UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION





Washington,
D.C. 20549


_______________





FORM
10-K


(Mark
One)


ý
            ANNUAL REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE
SECURITIES


EXCHANGE
      ACT OF 1934


For
      the Fiscal Year ended December 31,
2008





 ̈
            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 0-28536


_______________





WILHELMINA
INTERNATIONAL, INC.


(Exact
name of registrant as specified in its charter)





Delaware
                      
                      74-2781950(State
      or other jurisdiction of
                        incorporation
      or organization)
                      
                      (IRS
      Employer
                        Identification
      Number)200
      Crescent Court, Suite 1400, Dallas, Texas
                      
                      75201(Address
      of principal executive offices)
                      
                      (Zip
      Code)





(214)
661-7488


(Registrant’s
telephone number, including area code)





Securities
Registered Pursuant to Section 12(b) of the Act:  None





Securities
Registered Pursuant to Section 12(g) of the Act:


Common
Stock, Par Value $0.01 Per Share


Series
A Junior Participating Preferred Stock Purchase Rights


(Title of
Class)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.    ̈
Yes   ý No




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.    ̈
Yes   ý No




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.   ý
Yes    ̈ No









Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ý




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




Large
      Accelerated Filer   ̈
            Accelerated
      Filer   ̈Non-Accelerated
      Filer   ̈
            Smaller
      Reporting Company  ý





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).    ̈
Yes   ý No




The
aggregate market value of the registrant’s outstanding Common Stock held by
non-affiliates of the registrant computed by reference to the price at which the
Common Stock was last sold as of the last business day of the registrant’s most
recently completed second fiscal quarter was $5,865,527.




As of
April 14, 2009, the registrant had 129,440,752 shares of Common Stock
outstanding.




DOCUMENTS
INCORPORATED BY REFERENCE




Items 10,
11, 12, 13 and 14 of Part III of this Form 10-K incorporate by reference
portions of an amendment to this Form 10-K or portions of a definitive proxy
statement of the registrant for its 2009 Annual Meeting of Shareholders to be
held on a date to be determined, which in either case will be filed with the
Securities and Exchange Commission within 120 days after the end of the fiscal
year ended December 31, 2008.









WILHELMINA
INTERNATIONAL, INC. AND SUBSIDIARIES




Annual
Report on Form 10-K




For
the Year Ended December 31, 2008




PAGEPART IItem 1.
                        Business
                        1Item 1A.
                        Risk Factors
                        13Item 1B.
                        Unresolved Staff Comments
                        13Item 2.
                        Properties
                        13Item 3.
                        Legal Proceedings
                        14Item 4.
                        Submission of Matters to a Vote of Security
      Holders
                        14PART IIItem 5.
                        Market for Registrant’s Common Equity, Related Shareholder
      Matters and Issuer Purchases of Equity Securities
                        14Item 6.
                        Selected Financial Data
                        16Item 7.
                        Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
                        16Item 7A.
                        Quantitative and Qualitative Disclosures About Market
      Risk
                        30Item 8.
                        Financial Statements and Supplementary
    Data
                        30Item 9.
                        Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure
                        48Item 9A.
                        Controls and Procedures
                        48Item 9B.
                        Other Information
                        49PART IIIItem 10.
                        Directors, Executive Officers and Corporate
      Governance
                        49Item 11.
                        Executive Compensation
                        49Item 12.
                        Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
                        50Item 13.
                        Certain Relationships and Related Transactions, and
      Director Independence
                        50Item 14.
                        Principal Accountant Fees and Services
                        50PART IVItem 15.
                        Exhibits and Financial Statement
    Schedules
                        50Signatures
                        
                        54




i
 INDEX




PART I




ITEM
1.                      BUSINESS




This
Annual Report on Form 10-K contains certain “forward-looking” statements as such
term is defined in the Private Securities Litigation Reform Act of 1995 and
information relating to the Company and its subsidiaries that are based on the
beliefs of the Company’s management as well as assumptions made by and
information currently available to the Company’s management.  When
used in this report, the words “anticipate”, “believe”, “estimate”, “expect” and
“intend” and words or phrases of similar import, as they relate to the Company
or its subsidiaries or Company management, are intended to identify
forward-looking statements.  Such statements reflect the current
risks, uncertainties and assumptions related to certain factors including,
without limitation, the Company’s success in integrating the operations of the
Wilhelmina Companies (as defined below) in a timely manner, or at all, the
Company’s ability to realize the anticipated benefits of the Wilhelmina
Companies to the extent, or in the timeframe, anticipated, 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 Securities and Exchange Commission (“SEC”).  Based
upon changing conditions, 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
intend to update these forward-looking statements.




INTRODUCTION




Historical
Overview and Recent Developments




Pre-Wilhelmina




Wilhelmina
International, Inc. (the “Company”), formerly known as New Century Equity Holdings Corp.
(“NCEH”) andBilling Concepts Corp. (“BCC”), was incorporated in the
state of Delaware in 1996.  BCC was previously a wholly owned
subsidiary of U.S. Long Distance Corp. (“USLD”) and principally provided
third-party billing clearinghouse and information management services to the
telecommunications industry (the “Transaction Processing and Software
Business”).  Upon its spin-off from USLD, BCC became an independent,
publicly held company.  In October 2000, the Company completed the
sale of several wholly owned subsidiaries that comprised the Transaction
Processing and Software Business to Platinum Holdings (“Platinum”) for
consideration of $49,700,000 (the “Platinum Transaction”).  The
Company also received payments totaling $7,500,000 for consulting services
provided to Platinum over the twenty-four month period subsequent to the
Platinum Transaction.




Beginning
in 1998, the Company made multiple investments in Princeton eCom Corporation
(“Princeton”) totaling approximately $77,300,000 before selling all of its
interest for $10,000,000 in June 2004.  The Company’s strategy,
beginning with its investment in Princeton, of making investments in high-growth
companies was also facilitated through several other investments.




In early
2004, the Company announced that it would seek shareholder approval to liquidate
the Company.  In June of 2004, the Board of Directors of the Company
determined that it would be in the best interest of the Company to accept an
investment from Newcastle Partners, L.P. (“Newcastle”), an investment fund with
a long track record of investing in public and private companies.  On
June 18, 2004, the Company sold 4,807,692 newly issued shares of its Series A 4%
Convertible Preferred Stock (the “Series A Preferred Stock”) to Newcastle for
$5,000,000 (the “Newcastle Transaction”).  The Series A Preferred
Stock was convertible into approximately thirty-five percent of the Company’s
common stock, par value $0.01 per share (the “Common Stock”), at any time after
the expiration of twelve months from the date of its issuance at a conversion
price of $0.26 per share of Common Stock, subject to adjustment for
dilution.  The holders of the Series A Preferred Stock were entitled
to a four percent annual cash dividend (the “Preferred
Dividends”).  Following the investment by Newcastle, the management
team resigned and new executives and board members were appointed.  On
July 3, 2006, Newcastle converted its Series A Preferred Stock into 19,230,768
shares of Common Stock.




1
 INDEX




The
Wilhelmina Acquisition




On August
25, 2008, the Company (formerly known as NCEH) and Wilhelmina Acquisition Corp.,
a New York corporation and wholly owned subsidiary of the Company (“Wilhelmina
Acquisition”), entered into an agreement (the “Acquisition Agreement”) with
Dieter Esch (“Esch”), Lorex Investments AG, a Swiss corporation (“Lorex”), Brad
Krassner (“Krassner”), Krassner Family Investments, L.P. (“Krassner L.P.” and
together with Esch, Lorex and Krassner, the “Control Sellers”), Wilhelmina
International, Ltd., a New York corporation (“Wilhelmina International”),
Wilhelmina – Miami, Inc., a Florida corporation (“Wilhelmina Miami”), Wilhelmina
Artist Management LLC, a New York limited liability company (“WAM”), Wilhelmina
Licensing LLC, a Delaware limited liability company (“Wilhelmina Licensing”),
and Wilhelmina Film & TV Productions LLC, a New York limited liability
company (“Wilhelmina TV” and together with Wilhelmina International, Wilhelmina
Miami, WAM and Wilhelmina Licensing, the “Wilhelmina Companies”), Sean
Patterson, an executive with the Wilhelmina Companies (“Patterson”), and the
shareholders of Wilhelmina Miami (the “Miami Holders” and together with the
Control Sellers and Patterson, the “Sellers”).  Pursuant to the
Acquisition Agreement, which closed February 13, 2009, the Company acquired the
Wilhelmina Companies subject to the terms and conditions thereof (the
“Wilhelmina Transaction”).  The Acquisition Agreement provided for (i)
the merger of Wilhelmina Acquisition with and into Wilhelmina International in a
stock-for-stock transaction, as a result of which Wilhelmina International
became a wholly owned subsidiary of the Company (the “Merger”) and (ii) the
Company purchased the outstanding equity interests of the other Wilhelmina
Companies for cash.




At the
closing, on February 13, 2009, the Company paid an aggregate purchase price of
$22,431,721 in connection therewith, of which $16,431,721 was paid for the
outstanding equity interests of the Wilhelmina Companies and $6,000,000 in cash
repaid the outstanding balance of a note held by a Control
Seller.  The purchase price included $7,609,336 (63,411,131 shares) of
Common Stock of the Company, valued at $0.12 per share (representing the closing
price of the Company’s Common Stock on February 13, 2009) that was issued in
connection with the merger of Wilhelmina Acquisition with and into Wilhelmina
International.  The remaining $8,822,385 of cash was paid to acquire
the equity interests of the remaining Wilhelmina Companies.




The
purchase price is subject to certain post-closing adjustments, which may be
effected against a total of 19,229,746 shares of Common Stock (valued at
$2,307,570 at February 13, 2009) that are being held in escrow pursuant to the
Acquisition Agreement.  The $22,431,721 paid at closing, less the
19,229,746 shares of Common Stock held in escrow in respect of the purchase
price adjustment, provides for a floor purchase price of $20,124,151 (which
amount may be further reduced in connection with certain indemnification
matters).  The shares of Common Stock held in escrow may be
repurchased by the Company for a nominal amount, subject to certain earnouts and
offsets.


2
 INDEX




Upon the
closing of the Wilhelmina Transaction, the Control Sellers and Patterson
obtained certain demand and piggyback registration rights pursuant to a
registration rights agreement with respect to the Common Stock issued to them
under the Acquisition Agreement.  The registration rights agreement
contains certain indemnification provisions for the benefit of the Company and
the registration rights holders, as well as certain other customary
provisions.




The
shares of Common Stock held in escrow support earnout offsets and
indemnification obligations of the Sellers.  The Sellers will be
required to leave in escrow, through 2011, any stock “earned” following
resolution of “core” adjustment, up to a total value of
$1,000,000.  Losses at WAM and Wilhelmina Miami, respectively, can be
offset against any positive earnout with respect to the other Wilhelmina
company.  Losses in excess of earnout amounts could also result in the
repurchase of the remaining shares of Common Stock held in escrow for a nominal
amount.  Working capital deficiencies may also reduce positive earnout
amounts.  The earnouts are payable in 2012.


Newcastle
Financing Agreement




Concurrently
with the execution of the Acquisition Agreement, the Company entered into a
purchase agreement (the “Equity Financing Agreement”) with Newcastle, which at
that time owned 19,380,768 shares or approximately 36% of the Company’s
outstanding Common Stock, for the purpose of obtaining financing to complete the
transactions contemplated by the Acquisition Agreement.  Pursuant to
the Equity Financing Agreement, upon the closing of the Wilhelmina Transaction,
the Company sold to Newcastle $3,000,000 (12,145,749 shares) of Common Stock at
$0.247 per share, or approximately (but slightly higher than) the per share
price applicable to the Common Stock issuable under the Acquisition
Agreement.  As a result, Newcastle now owns 31,526,517 shares of
Common Stock or approximately 24% of the Company’s outstanding Common
Stock.  In addition, under the Equity Financing Agreement, Newcastle
committed to purchase, at the Company’s election at any time or times prior to
six months following the closing, up to an additional $2,000,000 (8,097,166
shares) of Common Stock on the same terms.  Upon the closing of the
Equity Financing Agreement, Newcastle obtained certain demand and piggyback
registration rights with respect to the Common Stock it holds, including the
Common Stock issuable under the Equity Financing Agreement.  The
registration rights agreement contains certain indemnification provisions for
the benefit of the Company and Newcastle, as well as certain other customary
provisions.




DESCRIPTION
OF THE WILHELMINA COMPANIES




Overview




With the
closing of the Wilhelmina Transaction, the business of the Wilhelmina Companies
(also referred to in this description as Wilhelmina) represented the primary
operating business of the Company. The Wilhelmina Companies provide 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 catalog companies.




Wilhelmina’s
primary business is fashion model management, which activity is headquartered in
New York City.  Wilhelmina was founded in 1967 by Wilhelmina Cooper, a
renowned fashion model, and is one 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, 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 had been a privately
held company until its acquisition by the Company.




3
 INDEX




The
Wilhelmina Companies also include New York City-based entities focused on
business areas complimentary to Wilhelmina’s fashion model and talent management
business.  Wilhelmina Artist Management LLC (“WAM”), a New York
corporation founded in 1998, is a talent management company that seeks to secure
endorsement and spokesperson work for various high-profile talent from the
worlds of sports, music and entertainment.  Wilhelmina Licensing LLC
(“Wilhelmina Licensing”), a Delaware company founded in 1999, oversees the
licensing of the “Wilhelmina” name, mainly to local modeling agencies across the
U.S.  Wilhelmina Film & TV Production, LLC (“Wilhelmina TV”), a
Delaware company founded in 2004, holds certain rights to and managed aspects of
the production of certain reality television shows such as “The Agency” (2007)
and “She’s Got the Look” (2008) that seek to capitalize on the “Wilhelmina”
brand.




Organizational
Structure




Wilhelmina
International has three wholly owned subsidiaries:  Wilhelmina West,
Inc. (“Wilhelmina West”), LW1, Inc. (“LW1”) and Wilhelmina Models, Inc.
(“Wilhelmina Models”).  Wilhelmina West is a full-service fashion
model agency based in Los Angeles.  LW1, also based in Los Angeles,
offers some models the opportunity to be showcased on TV and film through its
membership in the Screen Actors Guild.  Wilhelmina Models, based in
New York City, holds certain contractual rights related to the business of
Wilhelmina International.  Wilhelmina International also owns a
non-consolidated 50% interest in Wilhelmina Kids & Creative Management LLC,
a New York City-based modeling agency that specializes in representing child
models, from newborns to children 14 years of age.  Collectively,
these businesses represent the Wilhelmina Companies’ model management
business.  Operating on the same entity level as Wilhelmina
International are Wilhelmina Miami (a licensee of the “Wilhelmina” name), WAM,
Wilhelmina TV and Wilhelmina Licensing, which represent the Wilhelmina
Companies’ other business ventures complimentary to Wilhelmina’s fashion model
management business.




Industry
Overview




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 Paris-based and publicly-listed
Elite SA, all fashion talent management firms are privately-held.




The
fashion model management industry can be divided into many subcategories,
including advertising campaigns as well as catalog, runway and editorial
work.  Advertising work involves modeling for advertisements featuring
consumer products such as cosmetics, clothing and other items, to be placed in
magazines, in newspapers, on billboards and with other types of
media.  Catalog work involves modeling for promotional catalogs that
are produced throughout the year.  Runway work involves modeling at
fashion shows, which primarily take place in Paris, Milan, London and New York
City.  Editorial work involves modeling for the cover and editorial
section of magazines.




Economic
Environment




The
business of talent management firms such as Wilhelmina is related to the state
of the advertising industry, as demand for talent is driven by print and TV
advertising campaigns for consumer goods and retail
clients.  Contractions in the availability of business and consumer
credit, a decrease in consumer spending, a significant rise in unemployment and
other factors have all led to increasingly volatile capital markets over the
course of 2008. During recent months, the financial services, automotive and
other sectors of the global economy have come 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 the
Wilhelmina Companies provide.




4
 INDEX




Wilhelmina
has a large and diverse client base as discussed below. Although Wilhelmina has
a large and diverse client base, it is not immune to global economic conditions.
Wilhelmina has less visibility than historically with regards to clients
spending plans in the near term. Continued economic uncertainty and reductions
in consumer spending may result in further reductions in client spending levels
that could adversely affect Wilhelmina’s results of operations and financial
condition. Wilhelmina intends to continue to closely monitor economic
conditions, client spending and other factors, and in response, will take
actions available to reduce costs, manage working capital and conserve cash. In
the current economic environment, there can be no assurance as to the effects on
Wilhelmina of future economic circumstances, client spending patterns, client
credit worthiness and other developments and whether, or to what extent,
Wilhelmina’s efforts to respond to them will be effective.




With total
advertising expenditures on major media (newspapers, magazines, television,
cinema, outdoor and internet) amounting to approximately $182 billion in 2008,
North America is by far the world’s largest advertising
market.  Forecasts by ZenithOptimedia1,
a recognized media services group, predict that year-on-year negative growth in
North America will amount to minus 6.2% (2009 versus 2008) and 2.1% (2010 versus
2009) and 2.8% (2011 versus 2010), for total ad expenditures of $180 billion
forecast for 2011.  According to ZenithOptimedia1,in 2008 global ad expenditures were split among the following
media:  Television (38.0%), Newspapers (25.4%), Magazines (11.5%),
internet (10.3%), Radio (7.6%), Outdoor (6.7%), and Cinema
(0.5%).  For the fashion talent management industry, including
Wilhelmina, advertising expenditures on magazines, television and outdoor are of
particular relevance, with internet advertising becoming increasingly
important.
  Talent
Management Business




The
talent management industry is focused on providing fashion modeling and
celebrity product-endorsement services to clients such as ad agencies, branded
consumer goods companies, fashion designers, magazines, retailers and department
stores, product catalogs and internet sites.




Clients pay talent for
their appearance in photo shoots for magazine features, print advertising,
direct mail marketing, product catalogs and internet sites, as well as for their
appearance in runway shows to present new designer collections, fit
modeling, and on-location presentations and event appearances.  In
addition, talent may also appear in film and TV commercials.




Talent
management firms develop and diversify their talent portfolio through a
combination of ongoing local, regional or international scouting and
talent-search efforts to source new talent, and cooperate with other agencies
that represent talent, but lack specific booking opportunities for such
talent.  Depending on the individual talent agency, talent may either
be represented by the firm or a specialized “board” within the firm, or by
individual talent managers or bookers.  Depending on the breadth of
their service, talent management firms may in effect manage the entire modeling
career of the individual talent they represent.  Talent management
firms typically represent talent on an exclusive basis for periods of up to
three years, subject to renewals.  Similarly, employment agreements
with individual booking agents typically include non-compete
clauses.




When
seeking to hire talent services, clients will typically directly contact
individual talent managers at a select number of talent management firms
(pre-selected on the basis of specific talent represented by the firms or the
firms’ reputation and depth of its talent portfolio), describe the client’s
specific requirements and invite the talent management firm to make a certain
talent available for an “audition” for a photo shoot or
appearance.  The booking agent will negotiate pricing for the talent
and will prepare the talent for the audition.  If the talent succeeds
at the audition and is selected for the project, the booker will handle and
coordinate all scheduling and client requirements, and invoice the client on the
basis of the agreed fees specified in the voucher the talent returns to the firm
upon completion of the project.




