Note

Business

The 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, Chicago and London, as well as a network of licensees in various local markets in the U.S. and internationally. 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 clients, including retailers, designers, advertising agencies, print and electronic media and catalog companies.

COVID-

Pandemic

March 11, 2020,

the World Health Organization declared the outbreak of novel coronavirus (COVID-

) as a pandemic, which has spread rapidly throughout the United States and the world. The Company's revenues are heavily dependent on the level of economic activity in the United States and the United Kingdom, particularly in the fashion, advertising and publishing industries, all of which have been negatively impacted by the pandemic and

may

not

recover as quickly as other sectors of the economy. There have been mandates from federal, state, and local authorities requiring forced closures of non-essential businesses. As a result, beginning in

March 2020,

the Company has seen a significant reduction in customer bookings, resulting in a negative impact to revenue and earnings. During the

third

quarter of

2020,

bookings increased from the preceding months, but remained significantly below pre-pandemic levels.

In addition to reduced revenue, business operations have been adversely affected by reductions in productivity, limitations on the ability of customers to make timely payments, disruptions in talents' ability to travel to needed locations, and supply chain disruptions impeding clothing or footwear wardrobe from reaching destinations for photoshoots and other bookings. Many of the Company's customers are large retail and fashion companies, which have had to close stores in the United States and internationally due to orders from local authorities to help slow the spread of COVID-

19.

Some of these customers have filed for bankruptcy in

2020

and others

may

be unable to pay amounts already owed to the Company, resulting in increased future bad debt expense. These customers also

may

not

emerge from the pandemic with the financial ability, or need, to purchase Wilhelmina's services to the extent that they did in previous years. Some of our model talent have been quarantined with family far from the major cities where Wilhelmina's offices are located, and also away from where most modeling jobs take place. Many U.S. and international airlines have decreased their flight schedules which, as economic activities resumes and clients increase booking requests,

may

make it difficult for our talent to be available when and where they are needed. While these disruptions are currently expected to be temporary, there continues to be uncertainty around the duration.

Postponed and cancelled bookings related to the pandemic contributed significantly to reduced revenues and increased operating losses during the

first

nine

months of

2020.

Although some clients increased activity and bookings during the

third

quarter of

2020,

rising COVID-

infection rates in cities where Wilhelmina operates could lead to a slower economic recovery in those markets, and possible additional business closings or local mandates that could slow the recovery in our operations there. Since Wilhelmina extends customary payment terms to its clients, even as bookings resume, there is likely to be a lag before significant cash collections return. In the meantime, the Company continues to have significant employee, office rent, and other expenses.

Reduced outstanding accounts receivable available as collateral under the Company's credit agreement with Amegy Bank has limited access to additional financing. Net losses in recent periods have also impacted compliance with the financial covenants under the Amegy Bank credit agreement, further impeding the Company's ability to obtain additional financing. Since the pandemic began, many stock markets, including Nasdaq Capital Market where Wilhelmina's common stock is listed, have been volatile. A further decline in the Company's stock price would reduce our market capitalization and could require additional goodwill or intangible asset impairment writedowns.

The Company has taken the following actions to address the impact of COVID-

and the current recessionary environment, in order to efficiently manage the business and maintain adequate liquidity and maximum flexibility:

	-	In April 2020, obtained approximately $2.0 million in loans under the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (“SBA”).
	-	Eliminated discretionary travel and entertainment expenses.
	-	Suspended share repurchases.
	-	Did not renew the leases on three New York City model apartments when the terms ended in June and August, 2020.
	-	Suspended efforts to fill two highly compensated executive roles following the resignation of the Company's Chief Executive Officer and Vice President in early 2020.
	-	Obtained from the landlord of the Company's New York City office a deferral of $41 thousand in July 2020 rent until January 2021.
	-	Negotiated discounts with various vendors and service providers, in effect through the remainder of 2020.
	-	Effective July 1, 2020, implemented layoffs of approximately 36% of its staff, including employees at each of the Company's five offices, and effected temporary salary reductions for the remaining staff. The salary reductions are expected to return to full salaries when business conditions improve.

If the quarantines and limitations on non-essential work are re-implemented, or persist for an extended period, the Company

may

need to implement additional cost savings measures.