Document



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549  

 
FORM 10-Q 

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2019
or
o
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: 000-50129 

HUDSON GLOBAL, INC.
(Exact name of registrant as specified in its charter)  

DELAWARE
 
59-3547281
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)
53 Forest Avenue, Old Greenwich, CT 06870
(Address of principal executive offices) (Zip Code)
(203) 409-5628
(Registrant’s telephone number, including area code) 

  
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock, $0.001 par value
 
HSON
 
The NASDAQ Stock Market LLC
Preferred Share Purchase Rights
 
 
 
The NASDAQ Stock Market LLC

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.    Yes   x    No   o
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  x     No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
o
 
Accelerated filer
o
Non-accelerated filer
o
 
Smaller reporting company
x
 
 
 
Emerging growth company
o
 If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding on September 30, 2019
Common Stock - $0.001 par value
 
2,939,456



HUDSON GLOBAL, INC.
INDEX


 
 
Page
 
 
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 
 



PART I – FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS

HUDSON GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
(unaudited) 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Revenue
$
25,762

 
$
17,127

 
$
68,363

 
$
50,357

Direct costs
14,366

 
6,246

 
35,912

 
18,521

Gross profit
11,396

 
10,881

 
32,451

 
31,836

Operating expenses:
 
 
 
 
 
 
 
Salaries and related
8,857

 
8,925

 
27,758

 
28,586

Other selling, general and administrative
2,022

 
2,696

 
6,911

 
7,905

Depreciation and amortization
23

 
1

 
62

 
3

Operating income (loss)
494

 
(741
)
 
(2,280
)
 
(4,658
)
Non-operating income (expense):
 
 
 
 
 
 
 
Interest income, net
88

 
102

 
526

 
162

Other expense, net
(87
)
 
(72
)
 
(215
)
 
(184
)
Income (loss) from continuing operations before provision for income taxes
495

 
(711
)
 
(1,969
)
 
(4,680
)
Provision for income taxes from continuing operations
149

 
112

 
356

 
393

Income (loss) from continuing operations
346

 
(823
)
 
(2,325
)
 
(5,073
)
Income (loss) from discontinued operations, net of income taxes
18

 
(47
)
 
(113
)
 
13,560

Net income (loss)
$
364

 
$
(870
)
 
$
(2,438
)
 
$
8,487

Earnings (loss) per share:(a)
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
Earnings (loss) per share from continuing operations
$
0.11

 
$
(0.25
)
 
$
(0.74
)
 
$
(1.55
)
Earnings (loss) per share from discontinued operations
0.01

 
(0.01
)
 
(0.04
)
 
4.14

Earnings (loss) per share
$
0.12

 
$
(0.26
)
 
$
(0.77
)
 
$
2.59

Diluted
 
 
 
 
 
 
 
Earnings (loss) per share from continuing operations
$
0.11

 
$
(0.25
)
 
$
(0.74
)
 
$
(1.55
)
Earnings (loss) per share from discontinued operations
0.01

 
(0.01
)
 
(0.04
)
 
4.14

Earnings (loss) per share
$
0.12

 
$
(0.26
)
 
$
(0.77
)
 
$
2.59

Weighted-average shares outstanding:(a)
 
 
 
 
 
 
 
Basic
3,082

 
3,310

 
3,150

 
3,275

Diluted
3,118

 
3,310

 
3,150

 
3,275


(a) Earnings per share and weighted average shares outstanding for all periods presented reflect the Company's 1-for-10 reverse stock split, which was effective June 10, 2019.
 



See accompanying notes to condensed consolidated financial statements.



- 1 -


HUDSON GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share amounts)
(unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Comprehensive Income (loss):
 
 
 
 
 
 
 
Net income (loss)
$
364

 
$
(870
)
 
$
(2,438
)
 
$
8,487

Other comprehensive loss:
 
 
 
 
 
 
 
Foreign currency translation adjustment, net of applicable income taxes
(338
)
 
(155
)
 
(379
)
 
(251
)
Reclassification of currency translation adjustment included in (loss) income from discontinued operations, net of income taxes

 

 

 
(10,819
)
Reclassification of pension liability adjustment included in (loss) income from discontinued operations, net of income taxes

 

 

 
(38
)
Total other comprehensive loss, net of income taxes
(338
)
 
(155
)
 
(379
)
 
(11,108
)
Comprehensive income (loss)
$
26

 
$
(1,025
)
 
$
(2,817
)
 
$
(2,621
)

See accompanying notes to condensed consolidated financial statements.

- 2 -




HUDSON GLOBAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(Unaudited)
 

September 30, 2019
 
December 31,
2018
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
28,383

 
$
40,562

Accounts receivable, less allowance for doubtful accounts of $160 and $41, respectively
15,691

 
9,893

Prepaid and other
1,250

 
671

Current assets of discontinued operations

 
941

Total current assets
45,324

 
52,067

Property and equipment, net
189

 
170

Operating lease right-of-use assets
445

 

Deferred tax assets, non-current
808

 
583

Restricted cash, non-current
376

 
352

Other assets, non-current
7

 
7

Total assets
$
47,149

 
$
53,179

LIABILITIES AND STOCKHOLDERS' EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
1,484

 
$
1,461

Accrued expenses and other current liabilities
8,968

 
8,984

Operating lease obligations, current
241

 

Current liabilities of discontinued operations

 
115

Total current liabilities
10,693

 
10,560

Income tax payable, non-current
2,116

 
1,982

Operating lease obligations, non-current
210

 

Other non-current liabilities
172

 
150

Total liabilities
13,191

 
12,692

Commitments and contingencies


 


Stockholders' equity:
 

 
 

Preferred stock, $0.001 par value, 10,000 shares authorized; none issued or outstanding

 

Common stock, $0.001 par value, 20,000 and 10,000 shares authorized; 3,660 and 3,613 shares issued; 2,939 and 3,190 shares outstanding, respectively (a)
4

 
4

Additional paid-in capital
485,938

 
485,127

Accumulated deficit
(437,990
)
 
(435,552
)
Accumulated other comprehensive loss, net of applicable tax
(985
)
 
(606
)
Treasury stock, 721 and 423 shares, respectively, at cost (a)
(13,009
)
 
(8,486
)
Total stockholders' equity
33,958

 
40,487

Total liabilities and stockholders' equity
$
47,149

 
$
53,179


(a) Common stock and Treasury stock for all periods presented reflect the Company's 1-for-10 reverse stock split, which was effective June 10, 2019.

See accompanying notes to condensed consolidated financial statements.