1 Source:  “No growth
in global ad spend in 2009” Press Release, December 8, 2008, ZenithOptimedia
Group Limited.




5
 INDEX




In
exchange for their services, talent management firms charge their talent a
commission, representing a percentage of the amount billed to the
client.  The amount talent firms can charge clients for the talent’s
services depends on the talent’s reputation and success in the marketplace, and
his or her corresponding negotiating position with the firm.  In
addition, the talent management firms charge a service charge to the
clients.  This charge is typically negotiated and amounts to a
percentage of the talent’s services and is paid by the client in addition to the
amount paid for the talent’s services.




Competition




Wilhelmina’s
principal competitors in the U.S. include DNA Model Management, Elite Model
Management, Ford Models, Inc., IMG Models, Marilyn Model Agency, NEXT Model
Management and Women Model Management.  Smaller agencies typically
tend to cater primarily to local market needs, such as local magazine and
television advertising.  Several of the larger fashion talent firms
operate offices in multiple cities and countries, or alternatively have chosen
to partner with local or foreign agencies to attempt to harness synergies
without increasing overhead.  In Europe, clients typically look to
local firms as well as leading international firms for talent, or will seek
models from talent management firms with a presence on location for the shoot,
such as Miami, which has a strong, seasonal demand for several international
catalog clients.




In recent
years, several of the leading agencies have experienced structural changes, such
as the establishment of Elite SA as a standalone and publicly-listed European
entity and the formal separation from its former U.S.-based affiliate, as well
as the ownership change and recapitalization of Ford Models.  Other
firms, such as IMG, have changed their business strategy from full-service
agency to a narrowly-focused female-only supermodel talent
segment.  Other firms, including Wilhelmina, are expanding into
related talent management areas, such as sports representation.




Several
of the leading talent management firms, whether through modeling contests or
reality TV shows and contests, are actively seeking to develop brand-awareness
for their status within the fashion talent management industry for product
licensing and related purposes.




Wilhelmina’s
Business Model




Fashion
Model Management Business




Within
its fashion model management business, Wilhelmina has two primary sources of
revenue:  commissions paid by models as a percentage of their gross
earnings and a separate service charge, paid by clients in addition to the
booking fees, calculated as a percentage of the models’ booking
fees.  Wilhelmina believes that its commission rates and service
charge are comparable to those of its principal competitors.




Wilhelmina’s
fashion model management operations are organized into divisions called
“boards,” each of which specializes by the type of models it
represents.  Wilhelmina’s boards are generally described in the table
below.




Board
      Name
            
            Location
            
            Target
      MarketWomen
            
            LA,
      NYC
            
            High-end
      female fashion modelsMen
            
            LA,
      NYC
            
            High-end
      male fashion modelsWilhelmina
      Women
            
            NYC
            
            Established
      female fashion models (ages 18-29)Wilhelmina
      Men
            
            NYC
            
            Established
      male fashion models (ages 18+)Sophisticated
      Women
            
            NYC
            
            Established
      female fashion models (ages 30+)Ten-20
            
            NYC
            
            Full-figured
      female fashion modelsRunway
            
            LA,
      NYC
            
            Catwalk
      and designer client servicesLifestyle
            
            LA,
      NYC
            
            Commercial
      print bookingsKids*
            
            NYC
            
            Child
      models (age 14 and under)







*
            Through
      partial ownership of Wilhelmina Kids & Creative Management
      LLC




6
 INDEX




Each
board is headed by a director who is in charge of the agents assigned to such
board.  The agents of each board act both as bookers (includes
promoting models, negotiating fees and contracting work) and as talent
scouts/managers (includes providing models with career guidance and helping them
better market themselves).  Although agents individually develop
professional relationships with models, models are represented by a board
collectively, and not by a specific agent.  Also, in contrast to the
industry norm, Wilhelmina’s agents typically work on one board throughout their
tenure with Wilhelmina and rarely change agencies.  Wilhelmina’s
organization into boards thereby enables Wilhelmina to provide clients with
services tailored to their particular needs, to allow models to benefit from
agents’ specialized experience in their particular markets, and to limit
Wilhelmina’s dependency on any specialty market or agent.




Once the
agents become proven, Wilhelmina pursues employment contracts with agents that
include noncompetition provisions such as a prohibition from working with
Wilhelmina’s models and clients for a certain period of time after the end of
the agent’s employment with Wilhelmina.  These terms are now
considered standard practice throughout the industry.




Wilhelmina
typically signs its models to two-year exclusive contracts, which it actively
enforces.  Models typically do not switch from one agency to another,
since they develop relationships with agents and become well known by certain of
Wilhelmina’s clients.  The average model remains with Wilhelmina for
eight to ten years and often progresses through a number of Wilhelmina’s boards
as his or her career matures.




Talent
Management Business




WAM has
two primary sources of revenue:  commissions paid by talent as a
percentage of their gross earnings and royalties (WAM may occasionally obtain an
equity interest in a product line or company in consideration for its
services).  WAM currently represents superstars such as Fergie,
Natasha Bedingfield, Ciara, Estelle and Isabella Rossellini and many others for
whom Wilhelmina seeks to secure fashion campaigns, endorsements and marketing
opportunities.  In addition, the sports roster of WAM represents golf
teaching legend David Leadbetter in selected markets, including the U.S., and
the recently created “Wilhelmina 7” or “W7” referring to a group of seven
leading women professional golfers represented as WAM talent.  WAM has
secured commercial endorsements, fashion campaigns and sponsorships for its
talent with clients such as Avon, Brown Shoe, Coca-Cola, Cover Girl, Dessert
Beauty, Donna Karan, Hershey’s, Hugo Boss, L’Oreal, Mattel, Nautica, Nestle,
Nike and Pizza Hut.  Additionally, WAM is engaged in cooperation
agreements with certain artist management companies and music labels, such as
Atlantic Group.




Although
Wilhelmina’s fashion model management business remains its primary business, WAM
plays an increasingly important role at Wilhelmina.  The visibility of
WAM’s talent and clients help enhance the profile and penetration of the
“Wilhelmina” brand with prospective models, other talent and clients, in turn
providing Wilhelmina’s fashion model management business and other complimentary
businesses with significant new opportunities.




7
 INDEX




Licensing
Business




Wilhelmina
Licensing collects third-party licensing fees in connection with the licensing
of the “Wilhelmina” name and then pays a royalty fee to Wilhelmina
International.  Third-party licensees include Wilhelmina Miami, an
independent entity acquired as part of the Wilhelmina Transaction whereupon it
ceased being a licensee, as well as numerous leading fashion model agencies in
local markets across the U.S. and Panama.


Film
and Television Production Business




The film
and television production business consists of television syndication royalties
and a production series contract.  In 2005, the Wilhelmina Companies
produced the television show “The Agency” for the VH1 television
network.  In 2007, the Wilhelmina Companies entered into an agreement
with the TV Land television network to develop a television series entitled
“She’s Got the Look” and is now in its second season.


Clients
and Customers




As of
December 31, 2008, Wilhelmina had a roster of over 1,800 models under management
contract, of which some 950 are active models.  Wilhelmina’s active
models include Mark Vanderloo, Gabriel Aubry, Alex Lundqvist, Enrique Palacios,
Andreas Segura, Nicolas Malleville, Noah Mills, Josh Wald, Tyson Ballou, RJ
Rogenski, Alexandra Richards, Rebecca Romijn, Manon Von Gerkan, Line Goost,
Esther Canadas, Ingrid Vandebosch, Camila Alves, Kate Dillon, Beverly Johnson
and Roshumba.




Wilhelmina
serves approximately 1,200 external clients.  Wilhelmina’s customer
base is highly diversified, with no customer accounting for more than 5% of
overall gross revenues.  The top 100 customers of Wilhelmina together
account for no more than approximately 60% of overall gross revenues; the top-10
customers of Wilhelmina’s New York City operations historically generate
approximately 20% of annual gross revenues; the top-10 customers of Wilhelmina’s
California operations typically account for approximately 30% of annual gross
revenues.  Both of Wilhelmina’s New York City and Los Angeles
operations enjoy significant year-on-year repeat business from Wilhelmina’s
stable of key accounts.  Each entity’s customer mix reflects the
difference between the New York City and Los Angeles markets.




Competitive
Attributes




Wilhelmina
has created a diversified portfolio of talent under management, clients and
business activities, which provides exposure to diverse markets and
demographics, while serving as a platform for various growth
opportunities.




The
following are among Wilhelmina’s competitive attributes:




·
            Strong brand recognition and
      high-end image.  Wilhelmina has achieved recognition in
      key fashion markets across the U.S. and
      internationally.  Wilhelmina’s favorable and high-end image
      enables it to attract and retain top talent to service a broad universe of
      quality media and retail clients.




·
            Extensive, diverse and
      high-quality roster of talent.  Since its formation in
      1967, Wilhelmina has rapidly evolved into a leading, full-service fashion
      model management company.  As a result, Wilhelmina has attracted
      and is able to retain a strong supply of agents and has built a deep pool
      of fashion models under management.




8
 INDEX




·
            Strong relationships with
      retailing companies and media buyers.  Wilhelmina has
      worked as partner with its retailing and media clients since its formation
      and has developed long-standing relationships with many leading buyers of
      fashion modeling services.  These relationships have been
      solidified through Wilhelmina’s ability to provide reliable high-quality
      models on a consistent basis.




·
            Professional and developed
      workforce.  Highly credentialed professionals with years
      of talent management experience lead Wilhelmina.  Wilhelmina’s
      leadership effectively combines entrepreneurial talent management
      experience with demonstrated management
  capabilities.




·
            Strong platform for expansion
      and profit enhancement.  Wilhelmina believes its
      leadership position in the fashion model management industry and brand
      recognition provide an excellent platform for organic growth, business
      line extension and branded consumer goods opportunities, as well as
      acquisitive growth.




Business
Focus and Strategy




Wilhelmina’s
operational strategy has been to limit its risk profile by ensuring that it
remains diversified and it enjoys a limited dependence on any particular fashion
model, client or line of business.  In that interest, management has
pursued various initiatives, including those set out below:




·
            a
      shift in Wilhelmina’s focus from the high-end segment of the fashion model
      market to the much larger and more stable, although lower-profile
      “catalog” segment of the market;




·
            the
      formation of WAM to handle endorsements and licensing for entertainers,
      artists, athletes and other talent;




·
            licensing
      the “Wilhelmina” name to leading, local model management agencies, rather
      than acquiring and operating a wide network of local
    agencies;




·
            exploring
      the use of the “Wilhelmina” brand in connection with consumer products,
      including fashion apparel (such as lingerie and sportswear), cosmetics and
      other beauty products, and health and lifestyle products;
    and




·
            producing
      television shows and promoting model search
  contests.




Management’s
current strategic plans include the following initiatives:




·
            organic
      growth through optimization of existing pool of modeling
      talent;




·
            expansion
      of talent pool through domestic and international scouting
      activities;




·
            engaging
      in additional licensing arrangements with local model management
      firms;




·
            development
      of product licensing and merchandizing opportunities;
  and




·
            growth
      through acquisitions, with an international
  focus.




9
 INDEX




Governmental
Regulations




Certain
jurisdictions in which the Wilhelmina Companies operate, such as California and
Florida, require that companies maintain a Talent Agency License in order to
engage in the “talent agency” business. The talent agency business is generally
considered the business of procuring engagements or any employment or placement
of an artist, where the artist performs in his or her artistic
capacity.  Where required, the Wilhelmina Companies operating in these
jurisdictions maintain Talent Agency Licenses issued by those
jurisdictions.  In addition, certain Wilhelmina Companies also
maintain required SAG licenses issued by the Screen Actors’
Guild.


ALTERNATIVE
ASSET MANAGEMENT OPERATIONS AND DERIVATIVE LAWSUIT




Alternative
Asset Management Operations




On
October 5, 2005, the Company made an investment in ACP Investments L.P. (d/b/a
Ascendant Capital Partners) (“Ascendant”).  Ascendant is a Berwyn,
Pennsylvania based alternative asset management company whose funds have
investments in long/short equity funds and which distributes its registered
funds primarily through various financial intermediaries and related
channels.  Prior to closing the Wilhelmina Transaction, the Company’s
interest in Ascendant represented the Company’s sole operating
business.




The
Company entered into an agreement (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.  Revenues generated by Ascendant include revenues from assets
under management or any other sources or investments, net of any agreed
commissions.  The Company also agreed to provide various marketing
services to Ascendant.  The total potential purchase price under the
terms of the Ascendant Agreement was $1,550,000, payable in four equal
installments of $387,500.  The first installment was paid at the
closing and the second installment was paid on January 5,
2006.  Subject to the provisions of the Ascendant Agreement, including
Ascendant’s compliance with the terms thereof, the third installment was payable
on April 5, 2006 and the fourth installment was payable on July 5,
2006.  On April 5, 2006, the Company elected not to make the April
installment payment and subsequently determined not to make the installment
payment due July 5, 2006.  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.




Subject
to the terms of the Ascendant Agreement, if the Company does not make an
installment payment and Ascendant is not in breach of the Ascendant Agreement,
Ascendant has the right to acquire the Company’s revenue interest at a price
which would yield a 10% annualized return to the Company.  The Company
has been notified by Ascendant that Ascendant is exercising this right as a
result of the Company’s election not to make its third and fourth installment
payments.  The Company believes that Ascendant has not satisfied the
requisite conditions to repurchase the Company’s revenue interest.




Ascendant
had assets under management of approximately $35,600,000 and $37,500,000 as of
December 31, 2008 and December 31, 2007, respectively.  Under the
Ascendant Agreement, revenues earned by the Company from the Ascendant revenue
interest (as determined in accordance with the terms of the Ascendant Agreement)
are payable in cash within 30 days after the end of each
quarter.  Under the terms of the Ascendant Agreement, Ascendant has 45
days following notice by the Company to cure any material breach by Ascendant of
the Ascendant Agreement, including with respect to payment
obligations.  Ascendant failed to make the required revenue sharing
payments for all calendar quarters from June 30, 2006 through September 30,
2008, inclusive, in a timely manner and did not cure such failures within the
required 45-day period.  In addition, Ascendant has not made the
payment for the quarter ended December 31, 2008.  Under the terms of
the Ascendant Agreement, upon notice of an uncured material breach, Ascendant is
required to fully refund all amounts paid by the Company, and the Company’s
revenue interest remains outstanding.




10
 INDEX




The
Company has not recorded any revenue or received any revenue sharing payments
for the period from July 1, 2006 through December 31, 2008.  According
to the Ascendant Agreement, if Ascendant acquires the revenue interest from the
Company, Ascendant must pay the Company a return on the capital that it
invested.  Pursuant to the Ascendant Agreement, the required return on
the Company’s invested capital will not be impacted by any revenue sharing
payments made or not made by Ascendant.




In
connection with the Ascendant Agreement, the Company also entered into the
Principals Agreement with Ascendant and certain limited partners and key
employees of Ascendant (the “Principals Agreement”) pursuant to which, among
other things, the Company has the option to purchase limited partnership
interests of Ascendant under certain circumstances.  Effective March
14, 2006, in accordance with the terms of the Principals Agreement, the Company
acquired a 7% limited partnership interest from a limited partner of Ascendant
for nominal consideration.  The Principals Agreement contains certain
noncompete and nonsolicitation obligations of the partners of Ascendant that
apply during their employment and the twelve month period following the
termination thereof.




Since the
Ascendant revenue interest meets the indefinite life criteria outlined in
Statement of Financial Accounting Standards No. 142, “Goodwill and Other
Intangible Assets”, the Company does not amortize this intangible asset, but
instead reviews this asset quarterly for impairment.  Each reporting
period, the Company assesses whether events or circumstances have occurred which
indicate that the carrying amount of the intangible asset exceeds its fair
value.  If the carrying amount of the intangible asset exceeds its
fair value, an impairment loss will be recognized in an amount equal to that
excess.  After an impairment loss is recognized, the adjusted carrying
amount of the intangible asset shall be its new accounting
basis.  Subsequent reversal of a previously recognized impairment loss
is prohibited.




The
Company assesses whether the entity in which the acquired revenue interest
exists meets the indefinite life criteria based on a number of factors
including: the historical and potential future operating  performance;
the historical and potential future rates of attrition among existing clients;
the stability and longevity of existing client relationships; the recent, as
well as long-term, investment performance; the characteristics of the entities’
products and investment styles; the stability and depth of the
management team and the history and perceived franchise or brand
value.




Derivative
Lawsuit




On August
11, 2004, Craig Davis, allegedly a shareholder of the Company, filed a lawsuit
in the Chancery Court of New Castle County, Delaware (the
“Lawsuit”).  The Lawsuit asserted direct claims, and also derivative
claims on the Company’s behalf, against five former and three current directors
of the Company.  On April 13, 2006, the Company announced that it
reached an agreement with all of the parties to the Lawsuit to settle all claims
relating thereto (the “Settlement”).  On June 23, 2006, the Chancery
Court approved the Settlement, and on July 25, 2006, the Settlement became final
and non-appealable.  As part of the Settlement, the Company set up a
fund (the “Settlement Fund”), which was distributed to shareholders of record as
of July 28, 2006, with a payment date of August 11, 2006.  The portion
of the Settlement Fund distributed to shareholders pursuant to the Settlement
was $2,270,017 or approximately $0.04 per common share on a fully diluted basis,
provided that any Common Stock held by defendants in the Lawsuit who were
formerly directors of the Company would not be entitled to any distribution from
the Settlement Fund.  The total Settlement proceeds of $3,200,000 were
funded by the Company’s insurance carrier and by Parris H. Holmes, Jr., the
Company’s former Chief Executive Officer, who contributed
$150,000.  Also included in the total Settlement proceeds is $600,000
of reimbursement for legal and professional fees paid to the Company by its
insurance carrier and subsequently contributed by the Company to the Settlement
Fund.  Therefore, the Company recognized a loss of $600,000 related to
the Lawsuit for the year ended December 31, 2006.  As part of the
Settlement, the Company and the other defendants in the Lawsuit agreed not to
oppose the request for fees and expenses by counsel to the plaintiff of
$929,813.  Under the Settlement, the plaintiff, the Company and the
other defendants (including Mr. Holmes) also agreed to certain mutual
releases.  During October 2007, the Company and the insurance carrier
agreed to settle all claims for reimbursement of legal and professional fees
associated with the Lawsuit for $240,000.




11
 INDEX




EMPLOYEES




As of
December 31, 2008, the Company had two employees.  On February 13,
2009, the Company acquired the Wilhelmina Companies which, as of December 31,
2008, had 70 employees, 55 of whom were located in New York City, 9 of whom were
located at Wilhelmina’s Miami office in Florida and the remaining 6 of whom were
located at Wilhelmina’s California office in Los Angeles.




