, 2021, the Company ~~entered into a Seventh Amendment to Credit Agreement with Amegy Bank reducing~~received notice from the ~~Company’s fixed charge coverage ratio through December 31, 2017. The Company obtained a waiver from Amegy Bank~~SBA that the Sub PPP loan, including $17 thousand accrued interest, had been fully forgiven, resulting in $1.9 million of ~~its failure to satisfy the fixed coverage ratio for~~gain on forgiveness of loan recorded within other (income) expenses during the quarter ended ~~June 30, 2017.~~ March 31, 2021.

On ~~August 1, 2017,~~ April 18, 2020, the Company ~~entered into an Eighth Amendment~~executed a Business Loan Agreement and a Promissory Note each dated April 17, 2020 (collectively, the “Parent PPP Loan Documents”), with respect to ~~Credit Agreement with~~a loan in the amount of $128 thousand (the “Parent PPP Loan”) from Amegy ~~Bank eliminating~~Bank. The Parent PPP Loan was also obtained pursuant to the ~~requirement~~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 ~~test~~ mature on April 17, 2025. On April 3, 2021, the ~~fixed charge coverage ratio for~~Company received notice from the SBA that the Parent PPP Loan, including $1 thousand accrued interest, had been fully forgiven, resulting in $0.1 million of gain on forgiveness of loan recorded within other (income) expense during the quarter ended ~~September~~June 30, ~~2017.~~2021. Under the PPP, the SBA reserves the right to audit any PPP loan forgiveness application for a period of six years from the date of loan forgiveness.

The revolving line of credit with Amegy expired by its terms on October 24, 2017. On November 8, 2017, the Company and Amegy extended the revolving line of credit on substantially the same terms for one year until October 24, 2018.

Note 6. 5.Commitments and Contingencies

On October 24, 2013, a putative class action lawsuit was brought against the Company by former Wilhelmina model Alex Shanklin and others, 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~~ “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 ~~have~~each 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 by~~ decision 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. Briefing~~2017, which was granted in part and denied in part on May 10, 2018. Some New York Labor Law and contract claims remain in the ~~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 scheduled~~for 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 ~~submitted to the Court on November 16, 2017. Discovery is proceeding in this case.~~ re-filed at a later date.
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. Nonetheless, an adverse outcome in either case is at least reasonably possible. However, the Company is presently unable to reasonably estimate the amount or range of possible loss in either case. Therefore, no amount has been accrued as of September 30, 2022 related to these matters.

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

Note 7. 6.Income Taxes

Generally, the Company’s combined effective tax rate is high relative to reported ~~net~~ income before taxes as a result of valuation allowances on deferred tax assets, certain ~~amounts of~~ amortization ~~and depreciation~~ expense, stock based compensation, and corporate overhead not being deductible and income being attributable to certain states in which it operates. In recent years, the majority of taxes paid by the Company were state and foreign taxes, not U.S. federal taxes. The Company operates in ~~four~~three states which have relatively high tax rates: California, New York, ~~Illinois,~~ and Florida. In 2021, the effective tax rate was lower than in typical years due to PPP loan forgiveness, which was not subject to income tax. Realization of net operating loss carryforwards, foreign tax credits, and other deferred tax temporary differences are contingent upon future taxable earnings. The Company’s deferred tax assets are reviewed for expected utilization by assessing the available positive and negative factors surrounding recoverability, including projected future taxable income, reversal of existing taxable temporary differences, tax-planning strategies, and results of recent operations. A valuation allowance is recorded when it is more likely than not that a deferred tax asset will not be realized.

For the year ended December 31, 2021, Wilhelmina maintained a full $1.5 million valuation allowance against its deferred tax assets. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. In connection with its assessment for the third quarter of 2022, management determined that there was sufficient evidence to conclude that it was more likely than not that all deferred tax assets were realizable. This evidence included three years of cumulative pretax income, excluding nonrecurring items, and expected reversal of existing taxable temporary differences. Consequently, the full valuation allowance against our deferred tax assets was released as of September 30, ~~2017,~~ 2022, resulting in a $1.5 million income tax benefit. The Company will continue to assess the evidence used to determine the need for a valuation allowance and may reinstate the valuation allowance in future periods if warranted by changes in estimated future income and other factors.

As of September 30, 2022, the Company had no federal income tax loss ~~carryforwards of $1.5 million.~~

carryforwards.

Note ~~8.  Shareholder Equity~~7. Treasury Shares

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

From 2012 through September 30, ~~2017,~~ 2022, the Company ~~has~~had repurchased ~~1,090,370~~1,314,694 shares of ~~Common Stock~~common stock at an average price of approximately ~~$4.49~~$4.85 per share, for a total of approximately ~~$4.9~~$6.4 million in repurchases under the stock repurchase program. NoUnder the PPP, the Company was prohibited from stock repurchases until twelve months after the PPP loan was no longer outstanding. This twelve month period ended in April 2022. During the firstnine months of 2022, no shares were repurchased under the stock repurchase ~~program during the first nine months of 2017.~~
program.

Note ~~9. Common Stock~~
On July 7, 2017, the Company filed with the Delaware Secretary of State a Certificate of Amendment of its Restated Certificate of Incorporation. As approved by shareholders at the Annual Meeting held June 13, 2017, the Certificate of Amendment eliminated any class of preferred stock from the shares of capital stock the Company is authorized to issue and decreased the number of shares of common stock the Company is authorized to issue from 12,500,000 shares to 9,000,000 shares.
~~Note 10.~~  8.Related Parties

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

The Company’s corporate headquarters are located at ~~200 Crescent Court, Suite 1400, Dallas, Texas 75201, which are also~~ the offices of NCM. The Company ~~occupies a portion of~~utilizes NCM ~~space~~facilities on a month-to-month basis at $2.5 thousand per month, pursuant to a services agreement entered into between the parties. ~~Pursuant to the services agreement, the Company receives the use of NCM’s facilities and equipment and accounting, legal and administrative services from employees of NCM.~~ The Company incurred expenses pursuant to the services agreement totaling ~~approximately $7.5 thousand and~~ $22.5 thousand for the ~~three and~~ nine months ended both September 30, ~~2017~~ 2022 and ~~2016.~~2021. The Company did not owe NCM any amounts under the services agreement as of September 30, ~~2017.~~2022.

