Note 7 - Commitments and Contingencies

12 Months Ended

Dec. 31, 2012

Commitments and Contingencies Disclosure [Text Block]

Note 7.  Commitments and Contingencies

On May 2, 2012, Patterson, the former President of Wilhelmina International, filed a lawsuit in the Supreme Court of the State of New York, County of New York, against the Company, Wilhelmina International and Mark Schwarz, the Company’s Chairman of the Board, alleging, among other things, breach of Patterson’s expired employment agreement with Wilhelmina International, the invalidity and unenforceability of the non-competition and non-solicitation provisions contained in the employment agreement and defamation.  Patterson is also seeking a declaration that the employment agreement, including the non-competition and non-solicitation provisions contained therein, are terminated and unenforceable against him.  The Company believes these claims are without merit and intends to vigorously defend itself.

In October 2012, two subsidiaries of the Company received a Summons with Notice in connection with a purported class action lawsuit.  According to the Notice accompanying the Summons, the purported claims arise out of, among other things, the handling and reporting of funds on behalf of models and the use of model images. Two of the Company's subsidiaries, along with a number of other model management companies, advertising firms and others, are named as defendants. The Company believes these claims are without merit and intends to vigorously defend itself.

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

As of December 31, 2012, a number of the Company’s employees were covered by employment agreements that vary in length from one to three years.  As of December 31, 2012, total compensation payable under the remaining contractual term of these agreements was approximately $2,988,000.  In addition, the employment agreements contain non-compete provisions ranging from six months to one year following the term of the applicable agreement. Therefore subject to certain exceptions, as of December 31, 2012, invoking the non-compete provisions would require the Company to compensate additional amounts to the covered employees during the non-compete period in the amount of approximately $2,232,000. During the year ended December 31, 2012, the Company paid compensation costs of approximately $540,000, in connection with certain non-compete and contractual arrangements of former employees.

During 2010, the Company received IRS notices totaling approximately $726,000 related to foreign withholding claims for tax years 2006 and 2008.  As part of settlement negotiations with the IRS, the Company determined that approximately $197,000 of the foreign withholding claim for 2008 related to tax liabilities which the Company assumed “as a result of the Wilhelmina Acquisition. To satisfy this liability, the Company paid the IRS, including penalties and interest of $26,000, a total of $223,000 during the year ended December 31, 2011. Since this amount was previously accrued as a liability at the Wilhelmina Acquisition date, no adjustment was required.

As of December 31, 2012, the Company’s estimate of the foreign withholding claims for tax years 2006 and 2008 is approximately $428,000, which includes approximately $88,000 of additional interest and penalties incurred since June 2010 when the IRS notices were received.

During February 2013, the IRS division of Appeals concluded that there was no basis for abatement of the 2006 and 2008 foreign withholding claims, within the protective framework of reasonable cause, and therefore, closed the case. During March 2013 the Company paid approximately $446,000in settlement of the foreign withholding claims for tax years 2006 and 2008.

The Company is indemnified by certain of the selling parties of the Wilhelmina Transaction for losses incurred as a result of such deficiency notice. The selling parties have previously confirmed such responsibility to the Company. Pursuant to the Acquisition Agreement and a subsequent agreement with the Control Sellers, such indemnification is required to be satisfied in cash or, if not satisfied in cash, by offset to future earn-out payments.

During March 2013, the Company offset approximately $446,000 of the Company’s remaining approximately $509,000 earn-out obligation (as of December 31, 2012) , relating to operating results of Wilhelmina Miami in connection with the Wilhelmina Transaction for losses incurred in the settlement of the foreign withholding claims for tax years 2006 and 2008, leaving a balance of approximately $63,000 which is owed to the Miami Holders.