The
Company’s executive officers are based in the corporate headquarters in
Dallas.  The day-to-day operations of the Wilhelmina Companies are
carried out from Wilhelmina’s offices located in New York City, where the
majority of Wilhelmina’s employees are located, including its President, Sean
Patterson.  Wilhelmina’s management structure is flat, with several
relatively independent boards and a small, central administrative
infrastructure.  The directors of the various boards are significantly
involved in all key decisions regarding model acquisition, and matters affecting
clients, which are frequently shared across several
boards.  Wilhelmina’s New York City operations also carry out the
administrative support for Wilhelmina Kids & Creative LLC, in which
Wilhelmina holds a 50% interest, as well as for Wilhelmina Miami.




The
Company’s employees are not represented by a union.  The Company
believes that its employee relations are good.




TRADEMARKS
AND LICENSING




The
Wilhelmina brand is essential to the success and competitive position of the
Wilhelmina Companies.  The Wilhelmina Companies’ trademark is vital to
their licensing business because their licensees pay them for the right to use
their trademark. The Wilhelmina Companies have invested significant resources in
the “Wilhelmina” brands in order to obtain the public recognition that these
brands currently have.  The Wilhelmina Companies rely upon trademark
laws, license agreements and nondisclosure agreements to protect the
“Wilhelmina” brand name used in their business.  Trademarks registered
in the U.S. have a duration of ten years and are generally subject to an
indefinite number of renewals for a like period on appropriate
application.




12
 INDEX




AVAILABLE
INFORMATION




The
Company’s Current Reports on Form 8-K, Quarterly Reports on Form 10-Q and Annual
Reports on Form 10-K are electronically filed with or furnished to the SEC. The
public may read and copy any materials filed by the Company with the SEC at the
SEC’s Public Reference Room at 100 F Street, NW, Washington, D.C.
20549.




The public may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC maintains an Internet site (http://www.sec.gov) that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC.







ITEM
1A.                   RISK FACTORS




Not
Applicable.




ITEM
1B.                   UNRESOLVED STAFF
COMMENTS




None.




ITEM
2.                      PROPERTIES




The
Company’s corporate headquarters are currently located at 200 Crescent Court,
Suite 1400, Dallas, Texas 75201, which are also the offices of Newcastle Capital
Management, L.P. (“NCM”).  NCM is the general partner of
Newcastle.  The Company occupies a portion of NCM’s space on a
month-to-month basis at $2,500 per month, pursuant to a services agreement
entered into between the parties on October 1, 2006.




The
following table summarizes information with respect to the material facilities
of the Wilhelmina Companies, all of which are leased office space:




Description
      of Property
            
            Area
                (sq.
      feet)
            
            Month
      of
                Lease
      ExpirationOffice
      for New York-based operations – New York, NY
            
            11,400
            
            December
      31, 2010Office
      for California-based operations – Los Angeles, CA
            
            6,000
            
            June
      30, 2011Office
      for Wilhelmina Miami – Miami Beach, FL
            
            2,100
            
            October
      15, 2009





The
Wilhelmina Companies also lease three apartments in New York City, one apartment
in Los Angeles and one apartment in Miami for use by models in connection with
the business of the Wilhelmina Companies.




13
 INDEX




ITEM
3.                      LEGAL
PROCEEDINGS




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


ITEM
4.                      SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS




None.




PART II




ITEM
5.                      MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES




Market
Information




The
Company’s Common Stock is currently quoted on the over the counter bulletin board (the
“OTCBB”) under the symbol “WHLM.OB”.  Prior to February 19,
2009, the Common Stock was quoted on the OTCBB under the symbol
“NCEH.OB”.  The table below sets forth the high and low bid prices for
the Common Stock from January 1, 2007 through December 31,
2008.  These price quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not necessarily represent
actual transactions:




14
 INDEX




High
              
              
              LowYear
      Ended December 31, 2007:1st
      Quarter
              
              $
              0.31
              
              
              $
              0.222nd
      Quarter
              
              $
              0.29
              
              
              $
              0.223rd
      Quarter
              
              $
              0.26
              
              
              $
              0.214th
      Quarter
              
              $
              0.23
              
              
              $
              0.18Year
      Ended December 31, 2008:1st
      Quarter
              
              $
              0.20
              
              
              $
              0.132nd
      Quarter
              
              $
              0.22
              
              
              $
              0.153rd
      Quarter
              
              $
              0.37
              
              
              $
              0.164th
      Quarter
              
              $
              0.17
              
              
              $
              0.11





Shareholders




As of
April 13, 2009, there were 129,440,752 shares of Common Stock outstanding, held
by 503 holders of record.  The last reported sales price of the Common
Stock was $0.125 per share on April 13, 2009.


Dividend
Policy




The
Company has never declared or paid any cash dividends on its Common
Stock.  Approximately $2,270,017 was distributed to certain
shareholders pursuant to the Settlement in August 2006.  On June 30,
2006, Newcastle elected to receive Preferred Dividends in cash for the period
from June 19, 2005 through June 30, 2006.  On July 3, 2006, Newcastle
elected to convert all of its Series A Preferred Stock into 19,230,768 shares of
Common Stock.  The Company may not pay dividends on its Common Stock
unless all declared and unpaid Preferred Dividends have been paid.  In
addition, whenever the Company shall declare or pay any dividend on its Common
Stock, the holders of Series A Preferred Stock are entitled to receive such
Common Stock dividends on a ratably as-converted basis.




Recent
Sales of Unregistered Securities




On
February 13, 2009, concurrently with the closing of the Wilhelmina Transaction
and pursuant to the Acquisition Agreement, the Company issued 63,411,131 shares
of Common Stock to Patterson, the Control Sellers and their advisor, valued at
$0.239 per share (representing the book value of the Common Stock of $0.247 per
share as of July 31, 2008 as agreed by the parties to the Acquisition Agreement,
subject to adjustment to reflect certain transaction expenses incurred by the
Company), as a portion of the consideration paid in the Wilhelmina
Transaction.


On
February 13, 2009, concurrently with the closing of the Wilhelmina Transaction
and for the purpose of obtaining financing to complete the Wilhelmina
Transaction, the Company completed the sale of 12,145,749 shares of Common Stock
to Newcastle pursuant to the Equity Financing Agreement.  The
aggregate purchase price paid was approximately $3,000,000, representing a per
share price slightly higher than the per share price applicable to the Common
Stock issued pursuant to the Acquisition Agreement.




15
 INDEX




The
shares of Common Stock issued in connection with the Wilhelmina Transaction and
the Equity Financing Agreement were not registered under the Securities Act of
1933, as amended (the “Securities Act”), in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act, which exempts
transactions by an issuer not involving any public offering.




Equity
Compensation Plan Information




The
Company previously adopted the 1996 Employee Comprehensive Stock Plan
(“Comprehensive Plan”) and the 1996 Non-Employee Director Plan (“Director Plan”)
under which officers and employees, and non-employee directors, respectively, of
the Company and its affiliates were eligible to receive stock option
grants.  Employees of the Company were also eligible to receive
restricted stock grants under the Comprehensive Plan.  The Company
previously reserved 14,500,000 and 1,300,000 shares of its Common Stock for
issuance pursuant to the Comprehensive Plan and the Director Plan,
respectively.  The Comprehensive Plan and the Director Plan expired on
July 10, 2006. The expiration of the plans preclude the Company from granting
new options under each plan but will not affect outstanding option grants which
shall expire in accordance with their terms.


The following table summarizes the
equity compensation plans under which the Common Stock may be issued as of
December 31, 2008:




Plan
      Category
                    Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
                      (A)
                    Weighted
      average exercise price of outstanding options, warrants and
      rights
                      (B)
                    Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (A))
                      (C)Equity
      compensation plans approved by security holders
                    240,000
                    $0.27
                    0Equity
      compensation plans not approved by security holders
                    0
                    N/A
                    N/ATotal
                    240,000
                    $0.27
                    0




ITEM
6.                      SELECTED FINANCIAL
DATA




Not
applicable.




ITEM
7.                      MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS




The
following discussion should be read in conjunction with the Business section
discussion, the Consolidated Financial Statements and the Notes thereto and the
other financial information included elsewhere in this report.




MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE
COMPANY




The
following is a discussion of the Company’s financial condition and results of
operations comparing the calendar years ended December 31, 2008 and
2007.  You should read this section in conjunction with the Company’s
Consolidated Financial Statements and the Notes thereto that are incorporated
herein by reference and the other financial information included herein and the
notes thereto.  This discussion does not address the financial
condition and results of operations of the Wilhelmina Companies as they were
acquired by the Company after the period covered by this report.  A
separate discussion regarding the Wilhelmina Companies follows under the heading
“MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE WILHELMINA
COMPANIES”.




16
 INDEX




Overview




On
February 13, 2009, the Company closed the Wilhelmina Transaction and acquired
the Wilhelmina Companies as discussed in further detail elsewhere in this
report.  As of the closing of the Wilhelmina Transaction, the business
of the Wilhelmina Companies represents the Company’s primary operating
business.




Prior to
closing of the Wilhelmina Transaction, the Company’s interest in Ascendant,
which it acquired on October 5, 2005, represented the Company’s sole operating
business.  Ascendant is a Berwyn, Pennsylvania based alternative asset
management company whose funds have investments in long/short equity funds and
which distributes its registered funds primarily through various financial
intermediaries and related channels.




Ascendant
and Operating Revenues




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.  Revenues generated by Ascendant include revenues from assets
under management or any other sources or investments, net of any agreed
commissions.  The Company also agreed to provide various marketing
services to Ascendant.  The total potential purchase price under the
terms of the Ascendant Agreement was $1,550,000, payable in four equal
installments of $387,500.  The first installment was paid at the
closing and the second installment was paid on January 5,
2006.  Subject to the provisions of the Ascendant Agreement, including
Ascendant’s compliance with the terms thereof, the third installment was payable
on April 5, 2006 and the fourth installment was payable on July 5,
2006.  On April 5, 2006, the Company elected not to make the April
installment payment and subsequently determined not to make the installment
payment due July 5, 2006.  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.




Subject
to the terms of the Ascendant Agreement, if the Company does not make an
installment payment and Ascendant is not in breach of the Ascendant Agreement,
Ascendant has the right to acquire the Company’s revenue interest at a price
which would yield a 10% annualized return to the Company.  The Company
has been notified by Ascendant that Ascendant is exercising this right as a
result of the Company’s election not to make its third and fourth installment
payments.  The Company believes that Ascendant has not satisfied the
requisite conditions to repurchase the Company’s revenue interest.




Ascendant
had assets under management of approximately $35,600,000 and $37,500,000 as of
December 31, 2008 and December 31, 2007, respectively.  Under the
Ascendant Agreement, revenues earned by the Company from the Ascendant revenue
interest (as determined in accordance with the terms of the Ascendant Agreement)
are payable in cash within 30 days after the end of each
quarter.  Under the terms of the Ascendant Agreement, Ascendant has 45
days following notice by the Company to cure any material breach by Ascendant of
the Ascendant Agreement, including with respect to payment
obligations.  Ascendant failed to make the required revenue sharing
payments for all calendar quarters from June 30, 2006 through September 30,
2008, inclusive, in a timely manner and did not cure such failures within the
required 45-day period.  In addition, Ascendant has not made the
payment for the quarter ended December 31, 2008.  Under the terms of
the Ascendant Agreement, upon notice of an uncured material breach, Ascendant is
required to fully refund all amounts paid by the Company, and the Company’s
revenue interest remains outstanding.




The
Company has not recorded any revenue or received any revenue sharing payments
for the period from July 1, 2006 through December 31, 2008.  According
to the Ascendant Agreement, if Ascendant acquires the revenue interest from the
Company, Ascendant must pay the Company a return on the capital that it
invested.  Pursuant to the Ascendant Agreement, the required return on
the Company’s invested capital will not be impacted by any revenue sharing
payments made or not made by Ascendant.




17
 INDEX




Results
of Operations of the Company for the Year Ended December 31, 2008 compared to
the Year Ended December 31, 2007




General
and Administrative Expenses




During
the year ended December 31, 2008, general and administrative expenses
(“G&A”) totaled $357,000 compared to $552,000 during the year ended December
31, 2007, representing a decrease of $195,000 or 35%.  The decrease in
G&A for the year ended December 31, 2008, when compared to the year ended
December 31, 2007, is primarily attributable to a decrease in legal and
professional fees and officer compensation expense.


Acquisition
Transaction Costs
  In
December 2007, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 141(R), Business Combinations (revised 2007)
(“SFAS 141(R)”), which changes many well-established business combination
accounting practices and significantly affects how acquisition transactions are
reflected in the financial statements.  Additionally, SFAS 141(R) will
affect how companies negotiate and structure transactions, model financial
projections of acquisitions and communicate to stakeholders.  SFAS
141(R) must be applied prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.  In accordance with
SFAS 141(R), acquisition transaction costs, such as certain investment banking
fees, due diligence costs and attorney fees are to be recorded as a reduction of
earnings in the period they are incurred.  Prior to January 1,
2009, the effective date of SFAS 141(R) for the Company, acquisition transaction
costs were included in the cost of the acquired business. On February 13, 2009,
the Company closed the Wilhelmina Transaction, and therefore, in accordance with
the Company’s interpretation of SFAS 141(R) transition rules, recorded all
previously capitalized acquisition transaction costs of approximately $849,000
as a reduction of earnings for the year ended December 31, 2008.
  As of
December 31, 2008, the Company had deferred approximately $139,000 of costs
associated with the Wilhelmina Transaction, which the Company has determined
relate to the issuance of equity securities.  These costs will be
reclassified as a reduction of capital when the equity securities are
issued.




Depreciation
and Amortization




Depreciation
and amortization expense is incurred with respect to certain assets, including
computer hardware, software, office equipment, furniture, goodwill and other
intangibles.  During each of the years ended December 31, 2008 and
December 31, 2007, depreciation and amortization expense totaled
$0.  The Company made no fixed asset purchases during the year ended
December 31, 2008.




Interest
Income




Interest
income totaled $239,000 during the year ended December 31, 2008, compared to
$607,000 during the year ended December 31, 2007, representing a decrease of
$368,000 or 61%.  The decrease in interest income for the year ended
December 31, 2008, as compared to the year ended December 31, 2007, is
attributable to lower yields on average cash balances.




18
 INDEX




Income
Taxes




As a
result of the operating losses incurred for the year ended December 31, 2008 and
the utilization of prior year net operating losses to offset income for the year
ended December 31, 2007, no provision or benefit for income taxes was recorded
for the years ended December 31, 2008 and 2007.




Related
Party Transactions
  In June
2004, in connection with the Newcastle Transaction, Mark Schwarz, Chief
Executive Officer and Chairman of Newcastle Capital Management, L.P. (“NCM”), Steven J. Pully, former
President of NCM, and John Murray, Chief Financial Officer of NCM, assumed
positions as Chairman of the Board, Chief Executive Officer and Chief Financial
Officer, respectively, of the Company.  Mr. Pully received an annual
salary of $150,000 as Chief Executive Officer of the Company.  Mr.
Pully resigned as Chief Executive Officer of the Company effective October 15,
2007.  Mr. Schwarz is performing the functions of Chief Executive
Officer.  NCM is the general partner of Newcastle, which owns
31,526,517 shares of Common Stock of the Company.
  The
Company’s corporate headquarters are currently located at 200 Crescent Court,
Suite 1400, Dallas, Texas 75201, which are also the offices of
NCM.  The Company occupies a portion of NCM space on a month-to-month
basis at $2,500 per month, pursuant to a services agreement entered into between
the parties.  NCM is the general partner of
Newcastle.  Pursuant to the services agreement, the Company receives
the use of NCM’s facilities and equipment and
accounting and administrative services from employees of NCM.  The
Company incurred expenses pursuant to the services agreement totaling $102,000
and $30,000 for the years ended December 31, 2008 and 2007,
respectively.
  The
Company owed NCM $24,000 and $7,500 as of December 31, 2008 and 2007,
respectively.




MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE
WILHELMINA COMPANIES




The
following is a discussion of the financial condition and results of operations
of the Wilhelmina Companies and their subsidiaries (also referred to in this
description as Wilhelmina), comparing the calendar years ended December 31, 2008
and 2007.  Upon the closing of the Wilhelmina Transaction on February
13, 2009, the business of the Wilhelmina Companies represents the Company’s
primary operating business.  You should read this section together
with the Wilhelmina Companies’ Combined Financial Statements and the Notes
thereto that are attached hereto as Exhibit 99.1 and incorporated herein by
reference.




Wilhelmina
Companies Overview




Wilhelmina’s
primary business is fashion model management, which activity is headquartered in
New York City.  Wilhelmina was founded in 1967 by Wilhelmina Cooper, a
renowned fashion model, and is one 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, 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 had been a privately
held company until the closing of the Wilhelmina Transaction.




Since
1999, when the most recent ownership change relating to Wilhelmina International
occurred, several new entities were incorporated to become part of
Wilhelmina.  Each of these entities was created to pursue a specific
line of business.  Several of these entities were organized as limited
liability companies and were owned directly or indirectly by Krassner and
Esch.  In addition, the entity now known as Wilhelmina-Miami was
acquired from its founder in 1990 and became majority-owned by Krassner and Esch
in 1999, with certain private individuals becoming minority
investors.




Organizational
Structure




Wilhelmina
International has three wholly owned subsidiaries:  Wilhelmina West,
LW1 and Wilhelmina Models.  Wilhelmina West is a full-service fashion
model agency based in Los Angeles.  LW1, also based in Los Angeles,
offers some models the opportunity to be showcased on TV and film through its
membership in the Screen Actors Guild.  Wilhelmina Models, based in
New York City, holds certain contractual rights related to the business of
Wilhelmina International.  Wilhelmina International also owns a
non-consolidated 50% interest in Wilhelmina Kids & Creative Management LLC,
a New York City-based modeling agency that specializes in representing child
models, from newborns to children 14 years of age.  Collectively,
these businesses represent the Wilhelmina Companies’ model management
business.  Operating on the same entity level as Wilhelmina
International are Wilhelmina Miami (a licensee of the “Wilhelmina” name), WAM,
Wilhelmina TV and Wilhelmina Licensing, which represent the Wilhelmina
Companies’ other business ventures complimentary to Wilhelmina’s fashion model
management business.  These ventures include, but are not limited to,
the licensing of the “Wilhelmina” name and the holding of rights to, and certain
management responsibility in connection with, the production of certain reality
television shows such as “The Agency” (2007) and “She’s Got the Look” (2008)
(which is now in its second season) that seek to capitalize on the “Wilhelmina”
brand.


19
 INDEX




The
Wilhelmina Companies provide traditional, full-service fashion model and talent
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 catalog
companies.  Since its founding in 1967, the Wilhelmina Companies have
grown largely organically to their current size, and have developed into a
broadly diversified full service agency with offices in New York City, Los
Angeles and Miami.  In addition to their traditional fashion model
management activities, the Wilhelmina Companies have also expanded into music
and sports talent endorsement, television show production, licensing
opportunities for the Wilhelmina brand name and also entered into arrangements
with licensees across the U.S. as well as in Panama, who serve as the Wilhelmina
Companies’ local representatives.