In the second quarter of 2021, the Company recorded $32 thousand related to the recovery of short-swing profits disgorged from one of the Company’s shareholders under Section 16(b) of the Securities Exchange Act of 1934, as amended. The Company ~~previously owned~~recognized these related party proceeds as an ~~unconsolidated 50% interest~~increase to additional paid-in capital in the accompanying condensed consolidated balance sheet, as well as cash provided by financing activities of $32 thousand in the accompanying consolidated statement of cash flows for the nine months ended September 30, 2021.
Note 9.Subsequent Events
On November 1, 2022, Wilhelmina ~~Kids & Creative Management LLC (“Kids”), a~~obtained control and the ability to direct the use of the Company’s new principal operating headquarters at 192 Lexington Avenue, New York, City-based modeling agency that specialized in representing child models/talents, from newborns to children 14 years of age. On December 9, 2016, the owners of Kids agreed to dissolve Kids and ceased related business operations of Kids. On March 1, 2017, the Company paid $0.1 million to another owner of Kids in accordance with the December 9, 2016 agreement to liquidate the enterprise.New York. As a result, Wilhelmina ~~no longer maintains a child models division.~~recognized right of use assets and lease liabilities of approximately $2.3 million relating to this lease agreement on November 1, 2022.

~~Note 11. Subsequent Events~~
~~On November 8, 2017, the Company and Amegy extended the revolving line of credit on substantially the same terms for one year until October 24, 2018~~

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

The following is a discussion of the interim unaudited consolidated financial condition and results of operations for the Company and its subsidiaries for the three and nine months ended September 30, ~~2017~~2022 and ~~2016.~~2021. 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, ~~2016, as amended.~~2021.

Forward-Looking Statements

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

OVERVIEW

The ~~Company’s~~ primary business of Wilhelmina is fashion model management. These business operations are headquartered in New York City. The Company’s predecessor was founded in 1967 by Wilhelmina Cooper, a renowned fashion model, and became one of the oldest, best known and largest fashion model management companies in the world. Since its founding, Wilhelmina has grown to include operations located in Los Angeles, Miami, and ~~complementary business activities. The business~~London, as well as a network of licensees. Wilhelmina provides traditional, full-service fashion model and talent management ~~firms, such as Wilhelmina, depends heavily on~~services, specializing in the ~~state~~representation and management of ~~the~~models, entertainers, athletes and other talent, to various clients, including retailers, designers, advertising ~~industry, as demand for talent is driven by Internet,~~agencies, print and ~~television advertising campaigns for consumer goods~~electronic media and retail clients. Wilhelmina believes it has strong brand recognition which enables it to attract and retain top agents and talent to service a broad universe of clients. In order to take advantage of these opportunities and support its continued growth, the Company will need to continue to successfully allocate resources and staffing in a way that enhances its ability to respond to new opportunities. The Company continues to focus on tightly managing costs, recruiting top agents when available, and scouting and developing new talent.catalog companies.

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

The Company expects that the combination of Wilhelmina’s main operating base in New York City, the industry’s capital, with the depth and breadth of its talent pool and client roster and its diversification across various talent management segments, together with its geographical reach, should make Wilhelmina’s operations more resilient to industry changes and economic swings than those of many of the smaller firms operating in the industry. ~~Similarly, in the segments where the Company competes with other leading full-service agencies, Wilhelmina competed successfully during the first nine months of 2017.~~

With total annual advertising expenditures on major media (newspapers, magazines, television, cinema, outdoor and Internet) ~~exceeding approximately $187~~estimated to have exceeded $270 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, magazines, and outdoor are of particular relevance.

In recent ~~quarters,~~periods, traditional retail clients in the fashion and beauty industry have had increased competition from digital, social, and new media, reducing their budgets for advertising and model talent. Wilhelmina reviews the mix of talent and resources available to best operate in the changing environment.
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Although Wilhelmina has a large and diverse client base, it is not immune to global economic conditions. The Company closely monitors economic conditions, client spending, and other industry factors and continually evaluates opportunities to increase its market share and further expand its geographic reach.  There can be no assurance as to the effects on Wilhelmina of current or future economic circumstances, client spending patterns, client creditworthiness and other developments and whether, or to what extent, Wilhelmina’s efforts to respond to them will be effective.

Strategy

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

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

~~Due~~The Company makes use of digital technology to ~~the increasing ubiquity of the Internet as a standard business tool, the Company has increasingly sought to harness the opportunities of the Internet~~effectively connect with clients and talent, utilizing video conferencing and other digital ~~media~~tools to ~~improve its communications with clients~~best position our team to identify opportunities to grow the careers of the talent we represent and ~~to facilitate the effective exchange of fashion model and talent information.~~expand our business. The Company ~~continues to make~~has made significant investments in technology, ~~(including developing in-house art~~infrastructure, and ~~social media departments) in pursuit of gains in efficiency~~personnel, to support our clients and better communications with clients.  At the same time, the Internet presents challenges for the Company, including (i) the cannibalization of traditional print media businesses, and (ii) pricing pressures with respect to digital media photo shoots and client engagements.talent.

In January 2015, the Company purchased 100% of the outstanding shares of Union Models Management Ltd. in London and renamed it Wilhelmina London Limited (“London”). The strategic acquisition of London established a footprint for the Company and the brand in Western Europe. London also serves as a base of operations to service the Company’s European clients, and as a new talent development office for European models and artists.
~~In September 2016, Wilhelmina opened a Chicago office to better provide models and talents with direct access to clients in the mid west region of the United States.~~
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Key Financial Indicators

~~The~~In addition to net income, the key financial indicators that the Company reviews to monitor its 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~~“boards,” each a specific division of the fashion model management operations which specializes by the type of model it represents, ~~(Women, Men, Artist, Showroom, Curve, Celebrity, etc.))~~ by geographic locations and from significant clients. ~~Wilhelmina has three~~Within its fashion model management business, Wilhelmina’s primary ~~sources~~source of ~~revenue: (i) gross billings are revenues~~service revenue is from ~~principal relationships where the gross amount billed to the client is recorded as revenue when earned~~model fees and collectability is reasonably assured; (ii) revenues from agent relationships where commissions paid by models as a percentage of their gross earnings are recorded as revenue when earned and collectability is reasonably assured; and (iii) separate service charges paid by ~~clients in addition to~~ the ~~booking fees, which are calculated as a percentage of~~client for bookings directly negotiated by the ~~models’ booking fees and are recorded as revenues when earned and collectability is reasonably assured.~~Company. The Company also receives commissions paid on bookings by third-party agencies. See “Critical Accounting Policies - Revenue Recognition.” Gross billings are an important business metric that ultimately drive profits and cash flows. Model costs represents costs paid to model and artist talent and to mother agents relating to photoshoots and other jobs booked by Wilhelmina.

