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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549  
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-38704 
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, Suite 102, Old Greenwich, CT 06870
(Address of principal executive offices) (Zip Code)
(203409-5628
(Registrant’s telephone number, including area code) 
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.001 par valueHSONThe NASDAQ Stock Market LLC
Preferred Share Purchase RightsThe NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes       No  
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act.   Yes      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.    Yes       No  

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    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 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.    
 
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 Accelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
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.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

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

The aggregate market value of the voting common stock held by non-affiliates of the registrant was approximately $22,730,000 based on the closing price of the Common Stock on the NASDAQ Global Select Market on June 30, 2020.

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 03/01/2021
Common Stock - $0.001 par value 2,684,971
DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2021 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A are incorporated by reference into Part III of this Annual Report on Form 10-K.



Table of Contents
  Page
PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
ITEM 15.
ITEM 16.




PART I
ITEM 1.    BUSINESS
    Hudson Global, Inc. (the “Company” or “Hudson”, “we”, “us”, and “our”) is a leading total talent solutions provider operating under the brand name Hudson RPO. We deliver innovative, customized recruitment outsourcing and total talent solutions to organizations worldwide. Through our consultative approach, we develop tailored talent solutions designed to meet our clients’ strategic growth initiatives. We are a Delaware corporation, and have operated as an independent publicly held company since April 1, 2003 when Monster Worldwide, Inc., formerly TMP Worldwide, Inc., spun off its eResourcing division.
Prior to the second quarter of 2018, the Company’s core service offerings included Permanent Recruitment, Contracting, and Talent Management Solutions (collectively, Recruitment and Talent Management or “RTM”), as well as Recruitment Process Outsourcing (“RPO”). On March 31, 2018, the Company completed the sale of all of its RTM businesses in three separate transactions and retained its RPO business and contracting services provided to RPO clients (the “Sales Transaction”). The RTM businesses met the criteria for discontinued operations. 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 Company delivers RPO recruitment and Contracting 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. Hudson operates directly in twelve countries with three reportable geographic business segments: Americas, Asia Pacific, and Europe.
On October 1, 2020, Hudson completed its acquisition of Coit Staffing, Inc., which expanded its presence in the technology sector and established a Technology Group located in San Francisco. The Technology Group operates jointly with Hudson RPO’s existing teams in the Americas, Asia Pacific, and in Europe, to provide continuous access to knowledge regarding new and emerging technologies in the RPO, Managed Solutions Provider ("MSP"), and Total Talent Solutions space, enabling the Company to better serve its clients around the world. The Technology Group also leverages its network and partnerships within the technology sector to seek out new customers and opportunities in other markets around the world.

    For the year ended December 31, 2020, the amounts and percentages of the Company’s total revenue from the three reportable segments were as follows:
Revenue
$ in thousandsAmountPercentage
Americas$10,866 10.7 %
Asia Pacific75,633 74.6 %
Europe14,949 14.7 %
Total$101,448 100.0 %

    The Company’s core service offering is RPO, consisting of RPO Recruitment and Contracting:

    RPO Recruitment: The Company provides complete recruitment outsourcing, project-based outsourcing, and recruitment consulting for clients’ permanent staff hires. Hudson’s RPO Recruitment services leverage the Company’s consultants, supported by the Company’s specialists, in the delivery of its proprietary methods to identify, select, and engage the best-fit talent for critical client roles.

    Contracting: The Company provides 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. These services draw upon a combination of specialized recruiting and project management competencies to deliver a wide range of solutions. Hudson-employed professionals - either individually or as a team - are placed with client organizations for a defined period of time based on specific business needs of the client.

- 1 -


    For the year ended December 31, 2020, the amounts and percentages of the Company’s total revenue from the core service offerings were as follows:
Revenue
$ in thousandsAmountPercentage
RPO Recruitment$38,521 38.0 %
Contracting62,927 62.0 %
Total$101,448 100.0 %
Clients

    The Company’s clients include mid-to-large-cap multinational companies and government agencies. For the years ended December 31, 2020 and 2019, the top 25 clients generated over 90% of the Company’s revenue. Two clients accounted for 66% and 58% of revenue in 2020 and 2019, respectively. Three clients each accounted for 10% or greater of accounts receivable as of December 31, 2020 and 2019, respectively.

Employees

    The Company employs approximately 380 people worldwide, including approximately 90 employees in the United States (“U.S”) and 290 employees internationally.