The
Wilhelmina Companies contract with fashion models, artists and celebrities to
perform modeling and endorsement services for their clients.  The
standard Wilhelmina contract is an exclusive contract between the two parties
for a term and requires the model, artist or celebrity to pay the Wilhelmina
Companies a commission on all gross billings the model receives for performing
modeling services during the term of the agreement.  For the
consideration paid, the Wilhelmina Companies manage the booking, scheduling and
invoicing and collections process on behalf of the model.  All models
under contract are classified as contractors to the Wilhelmina Companies, not
employees.  In addition, the Wilhelmina Companies charge the clients a
service charge for brokering and managing the relationship between the client
and the model, artist or celebrity.




The
Wilhelmina Companies act as an agent and record revenue equal to the net amount
retained when the commission and service charge is earned.  The
Wilhelmina Companies recognize services provided as revenue upon the rendering
of services to their clients.  Commissions and residual income
represents a percentage charged to the models upon the completion of their
services to the clients.  While gross billings are not formally
recorded as a line item in the combined financial statements of the Wilhelmina
Companies, it remains an important business metric that ultimately drives
revenues and profits.




Trends
and Opportunities




The
business of talent management firms such as Wilhelmina is related to the state
of the advertising industry, as demand for talent is driven by print and TV
advertising campaigns for consumer goods and retail
clients.  Nevertheless, reductions in overall advertising expenditures
typically impact talent management firms less due to the fact that photo shoots
will be required irrespective of any reduction in size of traditional print
media editions, or of the frequency with which ads containing pictures of
fashion talent are shown.




The
Company expects that the combination of Wilhelmina’s main operating base in New
York as 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 Wilhelmina competes with other leading full service agencies,
Wilhelmina continues to compete successfully.  Accordingly, the
Company believes that the current economic climate will create new growth
opportunities for strong industry leaders such as Wilhelmina.




In light
of the growing importance of advertising markets in developing countries,
including China, Wilhelmina is actively looking at such markets from a talent
management agency licensing perspective to explore new revenue opportunities,
while limiting any financial risk to or requirement for operational resources
from Wilhelmina.  The Company anticipates that Wilhelmina’s model for
expansion into developing markets, such as China, will help offset any potential
decline in gross billing volume from U.S. domestic or European markets resulting
from the current weak economic climate.




20
 INDEX




With
total advertising expenditures on major media (newspapers, magazines,
television, cinema, outdoor and internet) amounting to approximately $182
billion in 2008, North
America is by far the world’s largest advertising market.  For the
fashion talent management industry, including Wilhelmina, advertising
expenditures on magazines, television and outdoor are of particular relevance,
with internet advertising becoming increasingly important.


Due to
the increasing ubiquity of the internet as a standard business tool, the
Wilhelmina Companies have increasingly sought to harness the opportunities of
the internet and other digital media to improve their communications with
clients and to facilitate the effective exchange of fashion model and talent
information.  The Wilhelmina Companies have also continued their
efforts to expand the geographical reach of the Wilhelmina Companies through
this medium in order to both support revenue growth and to reduce operating
expenses.  At the same time, the internet presents challenges for the
Wilhelmina Companies, including (i) the cannibalization of traditional
print advertising business and (ii) pricing pressures with respect to
photo shoots and client engagements.


Expense
Trends




Prior to
the closing the Wilhelmina Transaction, Krassner and Esch, the former principal
equity holders of the Wilhelmina Companies, received salary, bonus and
consulting fee payments, under certain agreements, in an amount of approximately
$975,000 annually.  As neither Krassner nor Esch continue to serve as
officers or directors of the Wilhelmina Companies as of the closing of the
Wilhelmina Transaction, these payments to Krassner and Esch have
ceased.  Similarly, upon the closing of the Wilhelmina Transaction, a
$6,000,000 promissory note, carrying an interest rate of 12.5% for an
annual interest payment of $750,000, in favor of Krassner L.P., a Control
Seller, was repaid.  Taken together, following the closing of the
Wilhelmina Transaction, annual operating expenses and interest expense are
expected to decrease by a combined total of $1,725,000 from the elimination of
these agreements and the repayment of the promissory note.  The
Company expects to incur compensation expense, estimated at $500,000 annually,
related to the positions of chief executive officer, chief financial officer and
general counsel and could employ certain individuals (including but not limited
to Esch and/or Krassner) in a consulting capacity to facilitate the transition
of the Wilhelmina Companies business to the executive management
team.  This compensation expense would somewhat offset the savings of
$1,725,000 from the elimination of the above agreements.


Competition
and Risks Trends




Wilhelmina’s
principal competitors in the U.S. include DNA Model Management, Elite Model
Management, Ford Models, Inc., IMG Models, Marilyn Model Agency, NEXT Model
Management and Women Model Management.  Smaller agencies typically
tend to cater primarily to local market needs, such as local magazine and
television advertising.  Several of the larger fashion talent firms
operate offices in multiple cities and countries, or alternatively have chosen
to partner with local or foreign agencies to attempt to harness synergies
without increasing overhead.  In Europe, clients typically look to
local firms as well as leading international firms for talent, or will seek
models from talent management firms with a presence on location for the shoot,
such as Miami, which has a strong, seasonal demand for several international
catalog clients.




Several
of the leading talent management firms, whether through modeling contests or
reality TV shows and contests, are actively seeking to develop brand-awareness
for their status within the fashion talent management industry for product
licensing and related purposes.




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, Wilhelmina’s reputation and operational and
financial stability make it increasingly attractive as an acquirer or business
partner and 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.


21
 INDEX




Results
of Operations of the Wilhelmina Companies for the Year Ended December 31, 2008
compared to the Year Ended December 31, 2007




Revenues




During
the year ended December 31, 2008, gross billings increased approximately
$5,239,000, or 13.9%, to $42,803,000 compared to $37,564,000 during the year
ended December 31, 2007.  The Wilhelmina Companies saw increases in
gross billings across the core modeling business and licensing division and
significant increases in artist management and the Miami
division.  The increases are primarily attributable to changes in key
personnel and marketing.
  Commissions
and Residuals
  Commissions
and residual income represents a percentage charged to the models upon the
completion of their services to the clients.  During the year ended
December 31, 2008, commissions and residuals increased approximately $700,000,
or 14.2%, to $5,615,000 compared to $4,915,000 during the year ended December
31, 2007.  The increase is primarily attributable to an increase in
gross billings.
  Service
Charges
  Service
charges represent amounts charged to the client for brokering and managing the
relationship between the client and the model.  During the year ended
December 31, 2008, service charges increased approximately $469,000, or 8.8%, to
$5,796,000 compared to $5,327,000 during the year ended December 31,
2007.  The increase is primarily attributable to an increase in gross
billings.


Management
Fees, License Fees and Other Income




Wilhelmina
has entered into agreements with both affiliated and non-affiliated entities to
provide management and administrative services, as well as sharing of space
where applicable.  Compensation under these agreements may be either a
fixed amount or contingent upon the other parties’ commission
income.  Management fee income under these agreements totaled
approximately $68,000 and $160,000 for the years ended December 31, 2008 and
2007, respectively.  The portion of management fee income from an
unconsolidated affiliate amounted to $68,000 and $110,000 for the years ended
December 31, 2008 and 2007, respectively.
  License
fees consist primarily of franchise revenues from independently owned model
agencies that use the Wilhelmina trademark name and various services provided to
them by the Wilhelmina Companies.  License fees totaled approximately
$286,000 and $295,000 for the years ended December 31, 2008 and 2007,
respectively.
  In 2008,
the Wilhelmina Companies entered into two product licensing agreements with two
clients (each a “Licensee”) and a related talent Wilhelmina
represents.  Under the first agreement, Wilhelmina earns service
charges from the Licensee and commissions from the talent for services performed
in connection with the licensing agreement.  This licensing agreement
has a six-year term which ends March 31, 2014.  During the first three
years of the agreement, the talent and Wilhelmina are required to render
services to the Licensee in exchange for a guaranteed minimum
payment.  The next three years of the agreement is the sell-off
period, as defined.  During the sell-off period, the talent and
Wilhelmina are not required to render services.  The talent will earn
royalties based on a certain percentage of net sales, as defined, and Wilhelmina
will earn a commission based on a certain percentage of the royalties earned by
the talent.  In 2008, Wilhelmina recorded approximately $57,000 of
revenue from this licensing agreement.
 Under the
second licensing agreement, Wilhelmina earns commissions from the talent
Wilhelmina represents and royalties from the client which is based on a certain
percentage of net sales, as defined.  The initial term of this second
agreement expires on December 31, 2012.  The second agreement is
renewable for another two years if certain conditions are met.  In
2008, Wilhelmina recognized approximately $28,000 of revenues from this
agreement.


22
 INDEX




Other
income includes mother agency fees which are paid to the Wilhelmina Companies by
another agency when the other agency books a Wilhelmina contracted model for a
client engagement and fees charged to models for various services
provided.  Other income also consists of fees derived from
participants in the Wilhelmina model search contest.  Search fees
totaled approximately $53,000 and $298,000 for the years ended December 31, 2008
and 2007, respectively.
  Other
income also consists of television syndication royalties and a production series
contract.  In 2005, the Wilhelmina Companies produced the television
show “The Agency” and in 2007, the Wilhelmina Companies entered into an
agreement with a television network to develop a television series called “She’s
Got the Look” which is now in its second season.  The television
series documents the lives of women competing in a modeling
competition.  The Wilhelmina Companies will provide to the television
series the talent, together with the brand image of Wilhelmina and agrees
to a modeling contract with the winner of the competition, in consideration of a
fee per episode produced, plus 15% of Modified Gross Adjusted Receipts by the
television network for the series, as defined.  Other income from
television syndication and production series totaled $204,000 and $120,000 for
the years ended December 31, 2008 and 2007, respectively.




Operating
Expenses




Operating
expenses consist of costs which support the operations of the Wilhelmina
Companies, including payroll, rent, overhead, insurance, travel and professional
fees.  During the year ended December 31, 2008, operating expenses
increased approximately $934,000, or 8.7%, to $11,651,000 compared to
$10,717,000 during the year ended December 31, 2007.




Because
the Wilhelmina Companies provide professional services to the models, artists
and celebrities, salary and service costs represent the largest part of the
Wilhelmina Companies’ operating expenses.  Salary and service costs
are comprised of payroll and related costs and travel costs required to deliver
the Wilhelmina Companies’ services and to enable new business development
activities.  During the year ended December 31, 2007, the Wilhelmina
Companies continued to invest in professional personnel and pursue new
business.  Salary and service costs as a percentage of total operating
expenses were 65.6% and 62.9% for the years ended December 31, 2008 and 2007,
respectively.  Approximately $775,000, or 86%, of the approximately
$900,000 increase in total operating expenses in 2008 resulted from
increases in salary and service costs.  This increase was attributable
to the increase in revenues in 2008, which drove necessary increases in the
direct costs required to deliver the Wilhelmina Companies’ services, including
travel related costs.
 Office
and general expenses are comprised of office and equipment rents, advertising
and promotion, overhead expenses, insurance expenses, professional fees,
technology cost and depreciation.  These costs are less directly
linked to changes in the Wilhelmina Companies’ revenues than their salary and
service costs.  Office and general expenses, as a percentage of total
operating expenses, were 26.0% for the year ended December 31, 2008 and 28.0%
for the year ended December 31, 2007.  Office and general expenses
remained relatively flat due to the typically fixed nature of these expenses,
even though revenues increased approximately 12.6% for the year ended December
31, 2008 as compared to the year ended December 31, 2007.


Year
      ended December 31,2008
                                                                                            
                                                                                            (in
      thousands)
                                                                                            
                                                                                            
                                                                                            2007$
                                                                                            
                                                                                            
                                                                                            %
      of
                                                                                                Revenue
                                                                                            
                                                                                            %
      of
                                                                                                Operating
      Expenses
                                                                                            
                                                                                            
                                                                                            $
                                                                                            
                                                                                            
                                                                                            %
      of
                                                                                                Revenue
                                                                                            
                                                                                            %
      of
                                                                                                OperatingExpensesRevenues
                                                                                            
                                                                                            $
                                                                                            12,936
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            $
                                                                                            11,490Operating
      Expenses:Salary
      and service costs
                                                                                            
                                                                                            
                                                                                            7,643
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            59.1
                                                                                            %
                                                                                            
                                                                                            
                                                                                            65.6
                                                                                            %
                                                                                            
                                                                                            
                                                                                            6,743
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            58.7
                                                                                            %
                                                                                            
                                                                                            
                                                                                            62.9
                                                                                            %Office
      and general expenses
                                                                                            
                                                                                            
                                                                                            3,033
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            23.5
                                                                                            %
                                                                                            
                                                                                            
                                                                                            26.0
                                                                                            %
                                                                                            
                                                                                            
                                                                                            2,999
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            26.1
                                                                                            %
                                                                                            
                                                                                            
                                                                                            28.0
                                                                                            %Owner’s
      compensation
                                                                                            
                                                                                            
                                                                                            975
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            7.5
                                                                                            %
                                                                                            
                                                                                            
                                                                                            8.4
                                                                                            %
                                                                                            
                                                                                            
                                                                                            975
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            8.5
                                                                                            %
                                                                                            
                                                                                            
                                                                                            9.1
                                                                                            %Total
      Operating Expenses
                                                                                            
                                                                                            
                                                                                            11,651
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            90.1
                                                                                            %
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            10,717
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            93.3
                                                                                            %Operating
      Income
                                                                                            
                                                                                            $
                                                                                            1,285
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            
                                                                                            $
                                                                                            773




23
 INDEX




Interest
Income




Interest
income totaled $19,614 during the year ended December 31, 2008, compared to
$12,591 during the year ended December 31, 2007.




Interest
Expense




Interest
expense totaled $1,000,766 during the year ended December 31, 2008, compared to
$992,011 during the year ended December 31, 2007.  Prior to closing
the Wilhelmina Transaction, the Wilhelmina Companies were obligated to make
payments under a $6,000,000 promissory note, carrying an interest rate of 12.5%
in favor Krassner L.P.  Interest was paid quarterly and aggregated
$750,000 in each year ended December 31, 2008 and 2007.  This note was
repaid in full at the closing of the Wilhelmina Transaction.




Equity
in income of affiliate




The
Wilhelmina Companies account for their investment in their 50% owned affiliate
using the equity method of accounting.  Accordingly, the Wilhelmina
Companies recognize their pro-rata share of the affiliate’s income or loss in
earnings.  Distributions from the affiliate are reflected as a
reduction of the investment.  Equity in income of affiliate totaled
$13,364 during the year ended December 31, 2008, compared to $17,650 during the
year ended December 31, 2007.  The decrease in equity income of affiliate
was attributable to a decrease in the net income of the affiliate.


Net
income (loss)




During
the year ended December 31, 2008, the Wilhelmina Companies recorded net income
of $60,907 compared to a net loss of $(166,098) during the year ended December
31, 2007.  The increase in profits and resulting income for the year
ended December 31, 2008 was primarily attributable to net income from the
Wilhelmina Miami division for the year ended December 31, 2008, which had
incurred a net loss for the year ended December 31, 2007.




LIQUIDITY
AND CAPITAL RESOURCES




The
Company’s cash balance decreased to $11,735,000 at December 31, 2008, from
$12,679,000 at December 31, 2007.  The majority of the decrease is
attributable to funding of transaction costs associated with the Wilhelmina
Transaction and cash paid for G&A expenses, which expenses were somewhat
offset by interest income.


24
 INDEX




Wilhelmina




On
February 13, 2009, the Company closed the Wilhelmina Transaction and funded
approximately $13,066,000 to the various parties involved in accordance with the
Acquisition Agreement and $1,756,000 associated with the escrow facility
discussed below.  Cash on hand and the $3,000,000 in proceeds from
Newcastle under the Equity Financing Agreement were used to fund the closing
amounts.




The
Wilhelmina Companies’ primary liquidity needs are for financing working capital
associated with the expenses they incur in performing services under their
client contracts.  The Wilhelmina Companies have in place a credit
facility with Signature Bank (the “Credit Facility”), which includes a term loan
with a balance of $299,874 as of December 31, 2008 and a revolving line of
credit with a balance of $1,500,000 as of December 31, 2008 that allows
Wilhelmina to manage its cash flows.  On January 31, 2009, the
revolving line under the Credit Facility expired and was subsequently extended
until April 30, 2009.  The term note is payable in monthly
installments of $23,784 including interest at a fixed rate of 6.65% per annum
and matures in December 2009.  Interest on the revolving credit note
was payable monthly at an annual rate of prime plus 0.5% (4.5% at December 31,
2008).  The weighted average interest rate for the years ended
December 31, 2008 and 2007 was 5.71% and 8.65%,
respectively.  Availability under the revolving line of credit is
subject to a borrowing base computation.  The line of credit and term
note are collateralized by all of the assets of the Wilhelmina Companies, cross
collateralized by the combined and consolidated Wilhelmina Companies and are
guaranteed by a shareholder of the Company.


The
Wilhelmina Companies’ ability to make payments on the Credit Facility, to
replace their indebtedness, and to fund working capital and planned capital
expenditures will depend on their ability to generate cash in the future, which,
to a certain extent, is subject to general economic, financial, competitive and
other factors that are beyond their control.  The Wilhelmina Companies
have historically secured their working capital facility through accounts
receivable balances and therefore, the Wilhelmina Companies’ ability to continue
servicing debt is dependent upon the timely collection of those
receivables.




As the
revolving line under the Credit Facility expired, and in order to facilitate the
closing of the Wilhelmina Transaction on February 13, 2009, the Company entered
into an agreement with Esch (the “Letter Agreement”), pursuant to which Esch
agreed that $1,756,000 of the cash proceeds to be paid to him at the closing of
the Wilhelmina Transaction would instead be held in escrow.  All or a
portion of such amount held in escrow will be used to satisfy the Wilhelmina
Companies’ indebtedness in connection with the Credit Facility upon the
occurrence of specified events including, but not limited to, written
notification to the Wilhelmina Companies of the termination or acceleration of
the Credit Facility.  Any amount remaining in escrow under the Letter
Agreement will be released to Esch upon the renewal, extension or replacement of
the Credit Facility, subject to certain requirements set forth in the Letter
Agreement.  In the event any portion of the proceeds is paid from
escrow to pay off the Credit Facility, the Company will promptly issue to Esch,
in replacement thereof, a promissory note in the principal amount of the amount
paid.


The
Wilhelmina Companies made capital expenditures of $114,867 and $44,803
during the years ended December 31, 2008 and 2007, respectively.


Newcastle
Financing Arrangement




Concurrently
with the execution of the Acquisition Agreement, the Company entered into the
Equity Financing Agreement with Newcastle whereby Newcastle committed to
purchase, at the Company’s election at any time or times prior to six months
following the closing, up to an additional $2,000,000 (8,097,166 shares of
Common Stock purchased at $0.247) of Common Stock.


25
 INDEX




Purchase
Price Adjustment under Acquisition Agreement




The
aggregate purchase price under the Acquisition Agreement is subject to certain
purchase price adjustments related to “core business” EBITDA
calculations.  Depending on the outcome of these purchase price
adjustments, the Control Sellers may have the option to pay to the Company in
cash, such amount of the adjustments, not to exceed $4,500,000.