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

(in thousands) Three Months Ended Nine Months Ended
Sept 30 Sept 30 % Change Sept 30 Sept 30 % Change
2017 2016 2017 vs 2016 2017 2016 2017 vs 2016
Service revenues 18,712 20,880 (10.4 %) 56,120 64,512 (13.0 %)
License fees and other income 6 28 (78.6 %) 34 82 (58.5 %)
TOTAL REVENUES 18,718 20,908 (10.5 %) 56,154 64,594 (13.1 %)
Model costs 13,265 14,888 (10.9 %) 39,910 45,952 (13.1 %)
REVENUES NET OF MODEL COSTS 5,453 6,020 (9.4 %) 16,244 18,642 (12.9 %)
GROSS PROFIT MARGIN 29.1 % 28.8 % 28.9 % 28.9 %
Salaries and service costs 3,447 3,708 (7.0 %) 10,611 11,594 (8.5 %)
Office and general expenses 1,400 1,381 1.4 % 3,832 4,267 (10.2 %)
Amortization and depreciation 232 89 160.7 % 672 295 127.8 %
Corporate overhead 236 192 22.9 % 817 768 6.4 %
OPERATING INCOME 138 650 (78.8 %) 312 1,718 (81.8 %)
OPERATING MARGIN 0.7 % 3.1 % 0.6 % 2.7 %
Foreign exchange gain (loss) (18 ) 1 * (54 ) 8 *
Gain (loss) from unconsolidated subsidiary (2 ) 5 * (40 ) 11 *
Interest Expense (31 ) (21 ) 47.6 % (88 ) (21 ) 319.0 %
Revaluation of contingent liability - (30 ) * - (30 ) *
INCOME BEFORE INCOME TAXES 87 605 (85.6 %) 130 1,686 (92.3 %)
Income tax expense (61 ) (378 ) (83.9 %) (147 ) (1,006 ) (85.4 %)
Effective tax rate 70.1 % 62.5 % 113.1 % 59.7 %
NET (LOSS) INCOME 26 227 (88.5 %) (17 ) 680 (102.5 %)
(in thousands)

Three Months Ended

Nine Months Ended

September 30

September 30

% Change

September 30

September 30

% Change

2022

2021

2022 vs 2021

2022

2021

2022 vs 2021

Service revenues
4,434 4,365 1.6 % 13,666 11,782 16.0 %
License fees and other income
8 8 - 23 26 (11.5 %)
TOTAL REVENUES
4,442 4,373 1.6 % 13,689 11,808 15.9 %

Salaries and service costs
2,753 2,241 22.8 % 8,102 6,169 31.3 %
Office and general expenses
729 683 6.7 % 2,131 2,247 (5.2 %)
Amortization and depreciation
42 231 (81.8 %) 148 740 (80.0 %)
Corporate overhead
247 200 23.5 % 723 643 12.4 %
OPERATING INCOME
671 1,018 (34.1 %) 2,585 2,009 28.7 %
OPERATING MARGIN
15.1 % 23.3 % 18.9 % 17.0 %
Foreign exchange (gain) loss
(107 ) (4 ) * (211 ) 84 *
Gain on forgiveness of loan
- - - - (1,994 ) (100.0 %)
Employee retention credit
- (458 ) (100.0 %) - (1,320 ) (100.0 %)
Interest expense
2 7 (71.4 %) 7 49 (85.7 %)
INCOME BEFORE INCOME TAXES
776 1,473 (47.3 %) 2,789 5,190 (46.3 %)
Current income tax expense
(221 ) (48 ) 360.4 % (305 ) (158 ) (93.0 %)
Deferred tax expense
1,332 (272 ) * 1,063 (537 ) *
Effective tax rate
(143.2 %) 21.7 % (27.2 %) 13.4 %
NET INCOME
1,887 1,153 63.7 % 3,547 4,495 (21.1 %)
*Not ~~Meaningful~~meaningful
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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 ~~decrease~~increases of ~~10.4%~~1.6% and ~~13.0%~~16.0% for the three and nine months ended September 30, ~~2017,~~2022, when compared to the three and nine months ended September 30, ~~2016, was~~2021, were primarily due to ~~a decrease in core model bookings. The decrease in core model~~increased bookings ~~in United States was partially offset by an increase in core model bookings in~~as the ~~London office, bookings from the Aperture division~~cities where Wilhelmina operates reopened and ~~bookings from the Celebrity division.~~business activity increased as COVID-19 pandemic restrictions were moderated or rescinded.

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 decreased ~~by 78.6% and 58.5%~~11.5% for the ~~three and~~ nine months ended September 30, ~~2017,~~2022, when compared to three and nine months ended in September 30, ~~2016. The decrease was~~2021, primarily due to ~~ending~~the timing of income from licensing ~~agreements with affiliates.~~
~~Gross Profit Margin~~
Gross profit margin increased by 0.3% for the three months ended September 30, 2017, when compared to the three months ended September 30, 2016 primarily due to higher recovery of model chargebacks, an increase in higher margin celebrity revenue, and a decrease in client reimbursable expenses 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.agreements.

Salaries and Service Costs

Salaries and service costs consist of payroll related costs and ~~T&E~~travel and entertainment expenses required to deliver the Company’s services to its clients and talents. The ~~decrease~~22.8% and 31.3% increases in salaries and service costs ~~of 7.0% and 8.5% for~~during the three and nine months ended September 30, ~~2017,~~2022, when compared to the three and nine months ended September 30, ~~2016 was~~2021, were primarily due to ~~severance paid to the Company’s former Chief Executive Officer~~personnel hires and ~~another employee in 2016,~~payroll changes ~~in personnel~~ to better align ~~the number of employees at each~~ Wilhelmina ~~office~~staffing with the needs of each ~~geographic region,~~office and ~~more effective management of T&E during the first nine months of 2017.~~geographical region.