Sales and Marketing

    The Company’s employees include approximately 330 client-facing consultants who sell and deliver its RPO services to its existing client base. The Company’s consultant population has deep expertise in specific functional areas and industry sectors, and provides broad-based recruitment and solution services based on the needs of each client on a regional and global basis.

Competition

    The markets for the Company’s services and products are highly competitive. There are few barriers to entry, so new entrants occur frequently, resulting in considerable market fragmentation. Companies in this industry compete on a number of parameters including degree and quality of candidate and position knowledge, industry expertise, global presence, scalability, service quality, and efficiency in completing assignments. Typically, companies with greater strength or scale in these parameters garner higher margins.

Growth Strategy

    We focus on organically growing our RPO business, reducing overhead, and pursuing acquisition opportunities. We target driving organic growth in RPO by investing in people and technology to leverage our existing strong reputation in the market. We are driving down corporate and regional overhead by reducing complexity left over following the Sales Transaction. We are investigating acquisition opportunities to expand capabilities and capacity and utilize our net operating losses. We continue to explore all strategic alternatives to maximize value for shareholders, including without limitation, improving the market position and profitability of our services in the marketplace, and enhancing our valuation. We may pursue our goals through organic growth, strategic initiatives, or other alternatives. We will also continue to monitor capital markets for opportunities to repurchase shares, and consider other actions designed to enhance shareholder value, as well as review information regarding potential acquisitions and provide information to third parties, from time to time.

Segment and Geographic Data

    Financial information concerning the Company’s reportable segments and geographic areas of operation is included in Note 15 of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K (this “Form 10-K”).

Available Information

    We maintain a website with the address www.hudsonrpo.com. We are not including the information contained on our website as part of, or incorporating it by reference into, this Form 10-K. Through our website, we make available free of charge
- 2 -


our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports in a timely manner after we provide them to the Securities and Exchange Commission (“SEC”).
- 3 -


ITEM 1A.    RISK FACTORS

    The following risk factors and other information included in this Form 10-K should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks occur, our business, financial condition, results of operations, and cash flows could be materially adversely affected.

Our operations will be affected by global economic fluctuations.

    Clients’ demand for our services may fluctuate widely with changes in economic conditions in the markets in which we operate. Those conditions include slower employment growth or reductions in employment, which directly impact our service offerings. In addition, certain geopolitical events, including the United Kingdom’s withdrawal from the European Union (“Brexit”) and the recent COVID-19 pandemic event, have caused significant economic, market, political, and regulatory uncertainty in some of the Company’s markets. We have limited flexibility to reduce expenses during economic downturns due to some overhead costs that are fixed in the short-term. Furthermore, we may face increased pricing pressures during these periods. For example, in prior economic downturns, many employers in our operating regions reduced their overall workforce to reflect the slowing demand for their products and services.

Our business may be adversely affected by the recent coronavirus outbreak.

    In December 2019, a novel strain of coronavirus, referred to as COVID-19, was reported to have surfaced in Wuhan, China. COVID-19 has since spread to other regions in China and other countries, including the United States, where we have our executive offices. COVID-19’s spread, which has caused a broad impact globally, such as restrictions on travel and quarantine policies put into place by businesses and governments, has adversely effected the economies and financial markets of many countries, resulting in an economic downturn. The United States and other countries have placed restrictions on travel to and from China, Europe and other affected regions, and a number of businesses in affected regions have temporarily closed.

    The economic downturn, as well as the uncertainty regarding the duration, spread and intensity of the outbreak, has led to an initial reduction in demand for our services. Some of our customers have instituted hiring freezes, while other customers operating in the banking, pharmaceutical and technology industries, which may be considered as essential businesses in different jurisdictions, or customers that are more capable of working remotely than other industries, have been allowed to operate as usual. Such reduction in demand for our services may continue or increase, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. The inability to conduct in-person interviews has also negatively impacted our operating results. As a result, it is not currently possible to ascertain the overall impact of COVID-19 on our business. However, if the pandemic continues to be a severe worldwide health crisis and the resulting reduction in demand for our services persists, the disease could have a material adverse effect on our business.

We may not be able to successfully execute our strategic initiatives or meet our long-term financial goals.

    We have been engaged in strategic initiatives to refocus on our core business to maximize long-term stockholder value, to improve our cost structure and efficiency, and to increase our selling efforts and the development of new business. We cannot provide any assurance that we will be able to successfully execute these or other strategic initiatives or that we will be able to execute these initiatives on our expected timetable. We may not be successful in refocusing our core business and obtaining operational efficiencies or replacing revenues lost as a result of these strategic initiatives.