Ascendant




The total
potential purchase price under the terms of the Ascendant Agreement was
$1,550,000, payable in four equal installments of $387,500.  Subject
to the provisions of the Ascendant Agreement, the third installment was payable
on April 5, 2006 and the fourth installment was payable on July 5,
2006.  On April 5, 2006, the Company elected not to make the April
installment payment and subsequently determined not to make the installment
payment due July 5, 2006.




Subject
to the terms of the Ascendant Agreement, if the Company does not make an
installment payment and Ascendant is not in breach of the Ascendant Agreement,
Ascendant has the right to acquire the Company’s revenue interest at a price
which would yield a 10% annualized return to the Company.  The Company
has been notified by Ascendant that Ascendant is exercising this right as a
result of the Company’s election not to make its third and fourth installment
payments.  The Company believes that Ascendant has not satisfied the
requisite conditions to repurchase the Company’s revenue interest, including as
a result of Ascendant’s failure to make required revenue sharing payments for
the quarters ended June 30, 2006, September 30, 2006 and December 31, 2006 and
for the years ended December 31, 2007 and December 31, 2008, and at this time
the Company believes it is not obligated to make the third and fourth
installment payments to Ascendant.




Under the
terms of the Ascendant Agreement, upon notice of an uncured material breach,
Ascendant is required to fully refund all amounts paid by the Company, and the
Company’s revenue interest remains outstanding.  The Company has not
recorded any revenue or received any revenue sharing payments for the quarters
ended September 30, 2006 and December 31, 2006 and for the years ended December
31, 2007 and December 31, 2008.  According to the Ascendant Agreement,
if Ascendant acquires the revenue interest from the Company, Ascendant must pay
the Company a return on the capital that it invested.  Pursuant to the
Ascendant Agreement, the required return on the Company’s invested capital will
not be impacted by any revenue sharing payments made or not made by
Ascendant.




Lease
Guarantees




The
Company, which was formerly known as Billing Concepts Corp. (“BCC”), was
incorporated in the state of Delaware in 1996.  BCC was previously a
wholly owned subsidiary of U.S. Long Distance Corp. (“USLD”) and principally
provided third-party billing clearinghouse and information management services
to the telecommunications industry (the “Transaction Processing and Software
Business”).  Upon its spin-off from USLD, BCC became an independent,
publicly held company.  In October 2000, the Company completed the
sale of several wholly owned subsidiaries that comprised the Transaction
Processing and Software Business to Platinum Holdings (“Platinum”) for
consideration of $49,700,000 (the “Platinum Transaction”).




26
 INDEX




Under the
terms of the Platinum Transaction, all leases and corresponding obligations
associated with the Transaction Processing and Software Business were assumed by
Platinum.  Prior to the Platinum Transaction, the Company guaranteed
two operating leases for office space of the divested companies.  The
first lease is related to office space located in San Antonio, Texas, and
expired in 2006.  The second lease is related to office space located
in Austin, Texas, and expires in 2010.  Under the original terms of
the second lease, the remaining minimum undiscounted rent payments total
approximately $1,418,000 at December 31, 2008.  In conjunction with
the Platinum Transaction, Platinum agreed to indemnify the Company should the
underlying operating companies not perform under the terms of the office
leases.  The Company can provide no assurance as to Platinum’s
ability, or willingness, to perform its obligations under the
indemnification.  The Company does not believe it is probable that it
will be required to perform under the remaining lease guarantee and, therefore,
no liability has been accrued in the Company’s financial
statements.




Off-Balance
Sheet Arrangements




The
Company guaranteed two operating leases for office space for certain of its
wholly owned subsidiaries prior to the Platinum Transaction (see Liquidity and
Capital Resources – Lease Guarantees above).  One such lease expired
in 2006.




Seasonality




The
Company’s current operations are not significantly affected by
seasonality.




Effect
of Inflation




Inflation
has not 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




Impairment
of Investments and Intangible Assets




For
intangible assets which meet the indefinite life criteria outlined in Statement
of Financial Accounting Standards No. 142, “Goodwill and Other Intangible
Assets”, the Company does not amortize these intangible assets, but instead
reviews the assets quarterly for impairment.  Each reporting period,
the Company assesses whether events or circumstances have occurred which
indicate that the carrying amount of the intangible asset exceeds its fair
value.  If the carrying amount of the intangible asset exceeds its
fair value, an impairment loss will be recognized in an amount equal to that
excess.  After an impairment loss is recognized, the adjusted carrying
amount of the intangible asset shall be its new accounting
basis.  Subsequent reversal of a previously recognized impairment loss
is prohibited.




The
Company assesses whether the entity in which the acquired revenue interest
exists meets the indefinite life criteria based on a number of factors
including: the historical and potential future operating  performance;
the historical and potential future rates of attrition among existing clients;
the stability and
longevity of existing client relationships; the recent, as well as long-term,
investment performance; the characteristics of the entities’products and investment
styles; the stability and depth of the managementteam and the history and
perceivedfranchise or brand
value.




27
 INDEX




The
Company has
acquiredsignificant intangible assets through the Wilhelmina
Transaction.  These intangible assets will consist of the Wilhelmina
brand/trademarks and customer relationships and intangible assets with finite
lives, such as model contracts, talent contracts, property leases,
noncompetition agreements and license agreements, and the remainder of any
intangible assets not meeting the above criteria will be allocated to
goodwill.  Some of these assets, such as goodwill and the Wilhelmina
brand/trademarks will be non-amortizable.




Business
Combinations




In
December 2007, the FASB released Statement of Financial Accounting Standards No.
141(R), Business Combinations (revised 2007) (“SFAS 141(R)”), which changes many
well-established business combination accounting practices and significantly
affects how acquisition transactions are reflected in the financial
statements.  Additionally, SFAS 141(R) will affect how companies
negotiate and structure transactions, model financial projections of
acquisitions and communicate to stakeholders.  SFAS 141(R) must be
applied prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008.


Under the
purchase method of accounting, the total preliminary purchase price of the
Wilhelmina Transaction has been allocated to the net tangible and intangible
assets acquired and liabilities assumed, based on various preliminary estimates,
which assume that historical cost approximates fair value of the assets and
liabilities of the Wilhelmina Companies.  The intangible assets
acquired will include intangible assets with indefinite lives, such as the
Wilhelmina brand/trademarks and customer relationships and intangible assets
with finite lives, such as model contracts, talent contracts, property leases,
noncompetition agreements and license agreements, and the remainder of any
intangible assets not meeting the above criteria will be allocated to
goodwill.  Some of these assets, such as goodwill and the Wilhelmina
brand/trademarks will be non-amortizable.  Other assets, such as model
contracts, talent contracts, property leases, noncompetition agreements and
license agreements will be amortized on a straight line basis over their
estimated useful lives which range from 3-10 years.  The Company is in
the process of completing its assessment of the estimated fair value of the
Wilhelmina Companies net assets acquired (which will include an assessment of
the Control Sellers’ noncompetition agreements with the Company) and plans to
engage a third-party valuation firm to assist in this process.  At
this time, all excess purchase price over the historical net book value of the
Wilhelmina Companies net assets acquired has been allocated to trademarks and
intangible assets with indefinite lives, other intangible assets with finite
lives and other goodwill until such analysis is
complete.  Approximately one-third of the purchase price of the
Wilhelmina Transaction will result in tax deductible
goodwill.




Under
SFAS 141(R), contingent consideration or earn outs will be recorded at their
fair value at the acquisition date.  Except in bargain purchase
situations, contingent considerations typically will result in additional
goodwill being recognized.  Contingent consideration classified as an
asset or liability will be adjusted to fair value at each reporting date through
earnings until the contingency is resolved.


These
estimates are subject to change upon the finalization of the valuation of
certain assets and liabilities and may be adjusted in accordance with SFAS
141(R).




Basis
of Combination




The
financial statements of the Wilhelmina Companies attached as Exhibit 99.1
hereto, include the consolidated accounts of (a) Wilhelmina International and
its wholly owned subsidiaries Wilhelmina West, Wilhelmina Models, and LW1 and
(b) Wilhelmina Miami, WAM, Wilhelmina Licensing, and Wilhelmina TV, which are
each wholly owned subsidiaries of the Company.   Wilhelmina
International, Wilhelmina West, Wilhelmina Models, LW1, Wilhelmina Miami, WAM,
Wilhelmina Licensing, and Wilhelmina TV are combined as a consolidated group of
companies.  The collective group is referred to as the Wilhelmina
International Group.  All significant inter-company accounts and
transactions have been eliminated in the combination.




28
 INDEX




Revenue
Recognition




The
financial statements of the Wilhelmina Companies attached as Exhibit 99.1
hereto, include revenues for which the Wilhelmina Companies act as an agent for
and records revenue equal to the net amount retained, when the fee or commission
is earned.  The Wilhelmina Companies recognize services provided as
revenue upon the rendering of modeling services to their
clients.  Commission income represents a percentage charged to the
models upon the completion of their services to the clients.  The
Wilhelmina Companies also recognize management fees as revenues for providing
services to other modeling agencies as well as consulting income in connection
with services provided to a television production network according to the terms
of the contract.  The Wilhelmina Companies recognize royalty income when
earned based on the terms of the contractual agreement.  Commissions and
service charges received in advance are amortized using the straight-line method
over periods pursuant to the contract.




Accounts
Receivable




The
financial statements of the Wilhelmina Companies attached as Exhibit 99.1
hereto, include accounts receivable of the Wilhelmina Companies which consist of
trade receivables recorded at original invoice amounts, net of the allowance for
doubtful accounts, and are subject to credit risk.  Trade credit is
generally extended on a short-term basis; thus, trade receivables do not bear
interest.  Trade receivables are periodically evaluated for
collectability based on past credit histories with customers and their current
financial conditions.  Changes in the estimated collectability of
trade receivables are recorded in the results of operations for the periods in
which the estimates are revised.




New
Accounting Standards


In December 2007, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 141(R), “Business Combinations (Revised 2007).” SFAS No. 141(R), replaces
SFAS No. 141, “Business Combinations,” and applies to all transactions and
other events in which one entity obtains control over one or more other
entities. SFAS No. 141(R) requires an acquirer, upon initially obtaining
control of another entity, to recognize the assets, liabilities, and any
non-controlling interest in the acquiree at fair value as of the acquisition
date. Contingent consideration is required to be recognized and measured at fair
value on the date of acquisition rather than at a later date when the amount of
that consideration may be determinable beyond a reasonable doubt. This fair
value approach replaces the cost-allocation process required under SFAS
No. 141(R), whereby the cost of an acquisition was allocated to the
individual assets acquired and liabilities assumed based on their estimated fair
value. SFAS No. 141(R) requires the acquiring entity to expense
acquisition-related costs as incurred rather than allocating such costs to the
assets acquired and liabilities assumed, as was previously the case under SFAS
No. 141(R). Under SFAS No. 141(R), the requirements of SFAS
No. 146, “Accounting for Costs Associated with Exit or Disposal
Activities,” would have to be met in order to accrue for a restructuring plan in
purchase accounting. Pre-acquisition contingencies are to be recognized at fair
value, unless it is a non-contractual contingency that is not likely to
materialize, in which case, nothing should be recognized in purchase accounting
and, instead, that contingency would be subject to the probable and estimable
criteria of SFAS No. 5, “Accounting for Contingencies.” SFAS
No. 141(R) applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. An entity may not adopt
this standard early. See Business Combinationsin
Critical Accounting Policies above for a discussion regarding the impact of SFAS
No. 141(R) on the financial statements of the Company.
  In
September 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 157 (“SFAS No. 157”), “Fair Value
Measurements.” SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. The Company adopted SFAS No. 157
on January 1, 2008.  The adoption of the new accounting standard
did not have an impact on the Company’s financial statements.
  In
February 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 159 (“SFAS No. 159”), “The Fair
Value Option for Financial Assets and Financial Liabilities—Including an
amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to
choose to measure eligible items at fair value at certain specified review
dates. Changes in unrealized gains/losses for items elected to be measured using
the fair value option are reported in earnings at each subsequent reporting
date. The fair value option (i) may be applied instrument by instrument,
with certain exceptions, (ii) is irrevocable (unless a new election date
occurs) and (iii) is applied only to entire instruments and not to portions
of instruments. The Company adopted SFAS No. 159 on January 1, 2008.
The adoption of the new accounting standard did not have an impact on the
Company’s financial statements.


29
 INDEX




In
December 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 160 (“SFAS No. 160”),
“Noncontrolling Interests in Consolidated Financial Statements, an amendment of
ARB Statement No. 51.” SFAS No. 160 amends Accounting Research
Bulletin (ARB) No. 51. “Consolidated Financial Statements,” to establish
accounting and reporting standards for the non-controlling interest in a
subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160
clarifies that a non-controlling interest in a subsidiary, which is sometimes
referred to as minority interest, is an ownership interest in the consolidated
entity that should be reported as a component of equity in the consolidated
financial statements. Among other requirements, SFAS No. 160 requires
consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the non-controlling interest. It also
requires disclosure, on the face of the consolidated financial statements, of
the amounts of consolidated net income attributable to the parent and to the
non-controlling interest. SFAS No. 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after
December 15, 2008, or January 1, 2009 for entities with a calendar
year end. An entity may not adopt this standard early.  The Company
does not expect the adoption of the new accounting standard to have an impact on
the Company’s financial statements.
 In March
2008, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 161 (“SFAS No. 161”), “Disclosures about
Derivative Instruments and Hedging Activities, an amendment of FASB Statement
No. 133.”  SFAS No. 161 amends and expands the disclosure
requirements of SFAS No. 133 to provide greater transparency about how and
why an entity uses derivative instruments, how derivative instruments and
related hedge items are accounted for under SFAS No. 133 and its related
interpretations and how derivative instruments and related hedged items affect
an entity’s financial position, results of operations and cash
flows.  SFAS No. 161 requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about
fair value amounts of gains and losses on derivative instruments and disclosures
about credit-risk-related contingent features in derivative
agreements.  SFAS No. 161 is effective for fiscal years and
interim periods beginning after November 15, 2008.  The Company
does not expect the adoption of the new accounting standard to have an impact on
the Company’s financial statements.
  In May
2008, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 162 (“SFAS No. 162”), “The Hierarchy of
Generally Accepted Accounting Principles.”  SFAS No. 162
identifies the sources of accounting
principles and framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
U.S.  The hierarchy guidance provided by SFAS No. 162 did not
have a significant impact on the Company’s financial
statements.




ITEM
7A.                      QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK




Not
applicable.




ITEM
8.                      FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA




The
Consolidated Financial Statements of the Company and the related report of the
Company’s independent registered public accounting firm thereon, are included in
this report at the page indicated.




PageReport
      of Independent Registered Public Accounting Firm
                
                31Consolidated
      Balance Sheets as of December 31, 2008 and 2007
                
                32Consolidated
      Statements of Operations for the Years Ended December 31, 2008 and
      2007
                
                33Consolidated
      Statements of Shareholders’ Equity for the Years Ended December 31, 2008
      and 2007
                
                34Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2008 and
      2007
                
                35Notes
      to Consolidated Financial Statements
                
                36






30
 INDEX




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the
Board of Directors




Wilhelmina
International, Inc. (formerly known as New Century Equity Holdings
Corp.)




We have
audited the accompanying consolidated balance sheets of Wilhelmina
International, Inc. (a Delaware corporation) and Subsidiaries as of December 31,
2008 and 2007, and the related consolidated statements of operations, shareholders’equity and cash flows for
the years then ended.  These financial statements are the
responsibility of the Company’s
management.  Our responsibility is to express an opinion on
these financial statements based on our audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (U.S.).  Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.




In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Wilhelmina
International, Inc. and Subsidiaries as of December 31, 2008 and 2007, and the
consolidated results of their operations and their consolidated cash flows for
the years ended December 31, 2008 and 2007 in conformity with accounting
principles generally accepted in the United States of America.




/s/
Burton McCumber & Cortez, L.L.P.
  Brownsville,
Texas
 March 23,
2009




31
 INDEX





WILHELMINA
INTERNATIONAL, INC.


(FORMERLY
KNOWN AS NEW CENTURY EQUITY HOLDINGS CORP.)


AND
SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


(In
thousands, except share data)




ASSETSDecember
      31, 2008
              
              
              December
      31, 2007Current
      assets:Cash
      and cash equivalents
              
              $
              11,735
              
              
              $
              12,679Prepaids
      and other assets
              
              
              176
              
              
              
              37Total
      current assets
              
              
              11,911
              
              
              
              12,716Revenue
      interest
              
              
              803
              
              
              
              803Total
      assets
              
              $
              12,714
              
              
              $
              13,519LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
              
              $
              41
              
              
              $
              -Accrued
      liabilities
              
              
              252
              
              
              
              131Current
      and total liabilities
              
              
              293
              
              
              
              131Commitments
      and contingenciesShareholders’
      equity:Preferred
      stock, $0.01 par value, 10,000,000 shares authorized; none
      outstanding
              
              
              -
              
              
              
              -Common
      stock, $0.01 par value, 250,000,000 shares authorized; 129,440,752 shares
      issued and outstanding
              
              
              539
              
              
              
              539Additional
      paid-in capital
              
              
              75,357
              
              
              
              75,357Accumulated
      deficit
              
              
              (63,475
              )
              
              
              (62,508
              )Total
      shareholders’ equity
              
              
              12,421
              
              
              
              13,388Total
      liabilities and shareholders’ equity
              
              $
              12,714
              
              
              $
              13,519
  The
accompanying notes are an integral part of these consolidated financial
statements




32
 INDEX


WILHELMINA
INTERNATIONAL, INC.


(FORMERLY
KNOWN AS NEW CENTURY EQUITY HOLDINGS CORP.)


AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


(In
thousands, except per share data)





Year
      ended
                  December
      31,2008
              
              
              2007Operating
      revenues
              
              $
              -
              
              
              $
              -Operating
      expenses:General
      and administrative expenses
              
              
              357
              
              
              
              552Acquisition transaction costs
              
              
              849
              
              
              
              -Operating
      loss
              
              
              (1,206
              )
              
              
              (552
              )Other
      income (expense):Interest
      income
              
              
              239
              
              
              
              607Total
      other income
              
              
              239
              
              
              
              607Net
      income (loss) applicable to common shareholders
              
              $
              (967
              )
              
              $
              55Basic and diluted net income (loss) per common share
              
              $
              (0.02
              )
              
              $
              -Weighted
      average common shares outstanding
              
              
              53,884
              
              
              
              53,884




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




33
 INDEX





WILHELMINA
INTERNATIONAL, INC.