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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 increase in office and general expenses of ~~1.4%~~6.7% for the three months ended September 30, ~~2017~~2022, when compared to the three months ended September 30, ~~2016,~~2021, was primarily due to ~~costs associated with the Company’s 50th anniversary in 2017~~increased marketing expense, legal expense, insurance, and ~~higher~~ bad debt expense. ~~For~~The decrease in office and general expenses of 5.2% for the nine months ended September 30, ~~2017,~~2022, when compared to the nine months ended ~~in ended~~ September 30, ~~2016, the decrease of 10.2%~~2021, was primarily due to ~~$233 thousand~~reduced rent expense, other office related ~~to the recruiting of the Company’s Chief Executive Officer~~expenses, and ~~Chief Financial Officer~~computer expenses, partially offset by an increase in bad debt expense and ~~$160 thousand of non-income tax expenses that were incurred during the first nine months of 2016.~~legal expense in 2022.
Amortization and Depreciation

Amortization and depreciation expense is incurred with respect to certain assets, including computer hardware, software, office equipment, furniture, and ~~other intangibles. During~~finance leases. Amortization and depreciation expense decreased by 81.8% and 80.0% for the three and nine months ended September 30, ~~2017, depreciation and amortization expense increased by 160.7% and 127.8%~~2022 compared to the ~~same periods~~three and nine months ended September 30, 2021 primarily due to reduced depreciation of ~~the prior year, primarily related to the Company’s new accounting software being placed~~assets that became fully amortized in ~~service during the fourth quarter of 2016.~~2021. Fixed asset purchases (mostly related to technology and computer ~~equipment and technology)~~equipment) totaled approximately ~~$122~~$78 thousand and ~~$600~~$96 thousand during the three ~~months~~ and nine months ended September 30, ~~2017,~~2022, compared to ~~$367~~$6 thousand and ~~$1,118~~$16 thousand for the three and nine months ended September 30, ~~2016.~~2021.
Corporate Overhead

Corporate overhead expenses include director and executive officer compensation, ~~insurance,~~ legal, audit and professional fees, corporate office rent and ~~travel costs.~~travel. Corporate overhead increased by ~~22.9%~~23.5% and ~~6.4%~~12.4% for the three and nine months ended September 30, ~~2017 respectively,~~2022, compared to the three and nine months ended September 30, ~~2016. The increase was~~2021, primarily due to ~~increase in professional services fees and an increase in corporate travel~~increased securities compliance costs.

Operating Income and Loss and Operating Margin

Operating ~~margin decreased by 2.4%~~income was $0.7 million and ~~2.1%~~$2.6 million for the three and nine months ended September 30, ~~2017, when~~2022 compared to $1.0 million and $2.0 million in the three and nine months ended September 30, ~~2016, primarily~~2021. Operating margin decreased to 15.1% for the three months ended September 30, 2022, compared to 23.3% for the three months ended September 30, 2021, due to ~~decreases~~the increase in ~~revenues~~operating expenses outpacing ~~reductions~~the increase in total revenue. Operating margin increased to 18.9% for the nine months ended September 30, 2022, compared to 17.0% for the nine months ended September 30, 2021, due to the increase in total revenue outpacing the increase in operating expenses.

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Foreign Currency ~~Translation~~Exchange

The Company realized ~~$18~~gains of $107 thousand and ~~$54~~$211 thousand offrom foreign currency exchange ~~loss~~ during the three and nine months ended September 30, ~~2017, as~~2022, compared ~~to a~~$4 thousand gain ~~of $1~~and $84 thousand ~~and $8 thousand~~loss from foreign currency exchange during the three and nine months ended September 30, ~~2016. The foreign~~2021. Foreign currency gain and loss is due to fluctuations in currencies ~~primarily~~ from Great Britain, Europe, and ~~Europe.~~Latin America.

~~Unconsolidated Subsidiary~~Gain on Forgiveness of Loan

On March 27, 2021, the Company received notice from the SBA that $1.9 million of loans under the PPP were forgiven. On April 3, 2021, the Company received notice that an additional $0.1 million of loans were forgiven. The ~~losses from an unconsolidated subsidiary~~Company recorded these gains on forgiveness of loan during the first and second quarters of 2021, respectively.
Employee Retention Credit Income
During 2021, the Company was eligible for a one-time employee retention payroll tax credit as a refundable credit against certain employment taxes of up to $7,000 per employee. The Company recorded $0.5 million and $1.3 million of employee retention credit income during the three and nine months ended September 30, 2021.
Interest Expense
Interest expense of $2 thousand and $7 thousand for the three and nine months ended September 30, ~~2017, compared~~2022 was primarily attributable to ~~gains for the same periods~~interest on finance leases. Interest expense of ~~the prior year, are the result of the dissolution of the unconsolidated subsidiary~~$7 thousand and ~~discontinuation of its operations.~~
~~Interest Expense~~
~~Interest expense~~$49 thousand for the three and nine months ended September 30, ~~2017~~2021 was primarily attributable to interest on finance leases and accrued interest on a term ~~loan~~loans drawn during 2018, which were fully repaid during the ~~third quarter~~second half of ~~2016.~~2021. See, “Liquidity and Capital Resources.”
Income before Income Taxes
Income before income taxes decreased to $0.8 million and $2.8 million for the three and nine months ended September 30, 2022, compared to $1.5 million and $5.2 million for the three and nine months ended September 30, 2021. The higher pre-tax income in 2021 was primarily due to the gain on forgiveness of PPP loans and employee retention credit income.
Income Taxes

Generally, the Company’s combined effective tax rate is high relative to reported net income as a result of certain ~~amounts of~~valuation 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~~three 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. In 2021, the effective tax rate was lower due to PPP loan forgiveness, which was not subject to income tax. The Company had income tax benefit of $1.1 million and $0.8 million for the three and nine months ended September 30, 2022 compared to $0.3 million and $0.7 million of income tax expense for the three and nine months ended September 30, 2021.

The income tax benefit for the three and nine months ended September 30, 2022, was primarily the result of the full release of a previous $1.5 million valuation allowance against deferred tax assets. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. In connection with its assessment for the third quarter of 2022, management determined that there was sufficient evidence to conclude that it was more likely than not that all deferred tax assets were realizable. This evidence included three years of cumulative pretax income, excluding nonrecurring items. The Company will continue to assess the evidence used to determine the need for a valuation allowance and may reinstate the valuation allowance in future periods if warranted by changes in estimated future income and other factors.
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17

Net Income
The Company had net income of $1.9 and $3.5 million for the three and nine months ended September 30, 2022, compared to $1.2 million and $4.5 million for the three and nine months ended September 30, 2021. In 2022, the net income was significantly impacted by the release of the valuation allowance on the Company’s deferred tax assets. In 2021, the net income was significantly impacted by the gain on forgiveness of PPP loans and employee retention payroll tax credits.
Liquidity and Capital Resources
The Company’s cash balance increased to $10.5 million at September 30, 2022 from $10.3 million at December 31, 2021. The cash balances increased as a result of $1.2 million net cash provided by operating activities, $0.1 million net cash used in investing activities, $45 thousand cash used in financing activities, and $0.8 million adverse effect of exchange rate on cash flow during the nine months ended September 30, 2022.
Net cash provided by operating activities of $1.2 million was primarily the result of net income, increases in amounts due to models and accounts payable and accrued expenses, partially offset by increases in accounts receivable, prepaid expenses, and other assets, and a decrease in deferred revenue. The $0.1 million cash used in investing activities was attributable to purchases of property and equipment, including software and computer equipment. The $45 thousand cash used in financing activities was attributable to payments on finance leases.