- 3 -


HUDSON GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
 
 
Nine Months Ended September 30,
 
2019
 
2018
Cash flows from operating activities:
 

 
 

Net (loss) income
$
(2,438
)
 
$
8,487

Adjustments to reconcile net (loss) income to net cash used in operating activities:
 

 
 

Depreciation and amortization
62

 
683

Provision for doubtful accounts
66

 
28

(Benefit from) provision for deferred income taxes
(258
)
 
157

Stock-based compensation
811

 
1,332

Gain on sale of consolidated subsidiaries

 
(13,985
)
Changes in assets and liabilities, net of effect of dispositions:
 
 
 
Increase in accounts receivable
(6,358
)
 
(9,964
)
Decrease (increase) in prepaid and other assets
298

 
(202
)
Increase (decrease) in accounts payable, accrued expenses and other liabilities
267

 
(4,358
)
Decrease in accrued business reorganization

 
(502
)
Net cash used in operating activities
(7,550
)
 
(18,324
)
Cash flows from investing activities:
 

 
 

Capital expenditures
(70
)
 
(284
)
Proceeds from sale of consolidated subsidiaries, net of cash and restricted cash sold

 
27,901

Net cash (used in) provided by investing activities
(70
)
 
27,617

Cash flows from financing activities:
 

 
 

Borrowings under credit agreements
33,541

 
59,647

Repayments under credit agreements
(33,541
)
 
(51,682
)
Repayment of capital lease obligations

 
(27
)
Purchase of treasury stock
(4,482
)
 
(3
)
Purchase of restricted stock from employees
(41
)
 
(548
)
Net cash (used in) provided by financing activities
(4,523
)
 
7,387

Effect of exchange rates on cash, cash equivalents and restricted cash
(36
)
 
179

Net (decrease) increase in cash, cash equivalents and restricted cash
(12,179
)
 
16,859

Cash, cash equivalents, and restricted cash, beginning of the period
41,060

 
22,006

Cash, cash equivalents, and restricted cash, end of the period
$
28,881

 
$
38,865

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for interest
$
5

 
$
92

Cash received during the period for interest
$
530

 
$
159

Net cash payments during the period for income taxes
$
484

 
$
141

     Cash paid for amounts included in operating lease liabilities
$
246

 
$

Supplemental non-cash disclosures:
 
 
 
Right-of-use assets obtained in exchange for operating lease liabilities
$
723

 
$

 
See accompanying notes to condensed consolidated financial statements. 

- 4 -


HUDSON GLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
 
September 30, 2019
 
September 30, 2018
 
September 30, 2019
 
September 30, 2018
 
 
 
Shares (a)
 
Value
 
Shares (a)
 
Value
 
Shares (a)
 
Value
 
Shares (a)
 
Value
 
Total stockholders' equity, beginning balance
 
2,960

 
$
34,001

 
3,203

 
$
41,893

 
3,190

 
$
40,487

 
3,116

 
$
43,152

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock and additional paid-in capital:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
3,658

 
485,740

 
3,611

 
484,466

 
3,613

 
485,131

 
3,496

 
483,592

 
Stock-based compensation expense
 
2

 
202

 
2

 
458

 
47

 
811

 
117

 
1,332

 
 Ending balance
 
3,660

 
485,942

 
3,613

 
484,924

 
3,660

 
485,942

 
3,613

 
484,924

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Treasury stock:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
(698
)
 
(12,738
)
 
(408
)
 
(8,267
)
 
(423
)
 
(8,486
)
 
(380
)
 
(7,730
)
 
Purchase of treasury stock
 
(23
)
 
(270
)
 

 

 
(296
)
 
(4,482
)
 

 
(3
)
 
Purchase of restricted stock from employees
 

 
(1
)
 

 
(14
)
 
(2
)
 
(41
)
 
(28
)
 
(548
)
 
 Ending balance
 
(721
)
 
(13,009
)
 
(408
)
 
(8,281
)
 
(721
)
 
(13,009
)
 
(408
)
 
(8,281
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated other comprehensive (loss) income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
 
 
(647
)
 
 
 
(244
)
 
 
 
(606
)
 
 
 
10,709

 
Other comprehensive loss
 
 
 
(338
)
 
 
 
(155
)
 
 
 
(379
)
 
 
 
(11,108
)
 
 Ending balance
 
 
 
(985
)
 
 
 
(399
)
 
 
 
(985
)
 
 
 
(399
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated deficit:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
 
 
(438,354
)
 
 
 
(434,062
)
 
 
 
(435,552
)
 
 
 
(443,419
)
 
Net income (loss)
 
 
 
364

 
 
 
(870
)
 
 
 
(2,438
)
 
 
 
8,487

 
 Ending balance
 
 
 
(437,990
)
 
 
 
(434,932
)
 
 
 
(437,990
)
 
 
 
(434,932
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total stockholders' equity, ending balance
 
2,939

 
$
33,958

 
3,205

 
$
41,312

 
2,939

 
$
33,958

 
3,205

 
$
41,312

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


(a) Common stock and Treasury stock for all periods presented reflect the Company's 1-for-10 reverse stock split, which was effective June 10, 2019.

See accompanying notes to condensed consolidated financial statements.

- 5 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)


NOTE 1 – BASIS OF PRESENTATION
These interim unaudited condensed consolidated financial statements have been prepared in accordance with United States of America ("U.S.") generally accepted accounting principles ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission ("SEC") for interim financial reporting and should be read in conjunction with the consolidated financial statements and related notes of Hudson Global, Inc. and its subsidiaries (the "Company") filed in its Annual Report on Form 10-K for the year ended December 31, 2018.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of operating revenues and expenses. These estimates are based on management’s knowledge and judgments. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows at the dates and for the periods presented have been included. The results of operations for interim periods are not necessarily indicative of the results of operations for the full year. The condensed consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. Intra-entity balances and transactions between and among the Company and its subsidiaries have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current year presentation with no material impact on the condensed consolidated financial statements. All per share amounts and shares outstanding for the three and nine months ended September 30, 2019 and all prior periods reflect the Company's 1-for-10 reverse stock split, which was effective June 10, 2019. For more information, see Note 2.

NOTE 2 – DESCRIPTION OF BUSINESS

The Company is comprised of the operations, assets, and liabilities of the Company's three regional businesses of Hudson Americas, Hudson Asia Pacific, and Hudson Europe ("Hudson regional businesses" or "Hudson"). The Company provides specialized professional-level recruitment and related talent solutions. During the first quarter of 2018, the Company’s core service offerings included Recruitment Process Outsourcing ("RPO") and Contracting, as well as other Permanent Recruitment and Talent Management Solutions. On March 31, 2018 the Company completed the sale of its other Permanent Recruitment and Talent Management Solutions ("RTM") businesses in three separate transactions and retained its RPO and Contracting businesses. The RTM businesses are reported as discontinued operations in 2018. For more information, see Note 5.
As a result of the divestiture of the RTM businesses, the Company now operates directly in eleven countries with three reportable geographic business segments: Americas, Asia Pacific, and Europe. See Note 13 for further details regarding the reportable segments.
The Company’s core service offering following the divestiture is RPO. The Company delivers RPO permanent recruitment and contracting outsourced recruitment solutions tailored to the individual needs of primarily mid-to-large-cap multinational companies. The Company's RPO delivery teams utilize state-of-the-art recruitment process methodologies and project management expertise in their flexible, turnkey solutions to meet clients' ongoing business needs. The Company's RPO services include complete recruitment outsourcing, project-based outsourcing, contingent workforce solutions, and recruitment consulting.