(FORMERLY
KNOWN AS NEW CENTURY EQUITY HOLDINGS CORP.) AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY


For
the Years Ended December 31, 2008 and 2007


(In
thousands)




Common
      Stock
                          
                          
                          Additional
      Paid-in
                          
                          
                          Accumulated
                          
                          
                          Preferred
      Stock
                          
                          
                          Accumulated
      Other ComprehensiveShares
                          
                          
                          Amount
                          
                          
                          Capital
                          
                          
                          Deficit
                          
                          
                          Shares
                          
                          
                          Amount
                          
                          
                          Income
                          
                          
                          TotalBalance
      January 1, 2007
                          
                          
                          53,884
                          
                          
                          $
                          539
                          
                          
                          $
                          75,340
                          
                          
                          $
                          (62,563
                          )
                          
                          -
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          $
                          13,316Share
      based payment expense
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          17
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          17Comprehensive
      income (loss):Net
      income applicable to common shareholders
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          55
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          55Comprehensive
      income
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          55
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          55Balances
      at December 31, 2007
                          
                          
                          53,884
                          
                          
                          
                          539
                          
                          
                          
                          75,357
                          
                          
                          
                          (62,508
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          13,388Comprehensive
      income (loss):Net
      loss applicable to common shareholders
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (967
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (967
                          )Comprehensive
      loss
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (967
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (967
                          )Balances
      at December 31, 2008
                          
                          
                          53,884
                          
                          
                          $
                          539
                          
                          
                          $
                          75,357
                          
                          
                          $
                          (63,475
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          $
                          12,421





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


34
 INDEX





WILHELMINA
INTERNATIONAL, INC.


(FORMERLY
KNOWN AS NEW CENTURY EQUITY HOLDINGS CORP.)


AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(In
thousands)


Year
      ended
                          December
      31,2008
                        
                        
                        2007Cash
      flows from operating activities:Net
      (loss) income
                        
                        $
                        (967
                        )
                        
                        $
                        55Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Share
      based payment expense
                        
                        
                        -
                        
                        
                        
                        17Changes
      in operating assets and liabilities:(Increase)
      decrease in prepaids and other assets
                        
                        
                        (139
                        )
                        
                        
                        331Increase
      (decrease) in accounts payable
                        
                        
                        41
                        
                        
                        
                        (13
                        )Increase
      (decrease) in accrued liabilities
                        
                        
                        121
                        
                        
                        
                        (28
                        )Net
      cash (used in) provided by operating activities
                        
                        
                        (944
                        )
                        
                        
                        362Cash
      flows from investing activities:Purchase
      of property and equipment
                        
                        
                        -
                        
                        
                        
                        (2
                        )Net
      cash used in investing activities
                        
                        
                        -
                        
                        
                        
                        (2
                        )Cash
      flows from financing activities
                        
                        
                        -
                        
                        
                        
                        -Net
      (decrease) increase in cash and cash equivalents
                        
                        
                        (944
                        )
                        
                        
                        360Cash
      and cash equivalents, beginning of period
                        
                        
                        12,679
                        
                        
                        
                        12,319Cash
      and cash equivalents, end of period
                        
                        $
                        11,735
                        
                        
                        $
                        12,679




The
accompanying notes are an integral part of these consolidated financial
statements
  35
 INDEX


WILHELMINA
INTERNATIONAL, INC.


(FORMERLY
KNOWN AS NEW CENTURY EQUITY HOLDINGS CORP.)


AND
SUBSIDIARIES


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2008 and 2007




Note
1.  Business Activity




Wilhelmina
Acquisition Agreement




On August
25, 2008, the Company and Wilhelmina Acquisition Corp., a New York corporation
and wholly owned subsidiary of the Company (“Wilhelmina Acquisition”), entered
into an agreement (the “Acquisition Agreement”) with Dieter Esch (“Esch”), Lorex
Investments AG, a Swiss corporation (“Lorex”), Brad Krassner (“Krassner”),
Krassner Family Investments, L.P. (“Krassner L.P.” and together with Esch, Lorex
and Krassner, the “Control Sellers”), Wilhelmina International, Ltd., a New York
corporation (“Wilhelmina International”), Wilhelmina – Miami, Inc., a Florida
corporation (“Wilhelmina Miami”), Wilhelmina Artist Management LLC, a New York
limited liability company (“WAM”), Wilhelmina Licensing LLC, a Delaware limited
liability company (“Wilhelmina Licensing”), and Wilhelmina Film & TV
Productions LLC, a New York limited liability company (“Wilhelmina TV” and
together with Wilhelmina International, Wilhelmina Miami, WAM and Wilhelmina
Licensing, the “Wilhelmina Companies”), Sean Patterson, an executive with the
Wilhelmina Companies (“Patterson”), and the shareholders of Wilhelmina Miami
(the “Miami Holders” and together with the Control Sellers and Patterson, the
“Sellers”).  Pursuant to the Acquisition Agreement, which closed
February 13, 2009, the Company acquired the Wilhelmina Companies subject to the
terms and conditions thereof (the “Wilhelmina Transaction”).  The
Acquisition Agreement provided for (i) the merger of Wilhelmina Acquisition with
and into Wilhelmina International in a stock-for-stock transaction, as a result
of which Wilhelmina International became a wholly owned subsidiary of the
Company (the “Merger”) and (ii) the Company purchased the outstanding equity
interests of the other Wilhelmina Companies for cash.




At the
2008 Annual Meeting of Shareholders held on February 5, 2009, the shareholders
approved and adopted an amendment to the Company’s Amended and Restated
Certificate of Incorporation (the “Certificate of Incorporation”) to change the
Company’s name from “New Century Equity Holdings Corp.” to “Wilhelmina
International, Inc.”




At the
closing of the Wilhelmina Transaction, on February 13, 2009, the Company paid an
aggregate purchase price of $22,431,721 in connection therewith, of which
$16,431,721 was paid for the outstanding equity interests of the Wilhelmina
Companies and $6,000,000 in cash repaid the outstanding balance of a note held
by a Control Seller.  The purchase price included $7,609,336
(63,411,131 shares) of Common Stock of the Company (the “Common Stock”), valued
at $0.12 per share (representing the closing price of the Company’s Common Stock
on February 13, 2009) that was issued in connection with the merger of
Wilhelmina Acquisition with and into Wilhelmina International.  The
remaining $8,822,385 of cash was paid to acquire the equity interests of the
remaining Wilhelmina Companies.
  The
purchase price is subject to certain post-closing adjustments, which may be
effected against a total of 19,229,746 shares of Common Stock (valued at
$2,307,570 at February 13, 2009) that are being held in escrow pursuant to the
Acquisition Agreement.  The $22,431,721 paid at closing, less
19,229,746 of Common Stock held in escrow in respect of the purchase price
adjustment, provides for a floor purchase price of $20,124,151 (which amount may
be further reduced in connection with certain indemnification
matters).  The shares of Common Stock held in escrow may be
repurchased by the Company for a nominal amount, subject to certain earnouts and
offsets.


36
 INDEX




Upon the
closing of the Wilhelmina Transaction, the Control Sellers and Patterson
obtained certain demand and piggyback registration rights pursuant to a
registration rights agreement with respect to the Common Stock issued to them
under the Acquisition Agreement.  The registration rights agreement
contains certain indemnification provisions for the benefit of the Company and
the registration rights holders, as well as certain other customary
provisions.




The
shares of Common Stock held in escrow support earnout offsets and
indemnification obligations of the Sellers.  The Control Sellers are
required to leave in escrow, through 2011, any stock “earned” following
resolution of “core” adjustment, up to a total value of
$1,000,000.  Losses at WAM and Wilhelmina Miami, respectively, can be
offset against any positive earnout with respect to the other Wilhelmina
company.  Losses in excess of earnout amounts could also result in the
repurchase of the remaining shares of Common Stock held in escrow for a nominal
amount.  Working capital deficiencies may also reduce positive earnout
amounts.  The earnouts are payable in 2012.


Newcastle
Financing Agreement




Concurrently with the
execution of the Acquisition Agreement, the Company entered into a purchase
agreement (the “EquityFinancing
Agreement”)
with Newcastle Partners, L.P., a Texas limited partnership (“Newcastle”), whichat that
time owned19,380,768 shares or approximately 36% of the Company’s outstanding Common
Stock, for the purpose of obtaining financing to complete the
transactions contemplated by the Acquisition Agreement.  Pursuant to
the Equity Financing Agreement, upon the closing of the Wilhelmina Transaction,
the Company sold to Newcastle $3,000,000 (12,145,749 shares) of Common Stock at
$0.247 per share, or approximately (but slightly higher than) the per share
price applicable to the Common Stock issuable under the Acquisition
Agreement.  As a result, Newcastle now
owns 31,526,517 shares of Common Stock or approximately 24% of the Company’s
outstanding Common Stock.  In addition, under the
Equity Financing Agreement, Newcastle committed to purchase, at the
Company’s election at any time or
times prior to six months following theclosing, up to an additional
$2,000,000 (8,097,166 shares) of Common Stock on the same terms.  Upon
the closing of the Equity Financing Agreement, Newcastle obtained certain demand
and piggyback registration rights with respect to the Common Stock it holds,
including the Common Stock issuable under the Equity Financing
Agreement.  The registration rights agreement contains certain
indemnification provisions for the benefit of the Company and Newcastle, as well
as certain other customary provisions.




Sean
Patterson Employment Agreement




On
November 10, 2008, the Company, Wilhelmina International and Sean Patterson
entered into an Employment Agreement (the “Employment Agreement”) covering the
terms of the employment of Mr. Patterson by Wilhelmina International subject to,
and effective upon, the closing of the Wilhelmina
Transaction.   See “Wilhelmina Acquisition
Agreement” above.  Under the Employment Agreement, Mr.
Patterson will continue to serve as President of Wilhelmina
International.  Mr. Patterson will receive a base salary of $475,000
per year and an annual bonus based on the excess of the combined annual earnings
of Wilhelmina International, WAM and Wilhelmina Models, Inc., a Wilhelmina
International subsidiary, over $4,000,000.  The Employment Agreement
has a three –year term.  Mr. Patterson is subject to certain
non-competition, non-solicitation and related obligations during and following
the term of the Employment Agreement.


Historical
Overview




The
Company, formerly known as New
Century Equity Holdings Corp. andBilling Concepts Corp. (“BCC”), was
incorporated in the state of Delaware in 1996.  BCC was previously a
wholly owned subsidiary of U.S. Long Distance Corp. (“USLD”) and principally
provided third-party billing clearinghouse and information management services
to the telecommunications industry (the “Transaction Processing and Software
Business”).  Upon its spin-off from USLD, BCC became an independent,
publicly held company.  In October 2000, the Company completed the
sale of several wholly owned subsidiaries that comprised the Transaction
Processing and Software Business to Platinum Holdings (“Platinum”) for
consideration of $49,700,000 (the “Platinum Transaction”).  The
Company also received payments totaling $7,500,000 for consulting services
provided to Platinum over the twenty-four month period subsequent to the
Platinum Transaction.




37
 INDEX




Beginning
in 1998, the Company made multiple investments in Princeton eCom Corporation
(“Princeton”) totaling approximately $77,300,000 before selling all of its
interest for $10,000,000 in June 2004.  The Company’s strategy,
beginning with its investment in Princeton, of making investments in high-growth
companies was also facilitated through several other investments.




In early
2004, the Company announced that it would seek shareholder approval to liquidate
the Company.  In June of 2004, the Board of Directors of the Company
determined that it would be in the best interest of the Company to accept an
investment from Newcastle, an investment fund with a long track record of
investing in public and private companies.  On June 18, 2004, the
Company sold 4,807,692 newly issued shares of its Series A 4% Convertible
Preferred Stock (the “Series A Preferred Stock”) to Newcastle for $5,000,000
(the “Newcastle Transaction”).  The Series A Preferred Stock was
convertible into approximately thirty-five percent of the Company’s common stock
(the “Common Stock”), at any time after the expiration of twelve months from the
date of its issuance at a conversion price of $0.26 per share of Common Stock,
subject to adjustment for dilution.  The holders of the Series A
Preferred Stock were entitled to a four percent annual cash dividend (the
“Preferred Dividends”).  Following the investment by Newcastle, the
management team resigned and new executives and board members were
appointed.  On July 3, 2006, Newcastle converted its Series A
Preferred Stock into 19,230,768 shares of Common Stock.




Derivative
Lawsuit




On August
11, 2004, Craig Davis, allegedly a shareholder of the Company, filed a lawsuit
in the Chancery Court of New Castle County, Delaware (the
“Lawsuit”).  The
Lawsuit asserted direct claims, and also derivative claims on the
Company’s behalf,
against five former and three current directors of the Company.  On
April 13, 2006, the Company announced that it reached an agreement with all of
the parties to
the Lawsuit to settle all claims relating thereto (the “Settlement”).  On
June 23, 2006, the Chancery Court approved the Settlement, and on July 25, 2006,
the Settlement became final and non-appealable.  As part of the
Settlement, the Company setup a fund
(the “Settlement
Fund”), which
was distributed to shareholders of record as of July 28, 2006, with a
payment date of August 11, 2006.  The portion of the Settlement Fund
distributed to shareholders pursuant to the Settlement was $2,270,017 or
approximately $0.04 per common share on a fully diluted basis, provided that any
Common Stock held by defendants in the Lawsuit who were formerly directors of
the Company would not be entitled to any distribution from the Settlement
Fund.  The total Settlementproceeds
of $3,200,000 were funded by the Company’s
insurance carrier and by Parris H. Holmes, Jr., the Company’s former
Chief Executive Officer, who contributed $150,000.  Also included in
the total Settlement proceeds is $600,000 of reimbursement for legal
and professional fees paid to the Company by its insurance carrier and
subsequently contributed by the Company to the Settlement Fund.  Therefore,
theCompany
recognizeda
loss of $600,000 related to the Lawsuit for the year ended December 31,
2006.As part of the Settlement, the Company and the
other defendants in the Lawsuit agreed not to oppose the request for fees and
expenses by counsel to the plaintiff of $929,813.  Under the
Settlement, the plaintiff, the Company and the other defendants (including Mr.
Holmes) also agreed to certain mutual releases.  During October 2007,
the Company and the insurance carrier agreed to settle all claims for
reimbursement of legal and professional fees associated with the Lawsuit for
$240,000.




38
 INDEX




Note
2.  Summary of Significant Accounting Policies




Principles
of Consolidation and Basis of Presentation




The
accompanying consolidated financial statements include the accounts of the
Company, its wholly owned subsidiaries and subsidiaries in which the Company is
deemed to have control for accounting purposes.  All significant
inter-company accounts and transactions have been eliminated in
consolidation.


Estimates
in the Financial Statements




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.  Actual results could differ from those
estimates.




Cash
and Cash Equivalents




The
Company considers all highly liquid investments with original maturities of
three months or less to be cash and cash equivalents.




Accounts
Receivable and Allowance for Doubtful Accounts




Accounts
receivable are accounted for at fair 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.




39
 INDEX




Financial
Instruments




SFAS No.
107, “Disclosures About Fair Value of Financial Instruments”, requires the
disclosure of fair value information about financial instruments, whether or not
recognized on the balance sheet, for which it is practicable to estimate the
value.  SFAS No. 107 excludes certain financial instruments from its
disclosure requirements.  Accordingly, the aggregate fair market value
amounts are not intended to represent the underlying value of the
Company.  The carrying amounts of cash and cash equivalents, current
receivables and current liabilities approximate fair value because of the nature
of these instruments.




Business
Combinations
  In
December 2007, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 141(R), Business Combinations (revised 2007)
(“SFAS 141(R)”), which changes many well-established business combination
accounting practices and significantly affects how acquisition transactions
are reflected in the financial statements.  Additionally, SFAS 141(R)
will affect how companies negotiate and structure transactions, model financial
projections of acquisitions and communicate to stakeholders.  SFAS
141(R) must be applied prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.
 Under
SFAS 141(R), contingent consideration or earn outs will be recorded at their
fair value at the acquisition date.  Except in bargain purchase
situations, contingent considerations typically will result in additional
goodwill being recognized.  Contingent consideration classified as an
asset or liability will be adjusted to fair value at each reporting date through
earnings until the contingency is resolved.
 These
estimates are subject to change upon the finalization of the valuation of
certain assets and liabilities and may be adjusted in accordance with SFAS
141(R).
  In
accordance with SFAS 141(R), acquisition transaction costs, such as certain
investment banking fees, due diligence costs and attorney fees are to be
recorded as a reduction of earnings in the period they are
incurred.  Prior to January 1, 2009, the effective date of SFAS 141(R)
for the Company, acquisition transaction costs were included in the cost of the
acquired business. On February 13, 2009, the Company closed the Wilhelmina
Transaction and therefore, in accordance with the Company’s interpretation of
SFAS 141(R) transition rules, recorded all previously capitalized acquisition
transaction costs of approximately $849,000 as a reduction of earnings for the
year ended December 31, 2008.


Revenue
Interest




The
Company has determined that the revenue interest that it acquired in 2005 meets
the indefinite life criteria outlined in SFAS No. 142, “Goodwill and Other
Intangible Assets” (“SFAS 142”).  Accordingly, the Company does not
amortize this intangible asset, but instead reviews this asset quarterly for
impairment.  Each reporting period, the Company assesses whether
events or circumstances have occurred which indicate that the indefinite life
criteria are no longer met.  If the indefinite life criteria are no
longer met, the Company assesses whether the carrying value of the asset exceeds
its fair value, and an impairment loss is recorded in an amount equal to any
such excess.




The
Company assesses whether the entity in which the acquired revenue interest
exists meets the indefinite life criteria based on a number of factors
including: the historical and potential future operating performance; the
historical and potential future rates of attrition among existing clients; the
stability and longevity of existing client relationships; the recent, as well as
long-term, investment performance; the characteristics of the firm’s products
and investment styles; the stability and depth of the management team and the
history and perceived franchise or brand value.




Short-Term
Investments




The
Company invests its excess cash in money market accounts, U.S. Treasury bills,
and short-term debt securities.  Investments with an original maturity
at the time of purchase over three months but less than a year are classified as
short-term investments.  Investments with an original maturity at the
time of purchase of greater than one year are classified as long-term
investments.  Management determines the appropriate classification of
investments at the time of purchase and reevaluates such designations at the end
of each reporting period.


Concentrations
of Credit Risk




Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash investments.  The Company
maintains cash and cash equivalents and short-term investments.  Cash
deposits at a financial institution may from time to time exceed Federal Deposit
Insurance Corporation insurance limits.




Treasury
Stock




In 2000,
the Company’s Board of Directors approved the adoption of a common stock
repurchase program.  Under the terms of the program, the Company may
purchase an aggregate $25,000,000 of the Company’s Common Stock in the open
market or in privately negotiated transactions.  The Company records
repurchased Common Stock at cost (see Note 8).