The Company’s primary liquidity needs are for working capital associated with performing services under its client contracts. Generally, the Company incurs significant operating expenses with payment terms shorter than its average collections on billings. Based on 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 and beyond.

~~The Company’s cash balance decreased to $2.6 million at~~Amegy Bank Credit Agreement
As of September 30, ~~2017, from $5.7 million at December 31, 2016. For~~2022, 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.
~~The~~ Company ~~has~~had a credit agreement with Amegy Bank ~~providing~~which provided a ~~$4.0~~$3.0 million revolving line of credit, ~~and up to a $3.0 million term loan which could be drawn through October 24, 2016. 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~~bore interest at prime plus ~~0.5%~~0.50% payable monthly. AsThe Company had borrowing capacity of $3.0 million at September 30, 2022. The Company was in compliance with its bank covenants as of September 30, ~~2017, 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 million.~~2022. The revolving line of credit ~~expires~~expired on October 24, ~~2018.~~2022.

On July 16, 2018, the Company amended its credit agreement with Amegy Bank to provide for a 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. On August ~~16, 2016,~~1, 2018, the Company drew ~~$2.7~~$0.7 million of the additional term loan and used the proceeds to fund the purchase of 100,000 shares of its common ~~stock. The~~stock in a private transaction. On December 12, 2018, the Company drew $0.3 million of the additional term loan ~~bears interest at 4.5% per annum~~ and ~~is payable~~used the proceeds to partially fund a purchase of 50,000 shares of its common stock in ~~monthly payments~~a private transaction. On August 31, 2021, the Company prepaid, without penalty, the $0.6 million remaining balance of ~~interest only until November 2016, followed by 47 equal monthly payments~~the additional term loan. As of ~~principal and interest computed~~September 30, 2022, there was no outstanding balance on ~~a 60-month amortization schedule and a final payment of principal and interest due on October 24, 2020.~~the term loan.
Paycheck Protection Program Loans

On ~~May 4, 2017,~~April 15, 2020, Wilhelmina International, Ltd. (the “Borrower”), a wholly-owned subsidiary of the Company, ~~entered into~~executed a ~~Seventh Amendment~~Business Loan Agreement and a Promissory Note each dated April 13, 2020 (collectively, the “Sub PPP Loan Documents”), with respect to ~~Credit Agreement with Amegy Bank reducing~~a loan in the ~~Company’s fixed charge coverage ratio through December 31, 2017. The Company obtained a waiver~~amount of $1.8 million (the “Sub PPP Loan”) from Amegy ~~Bank~~Bank. The Sub PPP Loan was obtained pursuant to the federal Paycheck Protection Program (the “PPP”). The Sub PPP Loan originally matured on April 13, 2022 and bore interest at a rate of ~~its failure~~1.00% per annum. As allowed under the Paycheck Protection Flexibility Act, the Sub PPP Loan was extended to ~~satisfy~~mature on April 13, 2025. On March 27, 2021, the ~~fixed coverage ratio for~~Company received 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 forgiveness of loan recorded within other (income) expenses during the quarter ended March 31, 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 respect to a loan in the amount of $128 thousand (the “Parent PPP Loan”) from Amegy 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, resulting in $0.1 million of gain on forgiveness of loan recorded within other (income) expense during the quarter ended June 30, ~~2017. On August 1, 2017,~~2021. Under the ~~Company entered into an Eighth Amendment~~PPP, the SBA reserves the right to ~~Credit Agreement with Amegy Bank eliminating~~audit any PPP loan forgiveness application for a period of six years from the ~~requirement to test the fixed charge coverage ratio for the quarter ended September 30, 2017.~~date of loan forgiveness.

~~The Company believes its cash on hand combined with cash from operations and the availability under the revolving credit facility will be sufficient to fund operations for the next 12 months.~~
18

~~Off-Balance Sheet Arrangements~~
As of September 30, 2017, the Company had outstanding a $0.2 million irrevocable standby letter of credit under the Company’s revolving credit facility with Amegy Bank. The letter of credit serves as security under the lease relating to the Company’s office space in New York City that expires February 2021.
~~Effect of Inflation~~
Inflation has not 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 compliance~~The 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.
Service revenues are recognized, and talent costs are accrued, when the customer obtains control of the product or service, which typically occurs when the talent has completed the contractual requirement. 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 (which are typically all satisfied within 1 to 3 days), the contract’s transaction price is allocated to each performance obligation based on the estimated relative standalone selling price. The Company expenses incremental costs of obtaining a contract as and when incurred because the expected amortization period of the asset that would have been recognized is one year or less or the amount is immaterial.
We report service revenues on a net basis, which represents gross billings net of 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. 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.
Although service revenues are reported on a net basis, accounts receivable are recorded at the amount of gross billings to customers, inclusive of model costs. As a result, both accounts receivable and amounts due to models appear large relative to total revenue.
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 principles~~the 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, talent~~United 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 selectionnumerous local jurisdictions.
Deferred tax assets are recognized for unused tax losses, unused tax credits, 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 billeddeductible temporary differences to the ~~client as revenue when earned~~extent 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 ~~collectability~~a valuation allowance is ~~reasonably assured, and~~established if it is doubtful we will generate sufficient future taxable income to utilize 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.loss carry-forwards.

13
~~The Company also recognizes management fees as revenues~~In 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 ~~providing services to other modeling agencies as well as consulting~~our income ~~in connection with services provided to a television production network according to~~taxes, we can provide no assurance that the ~~terms of~~final tax outcome will not be materially different. To the ~~contract.  The Company recognizes royalty~~extent that the final tax outcome is different than the amounts recorded, such differences will affect the provision for income when earned based on terms of the contractual agreement. Revenues received in advance are deferred and amortized using the straight-line method over periods pursuant to the related contract. The Company also records fees from licensees when the revenues are earned and collectability is reasonably assured.
Advances to models for the cost of initial portfolios and other out-of-pocket costs, which are reimbursable only from collections from the Company’s clients as a result of future work, are expensed to model costs as incurred. Any repayments of such costs are credited to model coststaxes in the period ~~received.~~in which such determination is made and could have a material impact on our financial condition and operating results.

~~Goodwill and Intangible Assets~~
Goodwill consists primarily of customer and talent relationships arising from past business acquisitions. Intangible assets with finite lives are amortized over useful lives ranging from two to seven years. Goodwill and intangible assets with indefinite lives are 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.
19

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.

