Wilhelmina’s primary business is fashion model management, which is headquartered in New York City.  The Company’s predecessor was founded in 1967 by Wilhelmina Cooper,Vesta Insurance Group, Inc., a renowned fashion model, and is oneholding company for a group of the oldest and largest fashion model management companies in the world.  Since its founding, Wilhelmina has grown to include operations located in Los Angeles and Miami, as well as a growing network of licensees comprising leading modeling agencies in various local markets across the U.S. as well as in Panama.  Wilhelmina provides traditional, full-service fashion model and talent management services, specializing in the representation and management of models, entertainers, artists, athletes and other talent to various customers and clients, including retailers, designers, advertising agencies and cataloginsurance companies.

The fashion model management industry is highly fragmented, with smaller, local talent management firms frequently competing with a small group of internationally operating talent management firms for client assignments.  New York City, Los Angeles and Miami, as well as Paris, Milan and London, are considered the most important markets for the fashion talent management industry.  Most of the leading international firms are headquartered in New York City, which is considered to be the “capital” of the global fashion industry.  Apart from Wilhelmina and Paris-based and publicly-listed Elite SA, all other fashion talent management firms are privately-held.  The business of talent management firms,issues such as Wilhelmina, is related to the state of the advertising industry, as demand for talent is driven by printcorporate governance, capital raising, capital allocation and TV advertising campaigns.

Contractionsgeneral operational and business strategy, and has been closely involved in the availabilityoperations of businesscompanies across a range of industries in both director and consumer credit, a decreaseexecutive capacities.  As our Chief Executive Officer, Mr. Schwarz is closely involved in consumer spending, a significant rise in unemploymentall of our operations and other factors have all led to increasingly volatile capital markets over the course of 2008 and 2009.  In early 2009, the financial services, automotive and other sectors of the global economy came under increased pressure, resulting in, among other consequences, extraordinarily difficult conditions in the capital and credit markets and a global economic recession that has negatively impacted Wilhelmina’s clients’ spending on the services that Wilhelmina provides.  In recent months, Wilhelmina has seen some improvement in its clients’ willingness to spend on the services it provides as evidenced by an increase in demand for models.activities.

Since 2007, Wilhelmina has seen an increasingly strong influx of talent, at both the new and seasoned talent levels, and it believes it is increasingly attractive as an employer for successful agents across the industry as evidenced by the quality of agents expressing an interest in joining Wilhelmina.  Similarly, new business and branding opportunities directly or indirectly relating to the fashion industry are being brought to Wilhelmina’s attention with increasing frequency.  In order to take advantage of these opportunities and support its continued growth, Wilhelmina will need to continue to successfully allocate resources and staffing in a way that enhances its ability to respond to these new opportunities.

On February 13, 2009, the Company closed the Wilhelmina Transaction and acquired the Wilhelmina Companies as discussed in further detail in Item 1 of this Form 10-K.  As of the closing of the Wilhelmina Transaction, the business of Wilhelmina represents the Company’s primary operating business.  Prior to closing of the Wilhelmina Transaction, the Company’s interest in Ascendant, acquired on October 5, 2005, represented the Company’s sole operating business.

The Company entered into the Ascendant Agreement with Ascendant to acquire an interest in the revenues generated by Ascendant.  Pursuant to the Ascendant Agreement, the Company is entitled to a 50% interest, subject to certain adjustments, in the revenues of Ascendant, which interest declines if the assets under management of Ascendant reach certain levels.  The Company also agreed to provide various marketing services to Ascendant.  The total potential purchase price of $1,550,000 under the terms of the Ascendant Agreement was payable in four installments.  On April 5, 2006, the Company elected not to make the final two installment payments.  The Company believed that it was not required to make the payments because Ascendant did not satisfy all of the conditions in the Ascendant Agreement.