40
 INDEX




Income
Taxes




Income
taxes are accounted for under the asset and liability method specified in
Statement of Financial Accounting Standards No. 109, “Accounting for Income
Taxes,” (“SFAS 109”).  Deferred income tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts 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 rates 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
December 31, 2008, and as a result of this assessment, the Company does not
believe that its deferred tax assets are more likely than not to be
realized.  In addition, the Company continuously evaluates its tax
contingencies in accordance with Financial Accounting Standards Board (FASB)
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an
interpretation of FASB Statement No. 109,” (“FIN 48”), which the Company
adopted January 1, 2007.
  FIN 48
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with SFAS
109,  “Accounting for Income Taxes.”  FIN 48
prescribes  a recognition  threshold
and  measurement  attribute  for  the  financial  statement  recognition  and
measurement of a tax position taken or expected to be taken in a tax
return.  FIN 48 also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure and
transition.  There  was  no  change  to  the  net  amount  of  assets  and  liabilities
recognized in the statement of financial condition as a result of the Company’s
adoption of FIN 48.  At January 1, 2007, the Company had no
unrecognized tax benefits.
  Fair
Value
 
 In
September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, “Fair Value Measurements,” (“SFAS 157”), which establishes a
framework for reporting fair value and expands disclosures about fair value
measurements. SFAS 157 was effective for the Company on January 1, 2008, with
the exception that the applicability of SFAS 157’s fair value measurement
requirements to nonfinancial assets and liabilities that are not required or
permitted to be recognized or disclosed at fair value on a recurring basis has
been delayed by the FASB for one year.
  Net
Income (loss) per Common Share
  Statement
of Financial Accounting Standards No. 128, “Earnings Per Share” (SFAS 128),
establishes standards for computing and presenting earnings per share (“EPS”)
for entities with publicly-held common stock or potential common
stock.  For the years ended December 31, 2008 and 2007, diluted EPS
equals basic EPS, as potentially dilutive common stock equivalents were
anti-dilutive.


Stock-Based
Compensation




Effective
January 1, 2006, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 123(R), “Share-Based Payment” (“SFAS 123(R)”)
using the modified prospective transition method.  Under this method,
previously reported amounts should not be restated to reflect the provisions of
SFAS 123(R).  SFAS 123(R) requires the Company to record
compensation expense for all
awards  granted  after  the  date  of  adoption,
and for the unvested portion of
previously  granted  awards  that  remain  outstanding  at
the date of adoption.  The fair value concepts have not changed
significantly in SFAS 123(R); however, in adopting this standard, companies must
choose among alternative valuation models and amortization
assumptions.  After assessing alternative valuation models and
amortization assumptions, the Company will continue using both the Black-Scholes
valuation model and straight-line amortization of compensation expense over the
requisite service period for each separately vesting portion of the grant.
 The Company will reconsider use of this model if additional information
becomes available  in  the future that indicates another
model would be more appropriate,  or if grants issued in future
periods have characteristics that cannot be reasonably estimated using this
model.  The Company utilizes stock-based awards as a form of
compensation for employees, officers and directors.
 The fair
value of the stock option grants included in the Company’s statement of
operations totaled approximately $0 and $17,000 for the years ended December 31,
2008 and 2007.  The expense related to the unvested portion of
previously granted awards that remain outstanding at the date of
adoption.




Note
3.  Revenue Interest




On
October 5, 2005, the Company made an investment in ACP Investments L.P. (d/b/a
Ascendant Capital Partners) (“Ascendant”).  Ascendant is a Berwyn,
Pennsylvania based alternative asset management company whose funds have
investments in long/short equity funds and which distributes its registered
funds primarily through various financial intermediaries and related
channels.




41
 INDEX




The
Company entered into an agreement (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.  Revenues generated by Ascendant include revenues from assets
under management or any other sources or investments, net of any agreed
commissions.  The Company also agreed to provide various marketing
services to Ascendant.  The total potential purchase price under the
terms of the Ascendant Agreement was $1,550,000, payable in four equal
installments of $387,500.  The first installment was paid at the
closing and the second installment was paid on January 5,
2006.  Subject to the provisions of the Ascendant Agreement, including
Ascendant’s compliance with the terms thereof, the third installment was payable
on April 5, 2006 and the fourth installment was payable on July 5,
2006.  On April 5, 2006, the Company elected not to make the April
installment payment and subsequently determined not to make the installment
payment due July 5, 2006.  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.




Subject
to the terms of the Ascendant Agreement, if the Company does not make an
installment payment and Ascendant is not in breach of the Ascendant Agreement,
Ascendant has the right to acquire the Company’s revenue interest at a price
which would yield a 10% annualized return to the Company.  The Company
has been notified by Ascendant that Ascendant is exercising this right as a
result of the Company’s election not to make its third and fourth installment
payments.  The Company believes that Ascendant has not satisfied the
requisite conditions to repurchase the Company’s revenue interest.




Ascendant
had assets under management of approximately $35,600,000 and $37,500,000 as of
December 31, 2008 and December 31, 2007, respectively.  Under the
Ascendant Agreement, revenues earned by the Company from the Ascendant revenue
interest (as determined in accordance with the terms of the Ascendant Agreement)
are payable in cash within 30 days after the end of each
quarter.  Under the terms of the Ascendant Agreement, Ascendant has 45
days following notice by the Company to cure any material breach by Ascendant of
the Ascendant Agreement, including with respect to payment
obligations.  Ascendant failed to make the required revenue sharing
payments for all calendar quarters from June 30, 2006 through September 30,
2008, inclusive, in a timely manner and did not cure such failures within the
required 45 day period.  In addition, Ascendant has not made the
payment for the quarter ended December 31, 2008.  Under the terms of
the Ascendant Agreement, upon notice of an uncured material breach, Ascendant is
required to fully refund all amounts paid by the Company, and the Company’s
revenue interest remains outstanding.




The
Company has not recorded any revenue or received any revenue sharing payments
for the period from July 1, 2006 through December 31, 2008.  According
to the Ascendant Agreement, if Ascendant acquires the revenue interest from the
Company, Ascendant must pay the Company a return on the capital that it
invested.  Pursuant to the Ascendant Agreement, the required return on
the Company’s invested capital will not be impacted by any revenue sharing
payments made or not made by Ascendant.




In
connection with the Ascendant Agreement, the Company also entered into the
Principals Agreement with Ascendant and certain limited partners and key
employees of Ascendant (the “Principals Agreement”) pursuant to which, among
other things, the Company has the option to purchase limited partnership
interests of Ascendant under certain circumstances.  Effective March
14, 2006, in accordance with the terms of the Principals Agreement, the Company
acquired a 7% limited partnership interest from a limited partner of Ascendant
for nominal consideration.  The Principals Agreement contains certain
noncompete and nonsolicitation obligations of the partners of Ascendant that
apply during their employment and the twelve month period following the
termination thereof.




42
 INDEX




Since the
Ascendant revenue interest meets the indefinite life criteria outlined in
Statement of Financial Accounting Standards No. 142, “Goodwill and Other
Intangible Assets”, the Company does not amortize this intangible asset, but
instead reviews this asset quarterly for impairment.  Each reporting
period, the Company assesses whether events or circumstances have occurred which
indicate that the carrying amount of the intangible asset exceeds its fair
value.  If the carrying amount of the intangible asset exceeds its
fair value, an impairment loss will be recognized in an amount equal to that
excess.  After an impairment loss is recognized, the adjusted carrying
amount of the intangible asset shall be its new accounting
basis.  Subsequent reversal of a previously recognized impairment loss
is prohibited.




The
Company assesses whether the entity in which the acquired revenue interest
exists meets the indefinite life criteria based on a number of factors
including: the historical and potential future operating  performance;
the historical and potential future rates of attrition among existing clients;
the stability and longevity of existing client relationships; the recent, as
well as long-term, investment performance; the characteristics of the entities’
products and investment styles; the stability and depth of the
management  team and the history and perceived franchise or brand
value.




Note
4. Commitments
and Contingencies




In
October 2000, the Company completed the Platinum Transaction.  Under
the terms of the Platinum Transaction, all leases and corresponding obligations
associated with the Transaction Processing and Software Business were assumed by
Platinum.  Prior to the Platinum Transaction, the Company guaranteed
two operating leases for office space of the divested companies.  The
first lease is related to office space located in San Antonio, Texas, and
expired in 2006.  The second lease is related to office space located
in Austin, Texas, and expires in 2010.  Under the original terms of
the second lease, the remaining minimum undiscounted rent payments total
approximately $1,418,000 at December 31, 2008.  In conjunction with
the Platinum Transaction, Platinum agreed to indemnify the Company should the
underlying operating companies not perform under the terms of the office
leases.  The Company can provide no assurance as to Platinum’s
ability, or willingness, to perform its obligations under the
indemnification.  The Company does not believe it is probable that it
will be required to perform under the remaining lease guarantee and, therefore,
no liability has been accrued in the Company’s financial
statements.




In a
letter to the Company dated October 16, 2007, a lawyer representing Steven J.
Pully (former CEO) alleged that the Company filed false and misleading
disclosure with the  Securities and Exchange Commission with respect
to the elimination of Mr. Pully’s compensation (see the Company’s Forms 8-K
filed on September 5, 2007 and October 17, 2007).  No specifics were
provided as to such allegations.  The Company believes such
allegations are unfounded and, if a claim is made, the Company intends to
vigorously defend itself.




43
 INDEX




Note
5.  Share Capital




On July
10, 2006, as amended on August 25, 2008, the Company
entered into a shareholders rights plan (the “Rights Plan”) that replaced the
Company’s shareholders rights plan dated July 10, 1996 (the “Old Rights Plan”)
that expired according to its terms on July 10, 2006.  The Rights Plan
provides for a dividend distribution of one preferred share purchase right (a
“Right”) for each outstanding share of Common Stock.  The terms of the
Rights and the Rights Plan are set forth in a Rights Agreement, dated as of July
10, 2006, by and between the Company and The Bank of New York Trust Company,
N.A., now known as The Bank of New York Mellon Trust Company, N.A., as Rights
Agent (the “Rights Agreement”).




The
Company’s Board of Directors adopted the Rights Plan to protect shareholder
value by protecting the Company’s ability to realize the benefits of its net
operating loss carryforwards (“NOLs”) and capital loss
carryforwards.  In general terms, the Rights Plan imposes a
significant penalty upon any person or group that acquires 5% or more of the
outstanding Common Stock without the prior approval of the Company’s Board of
Directors.  Shareholders that own 5% or more of the outstanding Common
Stock as of the close of business on the Record Date may acquire up to an
additional 1% of the outstanding Common Stock without penalty so long as they
maintain their ownership above the 5% level (such increase subject to downward
adjustment by the Company’s Board of Directors if it determines that such
increase will endanger the availability of the Company’s NOLs and/or its capital
loss carryforwards).  In addition, the Company’s Board of Directors
has exempted Newcastle, the Company’s largest shareholder, and may exempt any
person or group that owns 5% or more if the Board of Directors determines that
the person’s or group’s ownership will not endanger the availability of the
Company’s NOLs and/or its capital loss carryforwards.  A person or
group that acquires a percentage of Common Stock in excess of the applicable
threshold is called an “Acquiring Person”.  Any Rights held by an
Acquiring Person are void and may not be exercised.  The Company’s
Board of Directors authorized the issuance of one Right per each share of Common
Stock outstanding on the Record Date.  If the Rights become
exercisable, each Right would allow its holder to purchase from the Company one
one-hundredth of a share of the Company’s Series A Junior Participating
Preferred Stock, par value $0.01 (the “Preferred Stock”), for a purchase price
of $10.00.  Each fractional share of Preferred Stock would give the
shareholder approximately the same dividend, voting and liquidation rights as
does one share of Common Stock.  Prior to exercise, however, a Right
does not give its holder any dividend, voting or liquidation
rights.




On August
25, 2008, in connection with the Wilhelmina Transaction, the Company entered
into an amendment (the “Rights Agreement Amendment”) to the Rights
Agreement.  The Rights Agreement Amendment, among other things, (i)
provides that the execution of the Acquisition Agreement, the acquisition of
shares of Common Stock pursuant to the Acquisition Agreement, the consummation
of the other transactions contemplated by the Acquisition Agreement and the
issuance of stock options to the Sellers or the exercise thereof, will not be
deemed to be events that cause the Rights to become exercisable, (ii) amends the
definition of Acquiring Person to provide that the Sellers and their existing or
future Affiliates and Associates (each as defined in the Rights Agreement) will
not be deemed to be an Acquiring Person solely by virtue of the execution of the
Acquisition Agreement, the acquisition of Common Stock pursuant to the
Acquisition Agreement, the consummation of the other transactions contemplated
by the Acquisition Agreement or the issuance of stock options to the Sellers or
the exercise thereof and (iii) amends the Rights Agreement to provide that a
Distribution Date (as defined below) shall not be deemed to have occurred solely
by virtue of the execution of the Acquisition Agreement, the acquisition of
Common Stock pursuant to the Acquisition Agreement, the consummation of the
other transactions contemplated by the Acquisition Agreement or the issuance of
stock options to the Sellers or the exercise thereof.  The Rights
Agreement Amendment also provides for certain other conforming amendments to the
terms and provisions of the Rights Agreement.  The date that the
Rights become exercisable is known as the “Distribution Date.”




44
 INDEX




The
Company has never declared or paid any cash dividends on its Common Stock, other
than $2,270,017 distributed to the shareholders pursuant to the Settlement in
August 2006 (See Note 1).  On June 30, 2006, Newcastle elected to
receive Preferred Dividends in cash for the period from June 19, 2005 through
June 30, 2006.  On July 3, 2006, Newcastle elected to convert all of
its Series A Preferred Stock into 19,230,768 shares of Common
Stock.




In
connection with the Wilhelmina Transaction, the Company issued 12,145,749 shares
of Common  Stock to Newcastle and 63,411,131 shares to Patterson, the
Control Sellers and their advisor.


At the
2008 Annual Meeting of Shareholders held on February 5, 2009, the shareholders
approved and adopted an amendment to the Company’s Certificate of Incorporation
to increase the number of authorized shares of its Common Stock from 75,000,000
to 250,000,000.




Also, at the 2008 Annual
Meeting of Shareholders held on February
5, 2009,the
shareholders approved a proposal granting authority to the Company’s
Board of Directors to effect at any time prior to December 31, 2009 a reverse
stock split of the Common Stock at a ratio within the range from one-for-ten to
one-for-thirty, with the exact ratio to be set at a whole number within this
range to be determined by the Company’s Board of Directors in its
discretion.




Note
6.  Treasury Stock




In 2000,
the Company’s Board of Directors approved the adoption of a common stock
repurchase program.  Under the terms of the program, the Company may
purchase an aggregate $25,000,000 of the Company’s Common Stock in the open
market or in privately negotiated transactions.  Through December 31,
2008, the Company had purchased an aggregate $20,100,000, or 8,300,000 shares,
of treasury stock under this program.  The Company made no treasury
stock purchases during the years ended December 31, 2008 and 2007, and has no
plans to make any future treasury stock purchases.




Note
7.  Stock Options and Stock Purchase Warrants




The
Company previously adopted, the 1996 Employee Comprehensive Stock Plan
(“Comprehensive Plan”) and the 1996 Non-Employee Director Plan (“Director Plan”)
under which officers and employees, and non-employee directors, respectively, of
the Company and its affiliates were eligible to receive stock option
grants.  Employees of the Company were also eligible to receive
restricted stock grants under the Comprehensive Plan.  The Company
previously reserved 14,500,000 and 1,300,000 shares of its Common Stock for
issuance pursuant to the Comprehensive Plan and the Director Plan,
respectively.  The Comprehensive Plan and the Director Plan expired on
July 10, 2006.  The expiration of the plans preclude the Company from
granting new options under each plan but will not affect outstanding option
grants which shall expire in accordance with their terms.




Option
activity for the years ended December 31, 2008 and 2007, is summarized as
follows:




Number
                    of
      Shares
                
                
                Weighted
      Average
                    Exercise
      PriceOutstanding,
      January 1,
      2007
                
                
                975,000
                
                
                $
                4.30Granted
                
                
                -
                
                
                
                -Canceled
                
                
                (735,000
                )
                
                $
                5.61Outstanding,
      December 31,
      2007
                
                
                240,000
                
                
                $
                0.27Granted
                
                
                -
                
                
                
                -Canceled
                
                
                -
                
                
                
                -Outstanding,
      December 31,
      2008
                
                
                240,000
                
                
                $
                0.27




45
 INDEX




At
December 31, 2008 and 2007, stock options to purchase an aggregate of 240,000
shares were exercisable and had weighted average exercise prices of $0.27 per
share.




Stock
options outstanding and exercisable at December 31, 2008 were as
follows:




Options
      Outstanding
              
              Options
      ExercisableWeighted
      AverageRange
      of
                  Exercise
                  Prices
              
              Number
                  Outstanding
              
              Remaining
                  Life
                  (years)
              
              Remaining
                  Average
                  Exercise
      Price
              
              Weighted
                  Number
                  Exercisable
              
              Weighted
                  Average
                  Exercise
      Price$
              0.24
      - $0.28
              
              
              
              240,000
              
              
              
              4.5
              
              
              $
              0.27
              
              
              
              240,000
              
              
              $
              0.27





There
were no option grants for the years ended December 31, 2008 and
2007.




Note
8.  Short-Term Investments




As of
December 31, 2008, the Company held all short-term investments in
cash.




Note
9.  Leases




The
Company leases pursuant to a services agreement (see Note 12) certain office
space and equipment under operating leases.  Rental expense was
approximately $30,000 and $31,000 for the years ended December 31, 2008 and
2007, respectively.  The Company has no future minimum lease payments
under non-cancelable operating leases as of December 31,
2008.




Note
10.  Income Taxes




The
income tax benefit (expense) is comprised of the following:




Year
      Ended December 31,(in
      thousands)
                    
                    2008
                    
                    
                    2007Current:Federal
                    
                    $
                    -
                    
                    
                    $
                    -State
                    
                    
                    -
                    
                    
                    
                    -Total
                    
                    $
                    -
                    
                    
                    $
                    -
  46
 INDEX





The
income tax benefit (expense) differs from the amount computed by applying the
statutory federal income tax rate of 35% to the net loss before income tax
benefit.  The reasons for these differences were as
follows:




Year
      Ended December 31,(in
      thousands)
                    
                    2008
                    
                    
                    2007Computed
      income tax benefit (expense) at statutory rate
                    
                    $
                    339
                    
                    
                    $
                    (19
                    )(Decrease)
      increase in taxes resulting from:Permanent
      and other deductions,
      net
                    
                    
                    298
                    
                    
                    
                    8Valuation
      allowance
                    
                    
                    (540
                    )
                    
                    
                    11Expiration
      of capital loss carryforward
                    
                    
                    581
                    
                    
                    
                    -Income
      tax
      benefit
                    
                    $
                    -
                    
                    
                    $
                    -




The tax
effect of significant temporary differences, which comprise the net deferred tax
liability, is as follows:




December
      31,(in
      thousands)
                  
                  2008
                  
                  
                  2007Deferred
      tax asset:Net
      operating loss
      carryforward
                  
                  $
                  4,696
                  
                  
                  $
                  4,696Other
                  
                  
                  105
                  
                  
                  
                  64Capital
      loss
      carryforward
                  
                  
                  23,978
                  
                  
                  
                  24,559Valuation
      allowance
                  
                  
                  (28,779
                  )
                  
                  
                  (29,319
                  )Deferred
      tax liability:Estimated
      tax
      liability
                  
                  
                  -
                  
                  
                  
                  -Net
      deferred tax
      liability
                  
                  $
                  -
                  
                  
                  $
                  -




As of
December 31, 2008, the Company had a federal income tax loss carryforward of
approximately $13,400,000, which begins expiring in 2019.  In
addition, the Company had a federal capital loss carryforward of approximately
$68,500,000 which expires in 2009.  Realization of the Company’s
carryforwards is dependent on future taxable income and capital
gains.  At this time, the Company cannot assess whether or not the
carryforward will be realized; therefore, a valuation allowance has been
recorded as shown above.