We may face risks related to potential or current acquisitions or dispositions of businesses.

    As part of our growth strategy, we may pursue acquisition opportunities that we believe can complement or expand our current business activities or sell other businesses. Acquisition and disposition activity exposes us to a number of risks. There could be unforeseen liabilities or asset impairments that arise in connection with the businesses that we may sell or the businesses that we may acquire in the future. With respect to businesses that we may sell, we would also no longer be able to rely on any cash flow they generated, and there is no assurance that when or if we reinvested any proceeds from a sale it would be in an acquisition that generates the anticipated benefits. We also may not realize all of the anticipated benefits of the recent acquisition of Coit, or potential future strategic transactions, which could adversely affect our business, financial condition and results of operations. Our ability to achieve certain benefits we anticipate from the recent acquisition of Coit, or any potential acquisitions of businesses will depend in large part upon our ability to successfully integrate such businesses in an efficient and effective manner. We may not be able to integrate Coit, or any such businesses smoothly or successfully, and the process may take longer than expected. We can provide no assurances that we will enter into any agreements in connection with potential
- 4 -


acquisitions or dispositions or as to the timing of any potential strategic transactions. The strategic transaction process may disrupt our business including diverting management’s attention from ongoing business concerns.

Our ability to execute our strategy depends on our ability to retain and recruit qualified management and/or advisors.

    Our ability to execute our strategy requires that we retain and recruit personnel with experience in our RPO business.

Our profitability and growth depend on the success of our remaining global RPO business, which is subject to a variety of business risks and uncertainties.

    Following the completion of the Sales Transaction, we are focused on our global RPO business. Any evaluation of our RPO business and our prospects must be considered in light of the risks and uncertainties stated above, as well as the following:

the ability to maintain our relationships with our existing clients;

the ability to attract new clients; and

the ability to maintain or generate the amount of cash required to operate the RPO business.

    If we are unable to address these risks, our business, results of operations, and prospects could suffer.

Our revenues fluctuate from quarter to quarter; no single quarter is predictive of future periods results.

    Our revenues fluctuate quarter to quarter primarily due to the vacation periods during the first quarter in the Asia Pacific region and the third quarter in the Americas and Europe regions. Demand for our services is typically lower during traditional vacation periods when clients and candidates are on vacation.

Our business is highly dependent upon our largest customers, and the loss of any of those customers, or any material reduction in our business with those customers, could materially and adversely affect our financial condition and results of operations.

For the years ended December 31, 2020 and 2019, our top 25 customers accounted for 90% of our revenue. Two clients accounted for 66% and 58% of revenue in 2020 and 2019, respectively. Three clients each accounted for 10% or greater of accounts receivable as of December 31, 2020 and 2019, respectively. The loss of these customers or any material reduction in the amount of business we conduct with these customers, or any material adverse change in the financial condition of such customers, could materially and adversely affect our financial condition and results of operations. If we are unable to replace such revenue from existing or new customers, the market price of our common stock could decline significantly.

Our revenue can vary because our clients can terminate their relationship with us at any time with limited or no penalty.

    Our RPO business is significantly affected by our clients’ hiring needs and their views of their future prospects. Clients may, on very short notice, terminate, reduce, or postpone their recruiting assignments with us and, therefore, affect demand for our services. This could have a material adverse effect on our business, financial condition, and results of operations.

Our markets are highly competitive.

    The markets for our services are highly competitive. Our markets are characterized by pressures to provide high levels of service, incorporate new capabilities and technologies, accelerate job completion schedules, and reduce prices. Furthermore, we face competition from a number of sources. These sources include other executive search firms and professional search, staffing, and consulting firms. Several of our competitors have greater financial and marketing resources than we do. Due to competition, we may experience reduced margins on our services, loss of market share and our customers. If we are not able to compete effectively with current or future competitors as a result of these and other factors, our business, financial condition, and results of operations could be materially adversely affected.

    We have no significant proprietary technology that would preclude or inhibit competitors from entering the recruitment outsourcing market. We cannot provide assurance that existing or future competitors will not develop or offer
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services that provide significant performance, price, creative, or other advantages over our services. In addition, we believe that, with continuing development of information technology, the industries in which we compete may attract new competitors. Specifically, the increased use of web-based and mobile technology may attract technology-oriented companies to the recruitment industry. We cannot provide assurance that we will be able to continue to compete effectively against existing or future competitors. Any of these events could have a material adverse effect on our business, financial condition, and results of operations.