Corporate expenses are reported separately from the reportable segments and pertain to certain functions, such as executive management, corporate governance, human resources, accounting, tax, marketing, information technology, and treasury. A portion of these expenses are attributed to the reportable segments for providing the above services to them and have been allocated to the segments as management service fees and are included in the segments’ non-operating other income (expense).





    

- 6 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)

On June 10, 2019, the Company announced a reverse stock split of its outstanding shares of common stock at a ratio of 1-for-10 (the “Reverse Split”) and that it had filed a Certificate of Amendment of the Company's Amended and Restated Certificate of Incorporation in order to effect the Reverse Split. The filed certificate also reduced the number of authorized shares of common stock to 20 million shares. The Reverse Split and reduction in authorized shares was approved by the Company's Board of Directors (the "Board") on February 25, 2019, and it was approved by the stockholders of the Company at the annual meeting on May 6, 2019. The Board approved the ratio of 1-for-10 on May 24, 2019, and the Reverse Split became effective as of the close of business on June 10, 2019. The Reverse Split had no effect on the par value of the Company's common stock but it reduced the number of issued and outstanding shares of common stock by a factor of 10. Accordingly, the issued and outstanding shares, stock-based compensation disclosures, net loss per share, and other share and per share disclosures for all periods presented have been retrospectively adjusted to reflect the impact of this Reverse Split.
NOTE 3 – ACCOUNTING PRONOUNCEMENTS
Adoption of New Accounting Pronouncements

On January 1, 2019, we adopted Accounting Standards Update ("ASU") No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"). This ASU requires a company to recognize lease assets and liabilities arising from operating leases in the statement of financial position. This ASU does not significantly change the previous lease guidance for how a lessee should recognize the recognition, measurement, and presentation of expenses and cash flows arising from a lease. Additionally, the criteria for classifying a finance lease versus an operating lease are substantially the same as the previous guidance. In July 2018, the Financial Accounting Standards Board (the "FASB") issued ASU No. 2018-11, "Leases (Topic 842): Targeted Improvements" ("ASU 2018-11"). This ASU allows adoption of the standard as of the effective date without restating prior periods. We did not elect to recognize the lease assets and liabilities in the statement of financial position for short-term leases. For more information, see Note 10.

On January 1, 2019, we adopted ASU No. 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" ("ASU 2018-02"), which provides guidance on reclassification of certain stranded income tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), enacted on December 22, 2017. ASU 2018-02 allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the application of the Tax Act. Additionally, ASU 2018-02 requires financial statement preparers to disclose (1) a description of their accounting policy for releasing income tax effects from accumulated other comprehensive income, (2) whether they elect to reclassify the stranded income tax effects from the Tax Act, and (3) information about other income tax effects related to the application of the Tax Act that are reclassified from accumulated other comprehensive income to retained earnings, if any. The adoption had no impact on the Company's consolidated financial statements.

On January 1, 2018, we adopted ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASU 2014-09") and a series of related accounting standard updates designed to create improved revenue recognition and disclosure comparability in financial statements. For more information, see Note 4.

On January 1, 2018, we retroactively adopted ASU No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)." This ASU requires the statements of cash flows to present the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents are now included with cash and cash equivalents when reconciling the beginning of period and end of period amounts presented on the statements of cash flows.

Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU No. 2018-15, "Customer Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract." ("ASU 2018-15"), which requires implementation costs incurred by customers in a cloud computing arrangement to be deferred and recognized over the term of the arrangement, if those costs would be capitalized by the customer in a software licensing arrangement under the internal-use software guidance in Accounting Standards Codification ("ASC") 350-40. The amendments in ASU 2018-15 are effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the impact to its consolidated financial statements.

- 7 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)


There are no other recently issued accounting pronouncements that have had, or that the Company believes will have, a material impact on the Company's condensed consolidated financial statements.

NOTE 4 – REVENUE RECOGNITION
 Adoption of New Revenue Recognition Guidance

On January 1, 2018, the Company adopted ASU 2014-09 using the modified retrospective approach. Under this method, the guidance is applied only to the most current period presented in the financial statements. ASU 2014-09 outlines a single comprehensive revenue recognition model for revenue arising from contracts with customers and supersedes most of the previous revenue recognition guidance, including industry-specific guidance. Under ASU 2014-09, an entity recognizes revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. Our revenue recognition practices remained substantially unchanged as a result of the adoption of ASU 2014-09 and we did not have any significant changes in our business processes or systems.

Nature of Services

We account for a contract when both parties to the contract have approved the contract, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. Revenues are recognized over time, using an output measure, as the control of the promised services is transferred to the client in an amount that reflects the consideration we expect to be entitled to in exchange for those services. The majority of our contracts are short-term in nature as they include termination clauses that allow either party to cancel within a short termination period, without cause. Revenue includes billable travel and other reimbursable costs and is reported net of sales or use taxes collected from clients and remitted to taxing authorities.

We generally determine standalone selling prices based on the prices included in the client contracts, using expected cost plus profit, or other observable prices. The price as specified in our client contracts is generally considered the standalone selling price as it is an observable input that depicts the price as if sold to a similar client in similar circumstances. Certain client contracts have variable consideration, including usage-based fees that increase the transaction price and volume rebates or other similar items that generally reduce the transaction price. We estimate variable consideration using the expected value method based on the terms of the client contract and historical evidence. These amounts may be constrained and are only included in revenue to the extent we do not expect a significant reversal when the uncertainty associated with the variable consideration is resolved. Our estimated amounts of variable consideration subject to constraints are not material and we do not believe that there will be significant changes to our estimates.

We record accounts receivable when our right to consideration becomes unconditional. Contract assets primarily relate to our rights to consideration for services provided that they are conditional on satisfaction of future performance obligations. A contract liability for deferred revenue is recorded when consideration is received, or is unconditionally due, from a client prior to transferring control of services to the client under the terms of a contract. Deferred revenue balances typically result from advance payments received from clients prior to transfer services. We do not have any material contract assets or liabilities as of and for the nine months ended September 30, 2019.

Payment terms vary by client and the services offered. We consider payment terms that exceed one year to be extended payment terms. Substantially all of the Company's contracts include payment terms of 90 days or less and we do not extend payment terms beyond one year.

We primarily record revenue on a gross basis as a principal in the Consolidated Statements of Operations and Comprehensive Income based upon the following key factors:

We maintain the direct contractual relationship with the client and are responsible for fulfilling the service promised to the client.

We maintain control over our contractors while the services to the client are being performed, including our contractors' billing rates, and are ultimately responsible for paying them.