The Company analyzes revenue by reviewing the mix of revenues generated by the different “boards” (each a specific division of the fashion model management operations which specializes by the type of model it represents (Women, Men, Sophisticated, Runway, Curve, Lifestyle, Kids, etc.)) of the business, revenues by geographic locations and revenues from significant clients.  WilhelminaMr. Roddey has three primary sources of revenue: revenues from principal relationships whereby the gross amount billed to the client is recorded as revenue, when the revenues are earned and collectability is reasonably assured; revenues from agent relationships whereby the commissions paid by modelsserved as a percentagedirector since January 2011.  He has served as Principal of their gross earnings are recorded as revenue when earnedMcCrory & McDowell LLC, a provider of financial, business and collectability is reasonably assured;management consulting services, since September 2007.  Mr. Roddey was a Partner at the Hawthorne Group, an investment and a separate service charge, paid by clients in additionmanagement company, from January 2004 to the booking fees, is calculated as a percentage of the models’ booking fees and is recorded as revenues when earned and collectability is reasonably assured. See Critical Accounting Policies - Revenue Recognition.  Gross billings are an important business metric that ultimately drives revenues, profits and cash flows.

Because Wilhelmina provides professional services, salary and service costs represent the largest part of the Company’s operating expenses.  Salary and service costs are comprised of payroll and related costs and travel costs requiredSeptember 2007 (and previously from 1978 to deliver the Company’s services and to enable new business development activities.

2000).  Prior to the closingHawthorne Group, from January 2000 to January 2004, Mr. Roddey served as the Chief Executive of Allegheny County, Pennsylvania.  Mr. Roddey was a director of SEEC, Inc., a software provider for the insurance and financial services industry, from August 2005 to November 2008.  Earlier in his career, Mr. Roddey served as President and a director of Turner Communications, Inc. and Rollins Communication, Inc. and, while associated with the Hawthorne Group, President and Chief Executive Officer of Pittsburgh Outdoor Advertising, Gateway Outdoor Advertising and International Sports Marketing, among other companies.

Revenues totaled approximately $31,741,000Company.  Messrs. Esch and $0 for the years ended December 31, 2009 and 2008, respectively.  The Company completed the Wilhelmina Transaction on February 13, 2009 and, therefore, recorded revenues of the Wilhelmina Companies for the period from February 13, 2009 through December 31, 2009, in its statements of operations for the year ended December 31, 2009.

The Company has an agreement with an unconsolidated affiliate to provide management and administrative services,Krassner later designated themselves as well as sharing of space.  For the year ended December 31, 2009, management fee income from the unconsolidated affiliate amounted to approximately $101,000 compared to $0 for the year ended December 31, 2008.

Other income includes: mother agency fees that are paidtheir respective designees pursuant to the Company by another agency whenMutual Support Agreement.  On February 4, 2010, the other agency books a model under contract withBoard appointed Messrs. Esch and Krassner to serve as directors.

Model costs consist of costs associated with relationships with models where the key indicators suggest that the Company acts as a principal.  Therefore, the Company records the gross amount billedmeeting pursuant to which directors are to be elected to the client as revenue whenBoard, and (c) to vote against and not to propose the revenues are earned and collectability is reasonably assured, and the related costs incurred to the model as model cost.  Model costs approximated $22,372,000 and $0removal of either Independent Designee unless both parties vote for the years ended December 31, 2009 and 2008, respectively.  The Company completed the Wilhelmina Transaction on February 13, 2009 and, therefore, recorded model costs of the Wilhelmina Companies for the period from February 13, 2009 through December 31, 2009, in its statements of operations for the year ended December 31, 2009.such removal.