Although service revenues are reported on a net basis, accounts receivable are recorded at the amount of gross billings to customers, inclusive of model costs. As a result, both accounts receivable and amounts due to models appear large relative to total revenue.
~~Income Taxes~~Goodwill and Intangible Asset Impairment Testing

~~Income taxes are accounted for under~~The Company performs impairment testing at least annually and more frequently if events and circumstances indicate that an asset might be impaired. An impairment loss is recognized to the ~~asset and liability method. Deferred income tax assets and liabilities are~~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 attributable~~carrying amount over the reporting unit’s goodwill.
Whenever events or circumstances change, entities have the option to ~~differences between~~first make a qualitative evaluation about the ~~financial statement carrying amounts~~likelihood 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 threshold~~assesses relevant events and ~~measurement attribute for~~circumstances that may impact the ~~financial statement recognition~~fair 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 ~~net~~carrying amount of ~~assets~~the reporting unit. The identification of relevant events and ~~liabilities recognized in~~circumstances 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 result~~identification 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

14
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~~Subsequent to the filing of the Original Form 10-Q, the Company’s management, including the Company’s principal executive officer and principal financial officer, ~~or persons performing similar functions, have evaluated~~re-evaluated the Company’s disclosure controls and procedures as of the end of the period covered by this ~~report.~~report and determined that a material weakness existed in its internal control over financial reporting relating to the prior interpretation of GAAP that service revenues should be reported on a gross basis rather than a net basis. Based on such ~~evaluation,~~re-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 not effective as of the end of the period covered by this report.
During the most recent fiscal quarter, there ~~have been~~were 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. The Company is presently evaluating the appropriate procedures to remediate the material weakness in its internal control over financial reporting discussed above.

15
20

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 ~~have~~each 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 by~~decision 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. Briefing~~2017, which was granted in part and denied in part on May 10, 2018. Some New York Labor Law and contract claims remain in the ~~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 scheduled~~for 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 ~~submitted to the Court on November 16, 2017. Discovery is proceeding in this case.~~ re-filed at a later date.
21

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. Nonetheless, an adverse outcome in either case is at least reasonably possible. However, the Company is presently unable to reasonably estimate the amount or range of possible loss in either case. Therefore, no amount has been accrued as of September 30, 2022 related to these matters.

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.

16
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 repurchased~~The Company did not make any purchases pursuant to the stock repurchase program during the ~~nine months~~quarter ended September 30, ~~2017.~~
2022.

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.

17

Item 6.         Exhibits.

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

Exhibit No.
Description
3.1
Restated Certificate of Incorporation of Wilhelmina International, Inc. (incorporated by reference from Exhibit 3.1 to Form S-1/A, ~~dated~~filed January 30, 2012).
3.2 Certificate of Amendment of the Restated Certificate of Incorporation of Wilhelmina International, Inc. (incorporated by reference from Exhibit 3.1 to the Form 8-K, filed July 15, 2014).
3.3 Certificate of Amendment of the Restated Certificate of Incorporation of Wilhelmina International, Inc. (incorporated by reference from Exhibit 3.1 to Form 8-K filed July 12, 2017).
3.4 Amended and Restated Bylaws of Wilhelmina International, Inc. (incorporated by reference from Exhibit 3.2 to Form 8-K, filed May 24, 2011).
4.1 Form of Stock Certificate of Common Stock of Billing Concepts Corp. (incorporated by reference from Exhibit 4.1 to Form 10-Q, ~~dated March 31,~~filed May 15, 1998).
~~10.1~~ Eighth Amendment to Credit Agreement and waiver dated August 1, 2017, by and among Wilhelmina International, Inc., ZB, N.A. dba Amegy Bank and the guarantors signatory thereto (incorporated by reference from Exhibit 10.1 to Form 8-K filed August 4, 2017).
~~10.2~~ Ninth Amendment to Credit Agreement and Second Amendment to Line of Credit Note dated October 24, 2017, by and among Wilhelmina International, Inc., ZB, N.A. dba Amegy Bank and the guarantors signatory thereto.*
31.1 Certification of Principal Executive Officer in ~~Accordance~~accordance with Section 302 of the Sarbanes-Oxley Act. *
31.2
Certification of Principal Financial Officer in ~~Accordance~~accordance with Section 302 of the Sarbanes-Oxley Act. *
31.3
Certification of Principal Financial Officer in accordance with Section 302 of the Sarbanes-Oxley Act. **
31.4
Certification of Principal Financial Officer in accordance with Section 302 of the Sarbanes-Oxley Act. **
32.1
Certification of Principal Executive Officer in ~~Accordance~~accordance with Section 906 of the Sarbanes-Oxley Act. *
32.2
Certification of Principal Financial Officer in ~~Accordance~~accordance with Section 906 of the Sarbanes-Oxley Act. *
101.INS
Inline XBRL Instance Document ***
101.SCH
Inline XBRL Taxonomy Extension Schema ***
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase ***
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase ***
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase ***
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase ***
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
________________

* Filed with the Original Form 10-Q
** Filed herewith
* Filed herewith

18

SIGNATURES

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

WILHELMINA INTERNATIONAL, INC.

(Registrant)

Date:  December 20, 2022
By:
/s/ James A. McCarthy

~~Date:  November 9, 2017~~
~~By:~~
Name:
~~/s/~~
James A. McCarthy

~~Name:~~    ~~James A. McCarthy~~
Title:
Chief Financial Officer
~~(Principal Financial Officer)~~

19
24

	Common Shares		Stock Amount		Treasury Shares			Stock Amount			Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total
Balances at December 31, 2020		6,472	$	65		(1,315	)	$	(6,371	)	$	88,487	$	(65,756	)	$	81		$	16,506
Share based payment expense		-		-		-			-			3		-			-			3
Net income to common shareholders		-		-		-			-			-		2,221			-			2,221
Foreign currency translation		-		-		-			-			-		-			(19	)		(19	)
Balances at March 31, 2021		6,472	$	65		(1,315	)	$	(6,371	)	$	88,490	$	(63,535	)	$	62		$	18,711
Share based payment expense		-		-		-			-			1		-			-			1
Net income to common shareholders		-		-		-			-			-		1,121			-			1,121
Short-swing profit disgorgement		-		-		-			-			32		-			-			32
Foreign currency translation		-		-		-			-			-		-			16			16
Balances at June 30, 2021		6,472	$	65		(1,315	)	$	(6,371	)	$	88,523	$	(62,414	)	$	78		$	19,881
Share based payment expense		-		-		-			-			2		-			-			2
Net income to common shareholders		-		-		-			-			-		1,153			-			1,153
Foreign currency translation		-		-		-			-			-		-			(117	)		(117	)
Balances at September 30, 2021		6,472	$	65		(1,315	)	$	(6,371	)	$	88,525	$	(61,261	)	$	(39	)	$	20,919