- 8 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)


RPO Recruitment. We provide complete recruitment outsourcing, project-based outsourcing, and recruitment consulting for clients' permanent staff hires. We recognize revenue for our RPO recruitment over time in an amount that reflects the consideration we expect to be entitled to and have an enforceable right to payment in exchange for our services. The client simultaneously receives and consumes the benefits of the services as they are provided. The transaction prices contains both fixed fees and variable consideration. Variable consideration is constrained by candidates accepting offers of permanent employment. We recognize revenue on the fixed fees as the performance obligations are satisfied and variable fees as the constraint is lifted. We do not incur incremental costs to obtain our RPO recruitment contracts. The costs to fulfill these contracts are expensed as incurred.

RPO Contracting. We provide RPO clients with a range of outsourced professional contract staffing services and managed service provider services offered sometimes on a standalone basis and sometimes as part of a blended total talent solution. We recognize revenue for our RPO contracting services over time as services are performed in an amount that reflects the consideration we expect to be entitled to and have an enforceable right to payment in exchange for our services, which is generally calculated as hours worked multiplied by the agreed-upon hourly bill rate. The client simultaneously receives and consumes the benefits of the services as they are provided. We do not incur incremental costs to obtain our RPO contracting contracts. The costs incurred to fulfill these contracts are expensed as incurred.

Unsatisfied performance obligations. As a practical expedient, we do not disclose the value of unsatisfied performance obligations for (i) contracts with an expected original duration of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

Disaggregation of Revenue

The following table presents our disaggregated revenues from continuing operations by revenue source. For additional information on the disaggregated revenues by geographical segment, see Note 13 of the Notes to the Condensed Consolidated Financial Statements.
 
Three Months Ended September 30, 2019
 
RPO Recruitment
 
RPO Contracting
 
Total
Revenue
$
11,507

 
$
14,255

 
$
25,762

Direct costs (1)
752

 
13,614

 
14,366

Gross profit
$
10,755

 
$
641

 
$
11,396

 
 
 
 
 
 
 
Three Months Ended September 30, 2018
 
RPO Recruitment
 
RPO Contracting
 
Total
Revenue
$
11,043

 
$
6,084

 
$
17,127

Direct costs (1)
699

 
5,547

 
6,246

Gross profit
$
10,344

 
$
537

 
$
10,881

 
Nine Months Ended September 30, 2019
 
RPO Recruitment
 
RPO Contracting
 
Total
Revenue
$
32,790

 
$
35,573

 
$
68,363

Direct costs (1)
2,163

 
33,749

 
35,912

Gross profit
$
30,627

 
$
1,824

 
$
32,451

 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
RPO Recruitment
 
RPO Contracting
 
Total
Revenue
$
34,428

 
$
15,929

 
$
50,357

Direct costs (1)
4,181

 
14,340

 
18,521

Gross profit
$
30,247

 
$
1,589

 
$
31,836



- 9 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)

(1)
Direct costs include the direct staffing costs of salaries, payroll taxes, employee benefits, travel expenses, rent, and insurance costs for the Company’s contractors and reimbursed out-of-pocket expenses and other direct costs. The region where services are provided, the mix of RPO recruitment and RPO contracting, and the functional nature of the staffing services provided can affect gross profit. The salaries, commissions, payroll taxes and employee benefits related to recruitment professionals are included under the caption "Salaries and related" in the Condensed Consolidated Statement of Operations.

NOTE 5 – DISCONTINUED OPERATIONS
    
On March 31, 2018, the Company completed the sale of its RTM businesses in Belgium, Europe (excluding Belgium) and Asia Pacific ("APAC") in separate transactions to Value Plus NV, Morgan Philips Group S.A., and Apache Group Holdings Pty Limited, respectively. The gross proceeds from the sale were $38,960. In addition, $17,626 of debt was assumed by the buyers.

The following is a reconciliation of the gross proceeds to the net proceeds as presented in the statement of cash flows for the nine months ended September 30, 2018.
Gross proceeds
$
38,960

Add: purchase price adjustments
149

Less: cash and restricted cash sold
(9,547
)
Less: transaction costs
(1,661
)
Net cash proceeds as presented in the statement of cash flows
$
27,901


The divestiture generated a pre-tax gain of $13,985 for the nine months ended September 30, 2018, which includes a benefit of $10,819 reclassification adjustment relating to the net foreign currency translation gains previously included in accumulated other comprehensive income.

The RTM businesses met the criteria for discontinued operations set forth in ASC 205 on March 31, 2018 subsequent to approval of the sale by our stockholders. The Company reclassified its discontinued operations for all periods presented and has excluded the results of its discontinued operations from continuing operations and from segment results for all periods presented.

The carrying amounts of the classes of assets and liabilities from the RTM businesses included in discontinued operations were as follows:
 
 
September 30,
2019
 
December 31,
2018
 
 
Total
 
Total
Prepaid and other current assets
 
$

 
$
941

Total current assets
 

 
941

Total assets
 
$

 
$
941

 
 
 
 
 
Accrued expenses and other current liabilities
 
$

 
$
115

Total current liabilities
 

 
115

Total liabilities
 
$

 
$
115


- 10 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)


Reported results for the discontinued operations by period were as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Revenue
$

 
$

 
$

 
$
108,463

Gross profit

 

 

 
38,663

Operating expenses:
 
 
 
 
 
 
 
Salaries and related

 

 

 
29,032

Other selling, general and administrative

 

 

 
8,355

Depreciation and amortization

 

 

 
680

Business reorganization

 

 

 
50

Operating income

 

 

 
546

Non-operating income (expense):
 
 
 
 
 
 
 
Interest expense, net

 

 

 
(88
)
Other non-operating income

 

 

 
216

Income from discontinued operations before taxes and gain on sale

 

 

 
674

Gain (loss) gain from sale of discontinued operations
18

 
(47
)
 
(113
)
 
13,985

Income (loss) from discontinued operations before income taxes
18

 
(47
)
 
(113
)
 
14,659

Provision for income taxes

 

 

 
1,099

Income (loss) from discontinued operations
$
18

 
$
(47
)
 
$
(113
)
 
$
13,560


Depreciation, capital expenditures, and significant operating and investment non cash items of the discontinued operations by period were as follows:
 
Nine Months Ended September 30, 2018
Depreciation and amortization
$
680

Stock-based compensation expense
$
233

Capital expenditures
$
284


Disaggregation of Revenue

The following table presents our disaggregated revenues from discontinued operations by revenue source.
 
Nine Months Ended September 30, 2018
 
Permanent Recruitment
 
Contracting
 
Talent Management
 
Other
 
Total
Revenue
$
20,700

 
$
76,615

 
$
10,694

 
$
454

 
$
108,463

Direct costs (1)
190

 
67,980

 
1,225

 
405

 
69,800

Gross profit
$
20,510

 
$
8,635

 
$
9,469

 
$
49

 
$
38,663



(1)
Direct costs include the direct staffing costs of salaries, payroll taxes, employee benefits, travel expenses, and insurance costs for the Company’s contractors and reimbursed out-of-pocket expenses and other direct costs. Other than reimbursed out-of-pocket expenses, there are no other direct costs associated with the Permanent Recruitment and Other categories. Gross profit represents revenue less direct costs. The region where services are provided, the mix of

- 11 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)

contracting, and permanent recruitment, and the functional nature of the staffing services provided can affect gross profit.