We have had periods of negative cash flows and operating losses that may recur in the future.

    We have experienced negative cash flows and reported operating and net losses in previous years. We cannot provide any assurance that we will have positive cash flows or operating profitability in the future, particularly to the extent the global economy recovers slowly or slows down. If our revenue declines or if operating expenses exceed our expectations, we may not be profitable and may not generate positive operating cash flows.

In the future our credit facilities may restrict our operating flexibility.

    We may enter into credit facilities that contain various restrictions and covenants that restrict our operating flexibility including:

borrowings limited to eligible receivables;

lenders’ ability to impose restrictions, such as payroll or other reserves;

limitations on payments of dividends by our subsidiaries to us, which may restrict our ability to pay dividends to our shareholders;

restrictions on our ability to make additional borrowings, or to consolidate, merge, or otherwise fundamentally change our ownership;

limitations on capital expenditures, investments, dispositions of assets, guarantees of indebtedness, permitted acquisitions, and repurchases of stock; and

limitations on certain intercompany payments of expenses, interest, and dividends. 

    These restrictions and covenants could have adverse consequences for investors, including the consequences of our need to use a portion of our cash flow from operations for debt service, rather than for our operations, restrictions on our ability to incur additional debt financing for future working capital or capital expenditures, a lesser ability for us to take advantage of significant business opportunities, such as acquisition opportunities, the potential need for us to undertake equity transactions, which may dilute the ownership of existing investors, and our inability to react to market conditions by selling lesser-performing assets.

    In addition, a default, amendment, or waiver to our credit facilities to avoid a default may result in higher rates of interest and could impact our ability to obtain additional borrowings. Finally, debt incurred under our credit facilities bears interest at variable rates. Any increase in interest expense could reduce the funds available for operations.

Our investment strategy subjects us to risks.

    From time to time, we make investments as part of our growth plans. Investments may not perform as expected because they are dependent on a variety of factors, including our ability to effectively integrate new personnel and operations, our ability to sell new services, and our ability to retain existing or gain new clients.

We face risks related to our international operations.

    We conduct direct operations in twelve countries and face both translation and transaction risks related to foreign currency exchange. For the year ended December 31, 2020, approximately 91% of our revenue was earned outside of the U.S. Our financial results could be materially affected by a number of factors particular to international operations. These include, but are not limited to, difficulties in staffing and managing international operations, operational issues such as longer customer payment cycles and greater difficulties in collecting accounts receivable, changes in tax laws or other regulatory requirements, issues relating to uncertainties of laws and enforcement relating to the regulation and protection of intellectual property, and
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currency fluctuation. If we are forced to discontinue any of our international operations, we could incur material costs to close down such operations.

    Regarding the foreign currency risk inherent in international operations, the results of our local operations are reported in the applicable foreign currencies and then translated into U.S. dollars at the applicable foreign currency exchange rates for inclusion in our financial statements. In addition, we generally pay operating expenses in the corresponding local currency. Because of devaluations and fluctuations in currency exchange rates or the imposition of limitations on conversion of foreign currencies into U.S. dollars, we are subject to currency translation exposure on the revenue and income of our operations in addition to economic exposure. Our consolidated U.S. dollar cash balance could be lower because a significant amount of cash is generated outside of the U.S. This risk could have a material adverse effect on our business, financial condition, and results of operations.

    Additionally, our international operations may also be adversely affected by political events, domestic or international terrorist events, hostilities or complications due to natural, nuclear, or other disasters. For instance, the ongoing COVID-19 outbreak emanating from China at the beginning of 2020 has resulted in increased travel restrictions and the extended shutdown of certain businesses in the countries in which we operate. These or any further political or governmental developments or health concerns in China or other countries in which we operate could result in social, economic, and labor instability, as well as affect demand for our services. These uncertainties could have a material adverse effect on the continuity of our business and our results of operations and financial condition.

We depend on our key management personnel.

    Our success depends to a significant extent on our senior management team. The loss of the services of one or more key senior management team member could have a material adverse effect on our business, financial condition, and results of operations. In addition, if one or more key employees join a competitor or form a competing company, the resulting loss of existing or potential clients could have a material adverse effect on our business, financial condition, and results of operations. The Company also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to a COVID-19 outbreak in our market areas. Although the Company has business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective.