	Common Shares		Stock Amount		Treasury Shares			Stock Amount			Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total
Balances at December 31, 2021		6,472	$	65		(1,315	)	$	(6,371	)	$	88,580	$	(61,238	)	$	(23	)	$	21,013
Share based payment expense		-		-		-			-			55		-			-			55
Net income to common shareholders		-		-		-			-			-		739			-			739
Foreign currency translation		-		-		-			-			-		-			(174	)		(174	)
Balances at March 31, 2022		6,472	$	65		(1,315	)	$	(6,371	)	$	88,635	$	(60,499	)	$	(197	)	$	21,633
Share based payment expense		-		-		-			-			55		-			-			55
Net income to common shareholders		-		-		-			-			-		921			-			921
Foreign currency translation		-		-		-			-			-		-			(338	)		(338	)
Balances at June 30, 2022		6,472	$	65		(1,315	)	$	(6,371	)	$	88,690	$	(59,578	)	$	(535	)	$	22,271
Share based payment expense		-		-		-			-			55		-			-			55
Net income to common shareholders		-		-		-			-			-		1,887			-			1,887
Foreign currency translation		-		-		-			-			-		-			(352	)		(352	)
Balances at September 30, 2022		6,472	$	65		(1,315	)	$	(6,371	)	$	88,745	$	(57,691	)	$	(887	)	$	23,861

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2022			2021
Cash flows from operating activities:
Net income:	$	(17	)	$	680		$	3,547		$	4,495
Adjustments to reconcile net income to net cash used in operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and depreciation		672			295			148			740
Share based payment expense		412			253			165			6
Gain on forgiveness of loan								-			(1,994	)
Gain on foreign exchange rates								(211	)		84
Deferred income taxes		(35	)		358			(1,063	)		537
Contingent liability to seller		(97	)		30
Bad debt expense		128			40			115			100
Changes in operating assets and liabilities:
Accounts receivable		276			(4,832	)		(2,123	)		(3,140	)
Prepaid expenses and other current assets		560			(199	)		(140	)		19
Right of use assets-operating								359			258
Other assets		49			108			(228	)		(5	)
Due to models		(3,242	)		2,585			1,086			1,420
Lease liabilities-operating								(337	)		(234	)
Deferred revenue								(535	)		-
Accounts payable and accrued liabilities		(865	)		1,017			455			456
Net cash (used in) provided by operating activities		(2,159	)		335
Net cash provided by operating activities								1,238			2,742

Cash flows from investing activities:
Purchases of property and equipment		(600	)		(1,118	)		(96	)		(16	)
Net cash used in investing activities		(600	)		(1,118	)		(96	)		(16	)

Cash flows from financing activities:
Purchases of treasury stock		-			(2,775	)
Proceeds from term loan		-			2,730
Shareholder short-swing profit disgorgement								-			32
Payments on finance leases								(45	)		(65	)
Repayment of term loan		(374	)		-			-			(743	)
Net cash used in financing activities		(374	)		(45	)		(45	)		(776	)

Foreign currency effect on cash flows:		85			(50	)		(819	)		(45	)

Net change in cash and cash equivalents:		(3,048	)		(878	)		278			1,905
Cash and cash equivalents, beginning of period		5,688			4,556			10,251			5,556
Cash and cash equivalents, end of period	$	2,640		$	3,678		$	10,529		$	7,461

Supplemental disclosures of cash flow information:
Cash paid for interest	$	74		$	21		$	-		$	23
Cash refund of income taxes	$	87		$	320
Cash paid for income taxes							$	16		$	12

Noncash investing and financing activities
Gain on forgiveness of loan							$	-		$	1,994

(in thousands)	As Previously Reported		Adjustments			As Restated

Consolidated Statements of Operations:
Three Months Ended September 30, 2022
Service revenues		16,256		(11,822	)		4,434
Total revenues		16,264		(11,822	)		4,442
Model costs		11,822		(11,822	)		-
Operating income		671		-			671
Income before provision for income taxes		776		-			776
Net income		1,887		-			1,887

Consolidated Statements of Operations:
Nine Months Ended September 30, 2022
Service revenues		50,490		(36,824	)		13,666
Total revenues		50,513		(36,824	)		13,689
Model costs		36,824		(36,824	)		-
Operating income		2,585		-			2,585
Income before provision for income taxes		2,789		-			2,789
Net income		3,547		-			3,547

Consolidated Statements of Operations:
Three Months Ended September 30, 2021
Service revenues		15,101		(10,736	)		4,365
Total revenues		15,109		(10,736	)		4,373
Model costs		10,736		(10,736	)		-
Operating income		1,018		-			1,018
Income before provision for income taxes		1,473		-			1,473
Net income		1,153		-			1,153

Consolidated Statements of Operations:
Nine Months Ended September 30, 2021
Service revenues		41,569		(29,787	)		11,782
Total revenues		41,595		(29,787	)		11,808
Model costs		29,787		(29,787	)		-
Operating income		2,009		-			2,009
Income before provision for income taxes		5,190		-			5,190
Net income		4,495		-			4,495

													Three Months Ended						Nine Months Ended
	Three Months Ended						Nine Months Ended						September 30,						September 30,
	September 30,						September 30,						2022			2021			2022			2021
	2017			2016			2017			2016			(As restated)			(As restated)			(As restated)			(As restated)
Revenues:
Revenues	$	18,712		$	20,880		$	56,120		$	64,512
License fees and other income		6			28			34			82
Service revenues													$	4,434		$	4,365		$	13,666		$	11,782
License fees														8			8			23			26
Total revenues		18,718			20,908			56,154			64,594			4,442			4,373			13,689			11,808

Model costs		13,265			14,888			39,910			45,952

Revenues net of model costs		5,453			6,020			16,244			18,642

Operating expenses:
Salaries and service costs		3,447			3,708			10,611			11,594			2,753			2,241			8,102			6,169
Office and general expenses		1,400			1,381			3,832			4,267			729			683			2,131			2,247
Amortization and depreciation		232			89			672			295			42			231			148			740
Corporate overhead		236			192			817			768			247			200			723			643
Total operating expenses		5,315			5,370			15,932			16,924			3,771			3,355			11,104			9,799
Operating income		138			650			312			1,718			671			1,018			2,585			2,009