NOTE 6 – STOCK-BASED COMPENSATION
Incentive Compensation Plan
The Company maintains the Hudson Global, Inc. 2009 Incentive Stock and Awards Plan, as amended and restated May 24, 2016 (the "ISAP"), pursuant to which it can issue equity-based compensation incentives to eligible participants. The ISAP permits the granting of stock options, restricted stock, restricted stock units, and other types of equity-based awards. The Compensation Committee (the "Compensation Committee") of the Board will establish such conditions as it deems appropriate on the granting or vesting of stock options, restricted stock, restricted stock units, and other types of equity-based awards. As determined by the Compensation Committee, equity awards also may be subject to immediate vesting upon the occurrence of certain events following a change in control of the Company. The Company primarily grants restricted stock and restricted stock units to its employees. A restricted stock unit is equivalent to one share of the Company’s common stock and is payable only in common stock of the Company issued under the ISAP.
The Compensation Committee administers the ISAP and may designate any of the following as a participant under the ISAP: any officer or other employee of the Company or its affiliates or individuals engaged to become an officer or employee; consultants or other independent contractors who provide services to the Company or its affiliates; and non-employee directors of the Company. On May 24, 2016, the Company's stockholders approved an amendment and restatement of the ISAP to, among other things, increase the number of shares of the Company's common stock that are reserved for issuance by 240,000 shares. As of September 30, 2019, there were 39,357 shares of the Company’s common stock available for future issuance under the ISAP.
The following table presents a summary of the quantity and vesting conditions for stock-based units granted to the Company's employees for the nine months ended September 30, 2019:
Vesting conditions
 
Number of Restricted Stock Units Granted
Performance and service conditions - Type 1 (1)
 
19,500

Performance and service conditions - Type 2 (1)
 
31,334

Total shares of stock award granted
 
50,834

(1)
The performance conditions with respect to restricted stock units may be satisfied as follows: 
(a)
For employees from the Americas, APAC, and Europe 70% of the restricted stock units may be earned on the basis of performance as measured by a "regional adjusted EBITDA", and 30% of the restricted stock units may be earned on the basis of performance as measured by a "group adjusted EBITDA"; and
(b)
For employees from the Corporate office 75% of the restricted stock units may be earned on the basis of performance as measured by a "group adjusted EBITDA", and 25% of the restricted stock units may be earned on the basis of performance as measured by a "corporate costs" target.
To the extent restricted stock units are earned on the basis of performance, such restricted stock units will vest on the basis of service as follows:
(a)
33% and 66.6% for Type 1 and Type 2, respectively, of the restricted stock units will vest on the first anniversary of the grant date;
(b)
33% and 16.7% for Type 1 and Type 2, respectively, of the restricted stock units will vest on the second anniversary of the grant date; and
(c)
34% and 16.7% for Type 1 and Type 2, respectively, of the restricted stock units will vest on the third anniversary of the grant date; provided that, in each case, the employee remains employed by the Company from the grant date through the applicable service vesting date.

- 12 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)


The Company also maintains the Director Deferred Share Plan (the "Director Plan") pursuant to which it can issue restricted stock units to its non-employee directors. A restricted stock unit is equivalent to one share of the Company’s common stock and is payable only in common stock issued under the ISAP upon a director ceasing service as a member of the Company's Board. The restricted stock units vest immediately upon grant and are credited to each of the non-employee director's retirement accounts under the Director Plan. Restricted stock units issued under the Director Plan contain the right to a dividend equivalent award in the form of additional restricted stock units. The dividend equivalent award is calculated using the same rate as the cash dividend paid on a share of the Company's common stock, and then divided by the closing price of the Company’s common stock on the date the dividend is paid to determine the number of additional restricted stock units to grant. Dividend equivalent awards have the same vesting terms as the underlying awards. During the nine months ended September 30, 2019, the Company granted 34,305 restricted stock units to its non-employee directors pursuant to the Director Plan.
As of September 30, 2019, 134,162 restricted stock units are deferred under the Company’s ISAP.
For the three and nine months ended September 30, 2019 and 2018, the Company’s stock-based compensation expense related to stock options and restricted stock units was as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Stock options
 
$

 
$

 
$

 
$

Restricted stock units and common stock
 
202

 
458

 
811

 
1,332

Total
 
$
202

 
$
458

 
$
811

 
$
1,332

 
Stock Options
Stock options granted by the Company generally expire between five and ten years after the date of grant and have an exercise price of at least 100% of the fair market value of the underlying share of common stock on the date of grant.
As of September 30, 2019, the Company had no unrecognized stock-based compensation expense related to outstanding unvested stock options.
Changes in the Company’s stock options for the nine months ended September 30, 2019 and 2018 were as follows: 
 
Nine Months Ended September 30,
 
2019
 
2018
 
Number of
Options
 
Weighted
Average
Exercise Price
per Share
 
Number of
Options
 
Weighted
Average
Exercise Price
per Share
Options outstanding at January 1,
5,000

 
$
24.90

 
10,000

 
$
38.55

Expired/forfeited

 

 

 

Options outstanding at September 30,
5,000

 
$
24.90

 
10,000

 
$
38.55

Options exercisable at September 30,
5,000

 
$
24.90

 
10,000

 
$
38.55


Restricted Stock Units
As of September 30, 2019, the Company had approximately $258 of unrecognized stock-based compensation expense related to outstanding unvested restricted stock units. The Company expects to recognize that cost over a weighted average service period of 1.76 years. Restricted stock units have no voting or dividend rights until the awards are vested.

- 13 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)

Changes in the Company’s restricted stock units for the nine months ended September 30, 2019 and 2018 were as follows:
 
Nine Months Ended September 30,
 
2019
 
2018
 
Number of
Restricted
Stock Units
 
Weighted
Average
Grant-Date
Fair Value
 
Number of
Restricted
Stock Units
 
Weighted
Average
Grant-Date
Fair Value
Unvested restricted stock units at January 1,
57,773

 
$
15.68

 
108,894

 
$
11.60

Granted
85,139

 
$
15.04

 
67,166

 
$
17.40

Shares earned above target (a)
723

 
$
17.00

 
24,486

 
$
10.00

Vested
(61,612
)
 
$
14.91

 
(141,970
)
 
$
12.50

Forfeited
(15,090
)
 
$
15.38

 
(803
)
 
$
10.00

Unvested restricted stock units at September 30,
66,933

 
$
15.22

 
57,773

 
$
15.70


(a)
The number of shares earned above target are based on the performance target established by the Compensation Committee at the initial grant date.