Operating expenses consist of costs that support the operationsFor purposes of the MSA Amendment, (a) a “Qualifying Unaffiliated Individual” generally means an individual that (i) meets the director independence standards of The NASDAQ Stock Market LLC (“Nasdaq”), (ii) is not an affiliate of the parties or the Company including payroll, rent, overhead, insurance, travel, professionalor a holder of 5% or more of any class of equity interests in the parties or any of their affiliates (other than the Company) and (iii) has or maintains no Economic Relationship (as defined below) with any of the parties, the Company or any affiliate thereof, (b) an individual is generally considered to have an “Economic Relationship” with another person if such individual (or any affiliate thereof) receives (or has received in the prior five years) a material direct financial benefit from such other person (e.g., material salary or fees, amortizationmaterial contractual payments under a commercial contract, equity or debt investment proceeds, etc.), (c) an “Enhanced QUI” generally means an individual that (i) meets the Qualifying Unaffiliated Individual standard and, depreciation, asset impairment charges, acquisition transaction costs and corporate overhead.  Operating expenses approximated $12,710,000 and $357,000in addition, (ii) is not a Close Long Time Personal Friend (as defined below) of the party pre-approving such individual, (d) a “Close Long Time Personal Friend” of a pre-approving party generally means an individual who has had Meaningful Social Contact (as defined below) on at least a monthly basis for the years ended December 31, 2009 and 2008, respectively.  All operating costs except corporate overhead expenses are attributableat least ten months out of every year starting 1990 or earlier up to the Wilhelmina Companiespresent with Messrs. Krassner or Esch (if Messrs. Krassner and Esch are discussed below.  The Company completed the Wilhelmina Transactionpre-approving parties) or with Messrs. Schwarz, Murray or Stone (if Newcastle is the pre-approving party), and (e) “Meaningful Social Contact” generally means in-person, pre-arranged (between the relevant principals and the Close Long Time Personal Friend) social contact that is one-on-one or involves a group of no more than 10 people and which (i) focuses principally on February 13, 2009non-professional and therefore, recorded operating expensesnon-business related topics and (ii) occurs in a non-professional setting (e.g., residential setting, restaurant, etc.); provided that, without limitation, (A) any spontaneous contact (e.g., “running into” each other) in any location (whether or not occurring with frequency) and (B) contact occurring in larger group social setting or event not organized by a relevant principal or the Close Long Time Personal Friend or spouse of the Wilhelmina Companies for the period from February 13, 2009 through December 31, 2009, in its statementseither or Close Long Time Personal Friend of operations for the year ended December 31, 2009.both (e.g., a party at a third party’s home or club, a class, football game, concert, etc.) are expressly excluded as “Meaningful Social Contact.”

Salaries and service costs consist of payroll and related costs and travel costs required to deliver the Company’s servicesPursuant to the customers and models.  Salaries and service costs approximated $6,505,000 and $0 forMSA Amendment, the years ended December 31, 2009 and 2008, respectively.  The Company completed the Wilhelmina Transaction on February 13, 2009 and, therefore, recorded salaries and service costs of the Wilhelmina Companies for the period from February 13, 2009 through December 31, 2009, in its statements of operations for the year ended December 31, 2009.

Office and general expenses consist of office and equipment rents, advertising and promotion, insurance expenses, administration and technology cost.  These costs are less directly linkedparties agreed to changes in the Wilhelmina Companies’ revenues than are salaries and service costs.  During the year ended December 31, 2009, general expenses approximated $2,408,000, compared to $0 for the year ended December 31, 2008.  The Company completed the Wilhelmina Transaction on February 13, 2009 and, therefore, recorded office and general expenses of the Wilhelmina Companies for the period from February 13, 2009 through December 31, 2009, in its statements of operations for the year ended December 31, 2009.

Depreciation and amortization expense is incurredan annual selection process with respect to certain assets, including computer hardware, software, office equipment, furniture,the Independent Designees.  Under the MSA Amendment, a list of pre-approved nominees meeting the applicable standards (a) was required to be delivered to the other party (i) with respect to the last Annual Meeting of Stockholders held in January 2011 (the “Prior Annual Meeting”), no later than the date that was one week from the date of execution of the MSA Amendment and (ii) with respect to the next Annual Meeting of Stockholders in 2011, no later than February 15, 2011, and (b) is required to be delivered to the other intangibles.  Duringparty with respect to each Annual Meeting of Stockholders thereafter, no later than the year ended December 31, 2009, depreciation and amortization expense approximated $1,708,000 (of which $1,624,000 relatesdate that is 75 calendar days prior to amortizationthe mailing date of intangibles acquired in connection with the Wilhelmina Transaction), compared to $0proxy statement for the year ended December 31, 2008.  Fixed asset purchases totaled approximately $43,000 and $0 during the years ended December 31, 2009 and 2008, respectively.

Corporate overhead expenses include public company costs, director and executive officer compensation, compensation and consulting fees to Esch, directors’ and officers’ insurance, legal and professional fees, corporate office rent and travel.  Corporate overhead approximated $1,286,000 and $357,000prior year’s annual meeting.  The MSA Amendment also contains procedures for the years ended December 31, 2009 and 2008, respectively.  The increasere-nomination of Independent Designees who were previously appointed or elected to the Board in corporate overhead is the result of compensation and consulting fees to Esch, officer compensation (see Expense Trends discussion above) for executive officers who filled the roles of chief executive officer, chief financial officer and general counsellieu of the Company followingannual selection process.  On December 9, 2010, the Wilhelmina Transactionparties agreed by mutual consent to delay the selection date for the Independent Designees for the Prior Annual Meeting to December 21, 2010.