Other income (expense):
Foreign exchange gain (loss)		(18	)		1			(54	)		8
Gain (loss) from unconsolidated affiliate		(2	)		5			(40	)		11
Other (income) expense:
Foreign exchange (gain) loss														(107	)		(4	)		(211	)		84
Gain on forgiveness of loan														-			-			-			(1,994	)
Employee retention payroll tax credit														-			(458	)		-			(1,320	)
Interest expense		(31	)		(21	)		(88	)		(21	)		2			7			7			49
Revaluation of contingent liability		-			(30	)		-			(30	)
Total other income (expense)		(51	)		(45	)		(182	)		(32	)
Total other income														(105	)		(455	)		(204	)		(3,181	)

Income before provision for income taxes		87			605			130			1,686			776			1,473			2,789			5,190

Provision for income taxes: (expense) benefit
(Provision) benefit for income taxes:
Current		(57	)		(281	)		(182	)		(648	)		(221	)		(48	)		(305	)		(158	)
Deferred		(4	)		(97	)		35			(358	)		1,332			(272	)		1,063			(537	)
Income tax (expense)		(61	)		(378	)		(147	)		(1,006	)
(Provision) benefit for income taxes, net														1,111			(320	)		758			(695	)

Net income (loss)	$	26		$	227		$	(17	)	$	680
Net income													$	1,887		$	1,153		$	3,547		$	4,495

Other comprehensive income (expense):
Foreign currency translation income (expense)		20			(12	)		85			(50	)
Other comprehensive loss:
Foreign currency translation adjustment														(352	)		(117	)		(864	)		(120	)
Total comprehensive income		46			215			68			630		$	1,535		$	1,036		$	2,683		$	4,375

Basic net income (loss) per common share	$	0.00		$	0.04		$	0.00		$	0.12
Diluted net income (loss) per common share	$	0.00		$	0.04		$	0.00		$	0.12
Basic net income per common share													$	0.37		$	0.22		$	0.69		$	0.87
Diluted net income per common share													$	0.37		$	0.22		$	0.69		$	0.87

Weighted average common shares outstanding-basic		5,382			5,586			5,382			5,716			5,157			5,157			5,157			5,157
Weighted average common shares outstanding-diluted		5,382			5,637			5,382			5,768			5,157			5,157			5,157			5,157

	Three Months Ended									Nine Months Ended
	September 30			September 30			% Change			September 30			September 30			% Change
	2022			2021			2022 vs 2021			2022			2021			2022 vs 2021
Service revenues		4,434			4,365			1.6	%		13,666			11,782			16.0	%
License fees and other income		8			8			-			23			26			(11.5	%)
TOTAL REVENUES		4,442			4,373			1.6	%		13,689			11,808			15.9	%

Salaries and service costs		2,753			2,241			22.8	%		8,102			6,169			31.3	%
Office and general expenses		729			683			6.7	%		2,131			2,247			(5.2	%)
Amortization and depreciation		42			231			(81.8	%)		148			740			(80.0	%)
Corporate overhead		247			200			23.5	%		723			643			12.4	%
OPERATING INCOME		671			1,018			(34.1	%)		2,585			2,009			28.7	%
OPERATING MARGIN		15.1	%		23.3	%					18.9	%		17.0	%
Foreign exchange (gain) loss		(107	)		(4	)		*			(211	)		84			*
Gain on forgiveness of loan		-			-			-			-			(1,994	)		(100.0	%)
Employee retention credit		-			(458	)		(100.0	%)		-			(1,320	)		(100.0	%)
Interest expense		2			7			(71.4	%)		7			49			(85.7	%)
INCOME BEFORE INCOME TAXES		776			1,473			(47.3	%)		2,789			5,190			(46.3	%)
Current income tax expense		(221	)		(48	)		360.4	%		(305	)		(158	)		(93.0	%)
Deferred tax expense		1,332			(272	)		*			1,063			(537	)		*
Effective tax rate		(143.2	%)		21.7	%					(27.2	%)		13.4	%
NET INCOME		1,887			1,153			63.7	%		3,547			4,495			(21.1	%)

Exhibit No.	Description

3.1	Restated Certificate of Incorporation of Wilhelmina International, Inc. (incorporated by reference from Exhibit 3.1 to Form S-1/A, ~~dated~~filed January 30, 2012).
3.2	Certificate of Amendment of the Restated Certificate of Incorporation of Wilhelmina International, Inc. (incorporated by reference from Exhibit 3.1 to the Form 8-K, filed July 15, 2014).
3.3	Certificate of Amendment of the Restated Certificate of Incorporation of Wilhelmina International, Inc. (incorporated by reference from Exhibit 3.1 to Form 8-K filed July 12, 2017).
3.4	Amended and Restated Bylaws of Wilhelmina International, Inc. (incorporated by reference from Exhibit 3.2 to Form 8-K, filed May 24, 2011).
4.1	Form of Stock Certificate of Common Stock of Billing Concepts Corp. (incorporated by reference from Exhibit 4.1 to Form 10-Q, ~~dated March 31,~~filed May 15, 1998).
~~10.1~~	Eighth Amendment to Credit Agreement and waiver dated August 1, 2017, by and among Wilhelmina International, Inc., ZB, N.A. dba Amegy Bank and the guarantors signatory thereto (incorporated by reference from Exhibit 10.1 to Form 8-K filed August 4, 2017).
~~10.2~~	Ninth Amendment to Credit Agreement and Second Amendment to Line of Credit Note dated October 24, 2017, by and among Wilhelmina International, Inc., ZB, N.A. dba Amegy Bank and the guarantors signatory thereto.*
31.1	Certification of Principal Executive Officer in ~~Accordance~~accordance with Section 302 of the Sarbanes-Oxley Act. *
31.2	Certification of Principal Financial Officer in ~~Accordance~~accordance with Section 302 of the Sarbanes-Oxley Act. *
31.3	Certification of Principal Financial Officer in accordance with Section 302 of the Sarbanes-Oxley Act. **
31.4	Certification of Principal Financial Officer in accordance with Section 302 of the Sarbanes-Oxley Act. **
32.1	Certification of Principal Executive Officer in ~~Accordance~~accordance with Section 906 of the Sarbanes-Oxley Act. *
32.2	Certification of Principal Financial Officer in ~~Accordance~~accordance with Section 906 of the Sarbanes-Oxley Act. *
101.INS	Inline XBRL Instance Document ***
101.SCH	Inline XBRL Taxonomy Extension Schema ***
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase ***
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase ***
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase ***
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase ***
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

	WILHELMINA INTERNATIONAL, INC.
	(Registrant)

Date: December 20, 2022	By:	/s/ James A. McCarthy
~~Date: November 9, 2017~~	~~By:~~ Name:	~~/s/~~ James A. McCarthy
	~~Name:~~	~~James A. McCarthy~~
	Title:	Chief Financial Officer ~~(Principal Financial Officer)~~