NOTE 7 – INCOME TAXES

Income Tax Provision

The Company is subject to the provisions of the Tax Act. The Tax Act reduced the corporate income tax rate and transitioned from a worldwide corporate tax system to a modified territorial corporate tax system. The main provisions of the Tax Act affecting the Company in 2019 and 2018 include a reduced U.S. federal tax rate and a tax on global intangible low-taxed income (“GILTI”). The Company accounts for GILTI in the period in which it is incurred. The impact of the Tax Act on the Company’s effective tax rate in 2019 and 2018 is effectively eliminated by utilization of the Company’s tax losses subject to full valuation allowances.

Under ASC 270, "Interim Reporting", and ASC 740-270, "Income Taxes – Intra Period Tax Allocation", the Company is required to adjust its effective tax rate for each quarter to be consistent with the estimated annual effective tax rate. Jurisdictions with a projected loss for the full year where no tax benefit can be recognized are excluded from the calculation of the estimated annual effective tax rate. Applying the provisions of ASC 270 and ASC 740-270 could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings versus annual projections.
Effective Tax Rate
The provision for income taxes for the nine months ended September 30, 2019 was $356 on a pre-tax loss from continuing operations of $1,969, compared to a provision for income taxes of $393 on pre-tax loss from continuing operations of $4,680 for the same period in 2018. The Company’s effective income tax rate was negative 18.1% and negative 8.4% for the nine months ended September 30, 2019 and 2018, respectively. For the nine months ended September 30, 2019 and 2018, the effective tax rates differed from the U.S. Federal statutory rate of 21% primarily due to state income taxes, changes in valuation allowances in the U.S. and certain foreign jurisdictions which reduces or eliminates the effective tax rate on current year profits or losses, variations from the U.S. Federal statutory rate in foreign jurisdictions, taxes on repatriations or deemed repatriation of foreign profits, and non-deductible expenses.
Uncertain Tax Positions 
As of September 30, 2019 and December 31, 2018, the Company had $2,116 and $1,982, respectively, of unrecognized tax benefits, including interest and penalties, which if recognized in the future, would lower the Company’s annual effective income tax rate.
Accrued interest and penalties were $719 and $588 as of September 30, 2019 and December 31, 2018, respectively. Estimated interest and penalties are classified as part of the provision for income taxes in the Company’s Condensed

- 14 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)

Consolidated Statement of Operations and totaled to a provision of $120 and $42 for the nine months ended September 30, 2019 and 2018, respectively.
In many cases, the Company’s unrecognized tax benefits are related to tax years that remain subject to examination by the relevant tax authorities. Tax years with net operating losses ("NOLs") remain open until such losses expire or until the statutes of limitations for those years when the NOLs are used expire. As of September 30, 2019, the Company's open tax years, which remain subject to examination by the relevant tax authorities, were principally as follows:
 
 
Year
Earliest tax years which remain subject to examination by the relevant tax authorities:
 
 
U.S. Federal
 
2016
Majority of U.S. state and local jurisdictions
 
2014
Australia
 
2017
Belgium
 
2016
Canada
 
2015
Netherlands
 
2013
Switzerland
 
2014
United Kingdom
 
2017
Jurisdictions in Asia
 
2018
The Company believes that its tax reserves are adequate for all years that remain subject to examination or are currently under examination.
Based on information available as of September 30, 2019, it is reasonably possible that the total amount of unrecognized tax benefits could decrease in the range of $0 to $200 over the next 12 months as a result of projected resolutions of global tax examinations and controversies and potential expirations of the applicable statutes of limitations.

NOTE 8 – EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing the Company’s net income (loss) by the weighted average number of shares outstanding during the period. When the effects are not anti-dilutive, diluted earnings (loss) per share is computed by dividing the Company’s net income (loss) by the weighted average number of shares outstanding and the impact of all dilutive potential common shares, primarily stock options "in-the-money", unvested restricted stock, and unvested restricted stock units. The dilutive impact of stock options, unvested restricted stock, and unvested restricted stock units is determined by applying the "treasury stock" method. Performance-based restricted stock awards are included in the computation of diluted earnings per share only to the extent that the underlying performance conditions: (i) are satisfied prior to the end of the reporting period; or (ii) would be satisfied if the end of the reporting period were the end of the related performance period and the result would be dilutive under the treasury stock method. Stock awards subject to vesting or exercisability based on the achievement of market conditions are included in the computation of diluted earnings per share only when the market conditions are met.
A reconciliation of the numerators and denominators of the basic and diluted earnings (loss) per share calculations for the three and nine months ended September 30, 2019 and 2018 were as follows:


- 15 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
(a) 
 
2019
 
2018
 
2019
 
2018
 
Earnings (loss) per share ("EPS"):
 
 

 
 

 
 

 
 

 
EPS - basic:
 
 
 
 
 
 
 
 
 
Earnings (loss) per share from continuing operations
 
$
0.11

 
$
(0.25
)
 
$
(0.74
)
 
$
(1.55
)
 
Earnings (loss) per share from discontinued operations
 
0.01

 
(0.01
)
 
(0.04
)
 
4.14

 
Earnings (loss) per share
 
$
0.12

 
$
(0.26
)
 
$
(0.77
)
 
$
2.59

 
EPS - diluted:
 
 
 
 
 
 
 
 
 
Earnings (loss) per share from continuing operations
 
$
0.11

 
$
(0.25
)
 
$
(0.74
)
 
$
(1.55
)
 
Earnings (loss) per share from discontinued operations
 
0.01

 
(0.01
)
 
(0.04
)
 
4.14

 
Earnings (loss) per share
 
$
0.12

 
$
(0.26
)
 
$
(0.77
)
 
$
2.59

 
EPS numerator - basic and diluted:
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
346

 
$
(823
)
 
$
(2,325
)
 
$
(5,073
)
 
Income (loss) from discontinued operations
 
18

 
(47
)
 
(113
)
 
13,560

 
Net income (loss)
 
$
364

 
$
(870
)
 
$
(2,438
)
 
$
8,487

 
EPS denominator (in thousands):
 
 

 
 

 
 

 
 
 
Weighted average common stock outstanding - basic
 
3,082

 
3,310

 
3,150

 
3,275

 
Common stock equivalents: stock options and restricted stock units
 
36

 

(b)


(b)


(b)

Weighted average number of common stock outstanding - diluted
 
3,118

 
3,310

 
3,150

 
3,275

 

(a)
Earnings per share and weighted average shares outstanding for all periods presented reflect the Company's 1-for-10 reverse stock split, which was effective June 10, 2019. 
(b)
The diluted weighted average number of shares of common stock outstanding did not differ from the basic weighted average number of shares of common stock outstanding because the effects of any potential common stock equivalents (see Note 6 for further details on outstanding stock options and unvested restricted stock units) were anti-dilutive and therefore not included in the calculation of the denominator of dilutive earnings per share.