The Company’s primary liquidity needs are for financing working capital associatedin connection with the expenses it incurs in performing services under its client contracts.  Generally, the Company incurs significant operating expenses with payment terms shorter than its average collections on billings.  During the year ended December 31, 2009, the Company had in place a credit facility with Signature Bank (the “Credit Facility”), which included a term loan with a balance upon the occurrence of approximately $26,000 asspecified events including, but not limited to, written notification by Signature Bank to Wilhelmina Ltd. of December 31, 2009, whichthe termination or acceleration of the Credit Facility.  Any amount remaining was repaid in full together with accrued interest on January 4, 2010, and a revolving linerequired to be released to Mr. Esch upon the replacement or extension of credit with a balance of $250,000 as of December 31, 2009.  The revolving line under the Credit Facility, expired on January 31, 2009, was subsequently extended, and expired on July 15, 2009.  On August 21, 2009,subject to certain requirements set forth in the Company entered intoEsch Letter Agreement.  The Esch Letter Agreement also provided that in the event any portion of the proceeds is paid from escrow to Signature Bank, we will promptly issue to Mr. Esch, in replacement thereof, a modification and extension agreement withpromissory note in the bank that extendedprincipal amount of the maturity dateamount paid to October 5, 2009.Signature Bank.

The delivery of the Demand Letter requesting mandatory repayment of principal under the Credit Facility triggered a “Bank Payoff Event” under the Esch Letter Agreement which is described in further detail in Item 1 of this Form 10-K.Agreement.  Accordingly, in accordance withpursuant to the terms of the Esch Letter Agreement, the aggregate amount of $1,750,000 that was held in escrow was released and paid to Signature Bank (the “Escrow Payoff”).  As a result of the Escrow Payoff, as of December 30, 2009, a principal sum of $250,000 plus accrued interest of approximately $19,000 remained owing to Signature Bank under the Credit Facility.  The remaining principal and accrued interest was repaid to Signature Bank in January 2010 pursuant to the Demand Letter.

The Esch Letter Agreement provided that in the event of the payment of funds from escrow to Signature Bank, the Company was required to promptly issue to Esch, in replacement of the funds held in escrow, a promissory note in the principal amount of the amount paid to Signature Bank.  Accordingly, on December 31, 2009, the Company issued to Mr. Esch a promissory note in the principal amount of $1,750,000 (the “Esch Note”).  Interest is payable in arrears on a monthly basis.  For the calendar year 2010, interest on the outstanding principal balance of the Esch Note accruesaccrued at the “Weighted Average Loan Document Rate” (as defined below) and is payable in arrears on a monthly basis., which equaled approximately 3.83%.  The “Weighted Average Loan Document Rate” iswas calculated using a weighted average formula based on the rates applicable to the principal amounts outstanding for each of the two components of the Credit Facility - revolver ($2,000,000 principal outstanding at December 30, 2009 at a rate of prime plus 0.5%) and term loan ($26,000 principal outstanding at December 30, 2009 at a rate of 6.65%) - prior to release of the escrow.   Therefore, as of December 31, 2009, the effective interest rate of the Esch Note is prime plus approximately 0.58%, or approximately 3.83%.  Principal under the Esch Note shallwas to be repaid in quarterly installments of $250,000 until the Esch Note is paid.  Thepaid in full, with outstanding principal balance of the Esch Note, together with all accrued, but unpaid interest thereon, is due and payable on December 31, 2010.

At December 31, 2009 were pre-approved by the Company had $180,000Audit Committee.  In connection with the audit of restricted cash that serves as collateralour financial statements for an irrevocable standby letter of credit.  The letter of credit serves as additional security under the lease extension relating to the Company’s office space in New York City that expires infiscal year ended December 2010.

Wilhelmina and its subsidiaries also record fees from licensees when the revenues are earned and collectabilitybelieves that it is reasonably assured.compatible.