Failure to attract and retain qualified personnel could negatively impact our business, financial condition, and results of operations.

    Our success also depends upon our ability to attract and retain highly skilled professionals who possess the skills and experience necessary to meet the staffing requirements of our clients. We must continually evaluate and upgrade our base of available qualified personnel to keep pace with changing client needs and emerging technologies. Competition for qualified professionals with proven skills is intense, and demand for these individuals is expected to remain strong for the foreseeable future. There can be no assurance that qualified personnel will continue to be available to us in sufficient numbers. If we are unable to attract the necessary qualified personnel for our clients, it may have a negative impact on our business, financial condition, and results of operations.

We face risks in collecting our accounts receivable.

    In virtually all of our businesses, we invoice customers after providing services, which creates accounts receivable. Delays or defaults in payments owed to us could have a significant adverse impact on our business, financial condition, and results of operations. Factors that could cause a delay or default include, but are not limited to, global economic conditions, business failures, and turmoil in the financial and credit markets.

    In certain situations, we provide our services to clients under a contractual relationship with a third-party vendor manager, rather than directly to the client. In those circumstances, the third-party vendor manager is typically responsible for aggregating billing information, collecting receivables from the client, and paying staffing suppliers once funds are received from the client. In the event that the client has paid the vendor manager for our services and we are unable to collect from the vendor manager, we may be exposed to financial losses.

If we are unable to maintain costs at an acceptable level, our operations could be adversely impacted.

    Our ability to reduce costs in line with our revenues is important for the improvement of our profitability. Efforts to improve our efficiency could be affected by several factors including turnover, client demands, market conditions, changes in
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laws, and availability of talent. If we fail to realize the expected benefits of these cost reduction initiatives, this could have an adverse effect on our financial condition and results of operations.

We rely on our information systems, and if we lose our information processing capabilities or fail to further develop our technology, our business could be adversely affected.

    Our success depends in large part upon our ability to store, retrieve, process, and manage substantial amounts of information, including our client and candidate databases. To achieve our strategic objectives and to remain competitive, we must continue to develop and enhance our information systems. This may require the acquisition of equipment and software and the development, either internally or through independent consultants, of new proprietary software. If we are unable to design, develop, implement, and utilize, in a cost-effective manner, information systems that provide the capabilities necessary for us to compete effectively, or if we experience any interruption or loss of our information processing capabilities, for any reason, this could adversely affect our business, financial condition, and results of operations.

    Because we operate in an international environment, we are subject to greater cyber-security risks and incidents. We also use mobile devices, social networking, and other online activities to connect with our candidates, clients, and business partners. While we have implemented measures to prevent security breaches and cyber incidents, our measures may not be effective and any security breaches or cyber incidents could adversely affect our business, financial condition, and results of operations.

Our business depends on uninterrupted service to clients.

    Our operations depend on our ability to protect our facilities, computer and telecommunication equipment, and software systems against damage or interruption from fire, power loss, cyber attacks, sabotage, telecommunications interruption, weather conditions, natural disasters, and other similar events. Additionally, severe weather can cause our employees or contractors to miss work and interrupt delivery of our service, potentially resulting in a loss of revenue. While interruptions of these types that have occurred in the past have not caused material disruption, it is not possible to predict the type, severity, or frequency of interruptions in the future or their impact on our business.

We may be exposed to employment-related claims, legal liability, and costs from clients, employees, and regulatory authorities that could adversely affect our business, financial condition, or results of operations, and our insurance coverage may not cover all of our potential liability.

    We are in the business of employing people and placing them in the workplaces of other businesses. Risks relating to these activities include:

claims of misconduct or negligence on the part of our employees;

claims by our employees of discrimination or harassment directed at them, including claims relating to actions of our clients;

claims related to the employment of illegal aliens or unlicensed personnel;

claims for payment of workers’ compensation and other similar claims;

claims for violations of wage and hour requirements;

claims for entitlement to employee benefits;

claims of errors and omissions of our temporary employees;

claims by taxing authorities related to our independent contractors and the risk that such contractors could be considered employees for tax purposes;

claims by candidates that we place for wrongful termination or denial of employment;

claims related to our non-compliance with data protection laws, which require the consent of a candidate to transfer resumes and other data;

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claims related to the recruitment process; and

claims by our clients relating to our employees’ misuse of client proprietary information, misappropriation of funds, other misconduct, criminal activity or similar claims.