Ownership
changes, as defined in the Internal Revenue Code, may have limited the amount of
net operating loss carryforwards that can be utilized annually to offset future
taxable income.  Subsequent ownership changes could further affect the
limitation in future years.




Note
11.  Benefit Plans




The
Company established a 401(k) Plan (the “Plan”) for eligible employees of the
Company.  Generally, all employees of the Company who are at least
twenty-one years of age and who have completed one-half year of service are
eligible to participate in the Plan.  The Plan is a defined
contribution plan which provides that participants may make voluntary salary
deferral contributions, on a pretax basis, between 1% and 15% of their
compensation in the form of voluntary payroll deductions, up to a maximum amount
as indexed for cost-of-living adjustments.  The Company will match a
participant’s salary deferral, up to 5% of a participant’s
compensation.  The Company may make additional discretionary
contributions.  No discretionary contributions were made during the
years ended December 31, 2008 and 2007.  The Company’s matching
contributions to this plan totaled approximately $0 and $5,000 for the years
ended December 31, 2008 and 2007, respectively.


Note
12.  Related Parties




In June
2004, in connection with the Newcastle Transaction, Mark Schwarz, Chief
Executive Officer and Chairman of Newcastle Capital Management,L.P. (“NCM”), Steven J. Pully, former
President of NCM, and John Murray, Chief Financial Officer of NCM, assumed
positions as Chairman of the Board, Chief Executive Officer and Chief Financial
Officer, respectively, of the Company.  Mr. Pully received
anannual salary
of $150,000 as Chief Executive Officer of the Company.  Mr. Pully
resigned as Chief Executive Officer of the Company effective October 15,
2007.  Mr. Schwarz is performing the functions of Chief Executive
Officer.  NCM is the general partner of Newcastle, which owns as
of the Wilhelmina Transaction date, 31,526,517 shares of Common Stock of the
Company.




47
 INDEX




The Company’s corporate headquarters
are currently located at 200 Crescent Court, Suite 1400, Dallas, Texas 75201,
which are also the officesof NCM.  The Company occupies a
portion of NCM space on a month-to-month basis at $2,500 per month, pursuant to
a services agreement entered into between the parties.  In addition,
during 2008, the Company was also charged costs under the services agreement for accounting, legal
and administrative services in connection with the Wilhelmina Transaction. NCM
is the general partner of Newcastle.  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 $102,000 and $30,000 for
the years ended December 31, 2008 and 2007, respectively.




The
Company owed NCM $24,000 and $7,500 as of December 31, 2008 and 2007,
respectively.




ITEM
9.                      CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE




None.




ITEM
9A.                      CONTROLS AND
PROCEDURES




Evaluation
of Disclosure Controls and Procedures




Disclosure
controls are procedures that are designed with the objective of ensuring that
information required to be disclosed in the Company’s reports under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), such as this
Form 10-K, is reported in accordance with the rules of the
SEC.  Disclosure controls are also designed with the objective of
ensuring that such information is accumulated appropriately and communicated to
management, including the chief executive officer and chief financial officer,
as appropriate, to allow for timely decisions regarding required
disclosures.




As of the
end of the period covered by this report, the Company carried out an evaluation,
under the supervision and with the participation of the Company’s management,
including the Company’s interim chief executive officer and chief financial
officer, of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and
15d-15(e).  Based upon that evaluation, the interim chief executive
officer and chief financial officer concluded that the Company’s disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Company (including its consolidated subsidiaries)
required to be included in the Company’s periodic SEC filings.




Changes
in Internal Control over Financial Reporting




There
were no changes in the Company’s internal control over financial reporting that
occurred during the quarter ended December 31, 2008 that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.




Management’s
Report on Internal Control Over Financial Reporting




Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act.  The Company’s internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America (“GAAP”).  The Company’s internal control
over financial reporting includes those policies and procedures
that:




·
            pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of the assets of the
      Company;




48
 INDEX




·
            provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with GAAP, and that
      receipts and expenditures of the Company are being made only in accordance
      with authorizations of management and directors of the Company;
      and




·
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the Company’s assets that
      could have a material effect on the financial
  statements.




As
required by Section 404 of the Sarbanes-Oxley Act of 2002, management assessed
the effectiveness of the Company’s internal control over financial reporting as
of December 31, 2008.  In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in Internal Control-Integrated Framework.




Based on
its assessment and those criteria, management concluded that the Company
maintained effective internal control over financial reporting as of December
31, 2008.




This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
SEC that permit the Company to provide only management’s report in this annual
report.




Limitations
of the Effectiveness of Internal Control




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.




ITEM
9B.                      OTHER
INFORMATION




None.




PART III




ITEM
10.                      DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE




The
information required by Item 10 will be furnished on or prior to April 30, 2009
(and is hereby incorporated by reference) by an amendment hereto or pursuant to
a definitive proxy statement of the Company’s 2009 Annual Meeting of
Shareholders for the fiscal year ended December 31, 2008.




ITEM
11.                      EXECUTIVE
COMPENSATION




The
information required by Item 11 will be furnished on or prior to April 30, 2009
(and is hereby incorporated by reference) by an amendment hereto or pursuant to
a definitive proxy statement of the Company’s 2009 Annual Meeting of
Shareholders for the fiscal year ended December 31, 2008.




49
 INDEX




ITEM
12.                      SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS




The
information required by Item 12 will be furnished on or prior to April 30, 2009
(and is hereby incorporated by reference) by an amendment hereto or pursuant to
a definitive proxy statement of the Company’s 2009 Annual Meeting of
Shareholders for the fiscal year ended December 31, 2008.




ITEM
13.                      CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE




The
information required by Item 13 will be furnished on or prior to April 30, 2009
(and is hereby incorporated by reference) by an amendment hereto or pursuant to
a definitive proxy statement of the Company’s 2009 Annual Meeting of
Shareholders for the fiscal year ended December 31, 2008.




ITEM
14.                      PRINCIPAL ACCOUNTANT FEES AND
SERVICES




The
information required by Item 14 will be furnished on or prior to April 30, 2009
(and is hereby incorporated by reference) by an amendment hereto or pursuant to
a definitive proxy statement of the Company’s 2009 Annual Meeting of
Shareholders for the fiscal year ended December 31, 2008.




PART IV




ITEM
15.                      EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES




(a)           Documents
Filed as Part of Report
  1.
              Financial
      Statements:
  The
      Consolidated Financial Statements of the Company and the related report of
      the Company’s independent public accountants thereon have been filed under
      Item 8 hereof.
  2.
              Financial
      Statement Schedules:
  The
      information required by this item is not
  applicable.
  3.
              Exhibits:
  The
      exhibits listed below are filed as part of or incorporated by reference in
      this report.  Where such filing is made by incorporation by
      reference to a previously filed document, such document is identified in
      parentheses.  See the Index of Exhibits included with the
      exhibits filed as a part of this
report.


50
 INDEX




Exhibit
      Number
            Description
      of Exhibits2.1
            Plan
      of Merger and Acquisition Agreement between BCC, CRM Acquisition Corp.,
      Computer Resources Management, Inc. and Michael A. Harrelson, dated June
      1, 1997 (incorporated by reference from Exhibit 2.1 to Form 10-Q, dated
      June 30, 1997).2.2
            Stock
      Purchase Agreement between BCC and Princeton TeleCom Corporation, dated
      September 4, 1998 (incorporated by reference from Exhibit 2.2 to Form
      10-K, dated September 30, 1998).2.3
            Stock
      Purchase Agreement between BCC and Princeton eCom Corporation, dated
      February 21, 2000 (incorporated by reference from Exhibit 2.1 to Form 8-K,
      dated March 16, 2000).2.4
            Agreement
      and Plan of Merger between BCC, Billing Concepts, Inc., Enhanced Services
      Billing, Inc., BC Transaction Processing Services, Inc., Aptis, Inc.,
      Operator Service Company, BC Holding I Corporation, BC Holding II
      Corporation, BC Holding III Corporation, BC Acquisition I Corporation, BC
      Acquisition II Corporation, BC Acquisition III Corporation and BC
      Acquisition IV Corporation, dated September 15, 2000 (incorporated by
      reference from Exhibit 2.1 to Form 8-K, dated September 15,
      2000).2.5
            Stock
      Purchase Agreement by and among New Century Equity Holdings Corp., Mellon
      Ventures, L.P., Lazard Technology Partners II LP, Conning Capital Partners
      VI, L.P. and Princeton eCom Corporation, dated March 25, 2004
      (incorporated by reference from Exhibit 10.1 to Form 8-K, dated March 29,
      2004).2.6
            Series
      A Convertible 4% Preferred Stock Purchase Agreement by and between New
      Century Equity Holdings Corp. and Newcastle Partners, LP, dated June 18,
      2004 (incorporated by reference from Exhibit 2.1 to Form 8-K, dated June
      30, 2004).2.7
            Agreement by and among New
      Century Equity Holdings Corp., Wilhelmina Acquisition Corp., Wilhelmina
      International, Ltd., Wilhelmina – Miami, Inc., Wilhelmina Artist
      Management LLC, Wilhelmina Licensing LLC, Wilhelmina Film & TV
      Productions LLC, Dieter Esch, Lorex Investments AG, Brad Krassner,
      Krassner Family Investments, L.P., Sean Patterson and the shareholders of
      Wilhelmina – Miami, Inc., dated August 25, 2008(incorporated by
      reference from Exhibit 10.1 to Form 8-K, dated August 26,
      2008).2.8
            Purchase
      Agreement by and between New Century Equity Holdings Corp. and Newcastle
      Partners, L.P., dated August 25, 2008 (incorporated by reference from
      Exhibit 10.3 to Form 8-K, dated August 26,
2008).2.9
            Letter
      Agreement, dated February 13, 2009, by and among New Century Equity
      Holdings Corp., Wilhelmina Acquisition Corp., Wilhelmina International
      Ltd., Wilhelmina – Miami, Inc., Wilhelmina Artist Management LLC,
      Wilhelmina Licensing LLC, Wilhelmina Film & TV Productions LLC, Dieter
      Esch, Lorex Investments AG, Brad Krassner, Krassner Family Investments
      Limited Partnership, Sean Patterson and the shareholders of Wilhelmina –
      Miami, Inc. (incorporated
      by reference from Exhibit 10.1 to Form 8-K, dated February 18,
      2009).3.1
            Restated
      Certificate of Incorporation of Wilhelmina International, Inc. (filed
      herewith).3.2
            Restated
      Bylaws of Wilhelmina International, Inc. as amended through February 5,
      2009 (filed herewith).3.3
            Certificate
      of Designation of Series A Convertible Preferred Stock, filed with the
      Secretary of State of Delaware on July 10, 2006 (incorporated by reference
      from Exhibit 4.1 to Form 8-K, dated June 30, 2004).3.4
            Certificate
      of Elimination of Series A Junior Participating Preferred Stock, filed
      with the Secretary of State of Delaware on July 10, 2006 (incorporated by
      reference from Exhibit 3.1 to Form 8-K, dated July 10,
    2006).3.5
            Certificate
      of Designation of Series A Junior Participating Preferred Stock, filed
      with the Secretary of State of Delaware on July 10, 2006 (incorporated by
      reference from Exhibit 3.2 to Form 8-K, dated July 10,
    2006).4.1
            Form
      of Stock Certificate of Common Stock of BCC (incorporated by reference
      from Exhibit 4.1 to Form 10-Q, dated March 31,
  1998).  51
 INDEX
  4.2
                  Rights
      Agreement, dated as of July 10, 2006, by and between New Century Equity
      Holdings Corp. and The Bank of New York Trust Company, N.A. (incorporated
      by reference from Exhibit 4.2 to Form 8-K, dated July 10,
      2006).4.3
                  Amendment to Rights Agreement
      dated August 25, 2008 by and between New Century Equity Holdings Corp. and
      The Bank of New York Mellon Trust Company(incorporated by
      reference from Exhibit 4.1 to Form 8-K, dated August 26,
      2008).4.4
                  Form
      of Rights Certificate (incorporated by reference from Exhibit 4.1 to Form
      8-K, dated July 10, 2006).4.5
                  Registration Rights Agreement
      dated August 25, 2008 by and among New Century Equity Holdings Corp.,
      Dieter Esch, Lorex Investments AG, Brad Krassner, Krassner Family
      Investments, L.P. and Sean Patterson(incorporated by reference
      from Exhibit 10.2 to Form 8-K, dated August 26, 2008).4.6
                  Registration
      Rights Agreement, dated February 13, 2009, by and between New Century
      Equity Holdings Corp. and Newcastle Partners, L.P. (incorporated by reference from
      Exhibit 10.3 to Form 8-K, dated February 18,
  2009).*10.1
                  BCC’s
      1996 Employee Comprehensive Stock Plan amended as of August 31, 1999
      (incorporated by reference from Exhibit 10.8 to Form 10-K, dated September
      30, 1999).*10.2
                  Form
      of Option Agreement between BCC and its employees under the 1996 Employee
      Comprehensive Stock Plan (incorporated by reference from Exhibit 10.9 to
      Form 10-K, dated September 30, 1999).*10.3
                  Amended
      and Restated 1996 Non-Employee Director Plan of BCC, amended as of August
      31, 1999 (incorporated by reference from Exhibit 10.10 to Form 10-K, dated
      September 30, 1999).*10.4
                  Form
      of Option Agreement between BCC and non-employee directors (incorporated
      by reference from Exhibit 10.11 to Form 10-K, dated September 30,
      1998).10.5
                  Office
      Building Lease Agreement between Billing Concepts, Inc. and Medical Plaza
      Partners (incorporated by reference from Exhibit 10.21 to Form 10/A,
      Amendment No. 1, dated July 11, 1996), as amended by First Amendment to
      Lease Agreement, dated September 30, 1996 (incorporated by reference from
      Exhibit 10.31 to Form 10-Q, dated March 31, 1998), Second Amendment to
      Lease Agreement, dated November 8, 1996 (incorporated by reference from
      Exhibit 10.32 to Form 10-Q, dated March 31, 1998), and Third Amendment to
      Lease Agreement, dated January 24, 1997 (incorporated by reference from
      Exhibit 10.33 to Form 10-Q, dated March 31, 1998).10.6
                  Office
      Building Lease Agreement between Prentiss Properties Acquisition Partners,
      L.P. and Aptis, Inc., dated November 11, 1999 (incorporated by reference
      from Exhibit 10.33 to Form 10-K, dated September 30,
  1999).*10.7
                  BCC’s
      401(k) Retirement Plan (incorporated by reference from Exhibit 10.14 to
      Form 10-K, dated September 30, 2000).10.8
                  Office
      Building Lease Agreement between BCC and EOP-Union Square Limited
      Partnership, dated November 6, 2000 (incorporated by reference from
      Exhibit 10.16 to Form 10-K, dated December 31, 2001).10.9
                  Office
      Building Sublease Agreement between BCC and CCC Centers, Inc., dated
      February 11, 2002 (incorporated by reference from Exhibit 10.17 to Form
      10-K, dated December 31, 2001).10.10
                  Office
      Building Lease Agreement between SAOP Union Square, L.P. and New Century
      Equity Holdings Corp., dated February 11, 2004 (incorporated by reference
      from Exhibit 10.18 to Form 10-K, dated December 31,
  2003).10.11
                  Sublease
      agreement entered into by and between New Century Equity Holdings Corp.
      and the Law Offices of Alfred G. Holcomb, P.C. (incorporated by reference
      from Exhibit 10.1 to Form 10-Q, dated September 30,
  2004).10.12
                  Revenue
      Sharing Agreement, dated as of October 5, 2005, between New Century Equity
      Holdings Corp. and ACP Investments LP (incorporated by reference from
      Exhibit 10.1 to Form 10-Q, dated September 30,
  2005).
  52
 INDEX
 10.13
                      Principals
      Agreement, dated as of October 5, 2005, by and among New Century Equity
      Holdings Corp. and ACP Investments LP (incorporated by reference from
      Exhibit 10.2 to Form 10-Q, dated September 30, 2005).*10.14
                      Employment
      Agreement by and among New Century Equity Holdings Corp., Wilhelmina
      International, Ltd. and Sean Patterson, dated November 10, 2008
      (incorporated by reference from Exhibit 10.1 to Form 10-Q, dated September
      30, 2008).10.15
                      Letter
      Agreement, dated February 13, 2009, by and between New Century Equity
      Holdings Corp. and Dieter Esch(incorporated by reference from
      Exhibit 10.2 to Form 8-K, dated February 18,
      2009).14.1
                      New
      Century Equity Holdings Corp. Code of Ethics (incorporated by reference
      from Exhibit 14.1 to Form 10-K, dated December 31,
  2003).21.1
                      List
      of Subsidiaries (filed herewith).23.1
                      Consent
      of Burton, McCumber & Cortez, L.L.P. (filed
  herewith).23.2
                      Consent
      of Weiser LLP (filed herewith).31.1
                      Certification
      of Principal Executive Officer in Accordance with Section 302 of the
      Sarbanes-Oxley Act (filed herewith).31.2
                      Certification
      of Principal Financial Officer in Accordance with Section 302 of the
      Sarbanes-Oxley Act (filed herewith).32.1
                      Certification
      of Principal Executive Officer in Accordance with Section 906 of the
      Sarbanes-Oxley Act (filed herewith).32.2
                      Certification
      of Principal Financial Officer in Accordance with Section 906 of the
      Sarbanes-Oxley Act (filed herewith).99.1
                      Combined
      Financial Statements of Wilhelmina International, Ltd. and Wholly-Owned
      Subsidiaries as of December 31, 2007 and December 31, 2008 (filed
      herewith).99.2
                      Unaudited
      Pro Forma Condensed Combined Financial Statements of Wilhelmina
      International, Inc., and the Wilhelmina Companies as of December 31, 2008
      (filed
herewith).





*
            Includes
      compensatory plan or arrangement.




53
 INDEX




SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) 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:  April
      15, 2009
            By:
            /s/
      Mark
      E. SchwarzName
            Mark
      E. SchwarzTitle:
            Interim
      Chief Executive Officer
              (Principal
      Executive Officer)





Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 15th day of April
2009.




Signature
              
              Title/s/
      Mark
      E. Schwarz
              
              Interim
      Chief Executive Officer and
                Chairman
      of the BoardMark
      E. Schwarz
              
              (Principal
      Executive Officer)/s/
      John
      P. Murray
              
              Chief
      Financial Officer and DirectorJohn
      P. Murray
              
              (Principal
      Financial Officer and
                Principal
      Accounting Officer)/s/
      Jonathan
      Bren
              
              DirectorJonathan
      Bren/s/
      James
      Risher
              
              DirectorJames
      Risher/s/
      Evan
      Stone
              
              DirectorEvan
      Stone/s/
      Hans-Joachim
      Bohlk
              
              DirectorHans-Joachim
      Bohlk/s/
      Derek
      Fromm
              
              DirectorDerek
      Fromm





54