The weighted average number of shares outstanding used in the computation of diluted net income (loss) per share for the three and nine months ended September 30, 2019 and 2018 did not include the effect of the following potentially outstanding shares of common stock because the effect would have been anti-dilutive:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Unvested restricted stock units
 

 
57,773

 
66,933

 
57,773

Stock options
 
5,000

 
10,000

 
5,000

 
10,000

Total
 
5,000

 
67,773

 
71,933

 
67,773





- 16 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)

NOTE 9 – CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
Cash, cash equivalents, and restricted cash as reported within the accompanying Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 was as follows: 
 
September 30,
2019
 
December 31,
2018
Cash and cash equivalents of continuing operations
$
28,383

 
$
40,562

Restricted cash included in prepaid and other
122

 
146

Restricted cash, non-current
376

 
352

Total cash, cash equivalents, and restricted cash
$
28,881

 
$
41,060


Restricted cash under the caption "Prepaid and other" primarily includes lease and collateral deposits. Restricted cash under the caption "Other assets" primarily include deposits held under a collateral trust agreement, which supports the Company’s workers’ compensation policy, and a bank guarantee for licensing in Switzerland.

NOTE 10 – COMMITMENTS AND CONTINGENCIES
Consulting, Employment, and Non-compete Agreements
The Company has entered into various consulting and employment agreements with certain key members of management. These agreements generally (i) are one year in length, (ii) contain restrictive covenants, (iii) under certain circumstances, provide for compensation and, subject to providing the Company with a release, severance payments, and (iv) are automatically renewed annually unless either party gives sufficient notice of termination.
Litigation and Complaints 
The Company is subject, from time to time, to various claims, lawsuits, contracts disputes, and other complaints from, for example, clients, candidates, suppliers, landlords for both leased and subleased properties, former and current employees, and regulators or tax authorities arising in the ordinary course of business. The Company routinely monitors claims such as these, and records provisions for losses when the claim becomes probable and the amount due is estimable. Although the outcome of these claims cannot be determined, the Company believes that the final resolution of these matters will not have a material adverse effect on the Company’s financial condition, results of operations or liquidity.
For matters that have reached the threshold of probable and estimable, the Company has established reserves for legal, regulatory, and other contingent liabilities. The legal reserves are included under the caption "Other non-current liabilities" in the Condensed Consolidated Balance Sheets. The Company had no reserves as of September 30, 2019 and December 31, 2018, respectively.
Resignation of Chief Executive Officer

As previously disclosed, on April 1, 2018, Stephen A. Nolan gave notice to the Company's Board of Directors of his resignation as Chief Executive Officer and a director of the Company effective as of April 1, 2018. On April 1, 2018, following the resignation of Mr. Nolan, the Board of Directors of the Company appointed Jeffrey E. Eberwein, the Chairman of the Board of Directors, as Chief Executive Officer, and Richard K. Coleman, Jr., a director of the Company, as the Chairman of the Board of Directors. As a result, during the three months ended March 31, 2018, the Company recognized additional compensation expense of $2,024 to its former Chief Executive Officer classified within salaries and related expense in the Company's Condensed Consolidated Statement of Operations.

Departure of Chief Financial Officer

As previously disclosed, on May 31, 2019, the Company and Patrick Lyons determined that Mr. Lyons would leave his positions with the Company effective June 30, 2019. As a result, during the three and six months ended June 30, 2019, the Company recognized compensation expense of $485 to its former Chief Financial Officer classified within salaries and related expense in the Company's Condensed Consolidated Statement of Operations. Additionally, Mr. Lyons has agreed to serve as a consultant to the Company to assist with certain financial and operational matters from July 1, 2019 through December 31,

- 17 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)

2019. In consideration for his services as a consultant, the Company will pay Mr. Lyons 750 shares of the Company’s common stock at the end of each month during the term of Mr. Lyons' consulting agreement with the Company.

Operating Leases
Effective January 1, 2019, the Company adopted the new lease guidelines detailed in ASU 2016-02. The Company's financial position for reporting periods beginning on or after January 1, 2019 are presented under the new guidance, while prior periods amounts are not adjusted and continue to be reported in accordance with previous guidance as provided for in the alternative transition approach under ASU 2018-11. We did not elect to apply the recognition requirements to short-term leases with terms of 12 months or less based on original lease commencement date and instead recognize the lease payments on a straight line basis over the lease term. Adoption of this standard resulted in the recording of net operating lease right-of-use assets and corresponding operating lease liabilities of $0.7 million for rented office spaces.

Our office space leases have remaining lease terms of one year to three years. Some of these operating leases include options to extend the lease terms, and some operating leases include options to terminate the leases earlier than the full terms. These options are considered in our determination of the valuation of our right-of-use assets and lease liabilities.
None of our operating leases include implicit rates, and we have determined that the difference between the contractual cost basis and the present value of lease payments calculated using incremental borrowing rates is not material. Our operating lease costs for the nine months ended September 30, 2019 were $399 (reflected in Net cash used in operating activities). The weighted average remaining lease term of our operating leases as of September 30, 2019 was 2.1 years.
Future minimum operating lease payments are as follows:
 
2019
 
2020
 
2021
 
2022
 
Total
Minimum lease payments
$
69

 
$
229

 
$
141

 
$
12

 
$
451


As of December 31, 2018, future minimum operating lease payments was $87, all of which related to 2019.

Invoice Finance Credit Facility

On April 8, 2019, the Company’s Australian subsidiary (“Australian Borrower”) entered into an invoice finance credit facility agreement (the “NAB Facility Agreement”) with National Australia Bank Limited ("NAB"). The NAB Facility Agreement provides the Australian Borrower with the ability to borrow funds based on a percentage of eligible trade receivables sold to NAB up to a maximum of 4 million Australian dollars. No receivables sold to NAB have terms greater than 90 days, and any risk of loss is retained by the Australian Borrower. As amounts are collected from outstanding receivables, additional invoices may be sold to replenish available funds. The interest rate is calculated as the variable receivable finance indicator rate, plus a margin of 1.60% per annum. Borrowings under this facility are secured by substantially all of the assets of the Australian Borrower. The NAB Facility Agreement does not have a stated maturity date and can be terminated by either the Australian Borrower or NAB upon 90 days written notice. As of September 30, 2019, there were no amounts outstanding under the NAB Facility Agreement. Interest expense incurred on the NAB Facility Agreement was $8 and $15 for the three and nine months ended September 30, 2019, respectively.

The NAB Facility Agreement contains various restrictions and covenants for the Australian Borrower including (1) that EBITDA must be at least two times total interest paid on debt on a 12-month rolling basis; (2) minimum tangible net worth must be at least 2.5 million Australian dollars and be equal to at least 25% of total tangible assets on September 30 and December 31 (as defined in the NAB Facility Agreement); and (3) additional periodic reporting requirements to NAB. The Company was in compliance with all financial covenants under the NAB Facility Agreement as of September 30, 2019.








- 18 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)

NOTE 11 – ACCUMULATED OTHER COMPREHENSIVE LOSS

Accumulated other comprehensive loss, net of applicable tax, consisted of the following:
 
 
September 30,
 
December 31,
 
 
2019
 
2018
Foreign currency translation adjustments
 
$
(985
)
 
$
(606
)
Accumulated other comprehensive loss
 
$
(985
)
 
$
(606
)

NOTE 12 – STOCKHOLDERS' EQUITY
Common Stock
    
On July 30, 2015, the Company announced that its Board authorized the repurchase of up to $10,000 of the Company's common stock. The Company intends to make purchases from time to time as market conditions warrant. This authorization does not expire. During the nine months ended September 30, 2019, the Company repurchased 48,706 shares on the open market for $655 and repurchased 220 shares on the open market for $3 during the same period last year. As of September 30, 2019, under the July 30, 2015 authorization, the Company had repurchased 427,131 shares for a total cost of $8,234.

In addition to the shares repurchased above under the $10,000 authorization plan, on February 22, 2019, the Company commenced a tender offer to purchase up to 315,000 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $15.00 per share.  The tender offer expired on March 22, 2019. In accordance with the terms and conditions of the tender offer, the Company acquired 246,863 shares for an aggregate cost of $3,703, excluding fees and expenses of $125.
Reverse Stock Split

On June 10, 2019, the Company announced a Reverse Split of its outstanding shares of common stock at a ratio of 1-for-10 and that it had also reduced the number of authorized shares of common stock to 20 million shares. The Reverse Split had no effect on the par value of the Company's common stock, but it reduced the number of issued and outstanding shares of common stock by a factor of 10. All issued and outstanding shares, stock-based compensation disclosures, net loss per share, and other share and per share disclosures for all periods presented have been retrospectively adjusted to reflect the impact of this Reverse Split.


NOTE 13 – SEGMENT AND GEOGRAPHIC DATA
Segment Reporting
The Company operates in three reportable segments: the regional businesses of Americas, Asia Pacific, and Europe. Corporate expenses are reported separately from the three reportable segments and pertain to certain functions, such as executive management, corporate governance, human resources, accounting, administration, tax, and treasury. Segment information is presented in accordance with ASC 280, "Segment Reporting." This standard is based on a management approach that requires segmentation based upon the Company’s internal organization and disclosure of revenue and certain expenses based upon internal accounting methods. The Company’s financial reporting systems present various data for management to run the business, including internal profit and loss statements prepared on a basis not consistent with U.S. GAAP. Accounts receivable, net is the only significant assets separated by segment for internal reporting purposes. The following information is presented net of discontinued operations. For more information see Note 5.

- 19 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)

 
Americas
 
Asia Pacific
 
Europe
 
Corporate
 
Inter-Segment Elimination
 
Total
For The Three Months Ended September 30, 2019
 
 
 
 
 
 
Revenue, from external customers
$
3,510

 
$
17,436

 
$
4,816

 
$

 
$

 
$
25,762

Inter-segment revenue
12

 

 
(1
)
 

 
(11
)
 

Total revenue
$
3,522

 
$
17,436

 
$
4,815

 
$

 
$
(11
)
 
$
25,762

Gross profit, from external customers
$
3,205

 
$
5,574

 
$
2,617

 
$

 
$

 
$
11,396

Inter-segment gross profit
11

 
(12
)
 

 

 
1

 

Total gross profit
$
3,216

 
$
5,562

 
$
2,617

 
$

 
$
1

 
$
11,396

EBITDA (loss) (a)
$
3

 
$
821

 
$
178

 
$
(572
)
 
$

 
$
430

Depreciation and amortization
(5
)
 
(12
)
 
(5
)
 
(1
)
 

 
(23
)
Intercompany interest (expense) income, net

 
(95
)
 

 
95

 

 

Interest (expense) income, net

 
(4
)
 

 
92

 

 
88

Income (loss) from continuing operations before income taxes
$
(2
)
 
$
710

 
$
173

 
$
(386
)
 
$

 
$
495

 
 
 
 
 
 
 
 
 
 
 
 
For The Nine Months Ended September 30, 2019
 
 
 
 
 
 
 
 
Revenue, from external customers
$
10,632

 
$
43,569

 
$
14,162

 
$

 
$

 
$
68,363

Inter-segment revenue
75

 

 
2

 

 
(77
)
 

Total revenue
$
10,707

 
$
43,569

 
$
14,164

 
$

 
$
(77
)
 
$
68,363

Gross profit, from external customers
$
9,558

 
$
15,584

 
$
7,309

 
$

 
$

 
$
32,451

Inter-segment gross profit
72

 
(70
)
 
3

 

 
(5
)
 

Total gross profit
$
9,630

 
$
15,514

 
$
7,312

 
$

 
$
(5
)
 
$
32,451

EBITDA (loss) (a)
$
17

 
$
1,135

 
$
(139
)
 
$
(3,446
)
 
$

 
$
(2,433
)
Depreciation and amortization
(14
)
 
(27
)
 
(18
)
 
(3
)
 

 
(62
)
Intercompany interest (expense) income, net

 
(296
)
 

 
296

 

 

Interest (expense) income, net

 
(4
)
 

 
530

 

 
526

Income (loss) from continuing operations before income taxes
$
3

 
$
808

 
$
(157
)
 
$
(2,623
)
 
$

 
$
(1,969
)
 
 
 
 
 
 
 
 
 
 
 
 
As of September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
Accounts receivable, net
$
3,295

 
$
8,594

 
$
3,849

 
$
(47
)
 
$

 
$
15,691

Total assets
$
5,122

 
$
11,930

 
$
7,003

 
$
23,094

 
$

 
$
47,149



- 20 -

Index
HUDSON GLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)

 
Americas
 
Asia Pacific
 
Europe
 
Corporate
 
Inter-
Segment
Elimination
 
Total
For The Three Months Ended September 30, 2018
 
 
 
 
 
 
 
 
Total revenue
$
3,590

 
$
9,306

 
$
4,231

 
$

 
$

 
$
17,127

Total gross profit
$
2,990

 
$
5,741

 
$
2,150

 
$

 
$

 
$
10,881

EBITDA (loss) (a)
$
87

 
$
460

 
$
(226
)
 
$
(1,133
)
 
 
 
$
(812
)
Depreciation and amortization

 

 
(1
)
 

 
$

 
(1
)
Intercompany interest (expense) income, net

 
(105
)
 

 
105

 
$

 

Interest income, net

 

 

 
102

 
$

 
102

Income (loss) from continuing operations before income taxes
$
87

 
$
355

 
$
(227
)
 
$
(926
)
 
$

 
$
(711
)
 
 
 
 
 
 
 
 
 
 
 
 
For The Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
Total revenue
$
10,799

 
$
27,731

 
$
11,827

 
$
61

 
$
(61
)
 
$
50,357

Total gross profit
$
9,039

 
$
16,423

 
$
6,374

 
$

 
$

 
$
31,836

EBITDA (loss) (a)
$
303

 
$
1,511

 
$
(176
)
 
$
(6,477
)