    We may incur fines and other losses or negative publicity with respect to these problems. In addition, some or all of these claims may give rise to litigation, which could be time-consuming to our management team, costly, and could have a negative effect on our business. In some cases, we have agreed to indemnify our clients against some or all of these types of liabilities. We cannot assure that we will not experience these problems in the future, that our insurance will cover all claims, or that our insurance coverage will continue to be available at economically feasible rates.

Our ability to utilize net operating loss carry-forwards may be limited.

    The Company has U.S. net operating loss carry-forwards (“NOLs”). The losses generated prior to 2018 expire through 2037 and the losses generated in 2018 and later years do not expire. Section 382 of the U.S. Internal Revenue Code imposes an annual limitation on a corporation’s ability to utilize NOLs if it experiences an “ownership change.” In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by greater than 50% over a three-year period. The Company has experienced ownership changes in the past. Ownership changes in our stock, some of which are outside of our control, could result in a limitation in our ability to use our NOLs to offset future taxable income, could cause U.S. Federal income taxes to be paid earlier than otherwise would be paid if such limitation were not in effect, and could cause such NOLs to expire unused, reducing or eliminating the benefit of such NOLs.

There may be volatility in our stock price.

    The market price for our common stock has fluctuated in the past and could fluctuate substantially in the future. For example, during 2020, the market price of our common stock reported on the NASDAQ Global Select Market ranged from a high of $13.10 to a low of $6.06. Factors such as general macroeconomic conditions adverse to workforce expansion, the announcement of variations in our quarterly financial results or changes in our expected financial results could cause the market price of our common stock to fluctuate significantly. Further, due to the volatility of the stock market, our relatively low daily trading volume or actions by significant stockholders, the price of our common stock could fluctuate for reasons unrelated to our operating performance.

Our future earnings could be reduced as a result of the imposition of licensing or tax requirements or new regulations that prohibit, or restrict certain types of employment services we offer.

    The countries in which we operate may:

create additional regulations that prohibit or restrict the types of employment services that we currently provide;

impose new or additional benefit requirements;

require us to obtain additional licensing to provide recruitment services;

impose new or additional restrictions on movements between countries;

increase taxes, such as sales or value-added taxes, payable by the providers of recruitment services;

increase the number of various tax and compliance audits relating to a variety of regulations, including wage and hour laws, unemployment taxes, workers’ compensation, immigration, and income, value-added, and sales taxes; or

revise transfer pricing laws or successfully challenge our transfer prices, which may result in higher foreign taxes or tax liabilities or double taxation of our foreign operations.

    Any future regulations that make it more difficult or expensive for us to continue to provide our staffing services may have a material adverse effect on our business, financial condition and results of operations.

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Provisions in our organizational documents and Delaware law will make it more difficult for someone to acquire control of us.

    Our certificate of incorporation and by-laws and the Delaware General Corporation Law contain several provisions that make it more difficult to acquire control of us in a transaction not approved by our Board of Directors, including transactions in which stockholders might otherwise receive a premium for their shares over then current prices, and that may limit the ability of stockholders to approve transactions that they may deem to be in their best interests. Our certificate of incorporation and by-laws currently include provisions:
 
authorizing our Board of Directors to issue shares of our preferred stock in one or more series without further authorization of our stockholders;

requiring that stockholders provide advance notice of any stockholder nomination of directors or any new business to be considered at any meeting of stockholders; and

providing that vacancies on our Board of Directors will be filled by the remaining directors then in office.
 
    In addition, Section 203 of the Delaware General Corporation Law generally provides that a corporation may not engage in any business combination with any interested stockholder during the three-year period following the time that the stockholder becomes an interested stockholder, unless a majority of the directors then in office approve either the business combination or the transaction that results in the stockholder becoming an interested stockholder or specified stockholder approval requirements are met.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

    None.

ITEM 2.    PROPERTIES

    All of the Company’s operating offices are located in leased premises. Our principal executive office and headquarters are located at 53 Forest Avenue, 1st Floor, Suite 102, Old Greenwich, CT 06870, where we occupy space with approximately 1,300 aggregate square feet.

    Americas maintains 1 leased location with approximately 5,000 aggregate square feet. Asia Pacific maintains 2 leased locations with approximately 1,700 aggregate square feet. Europe maintains 2 leased locations with approximately 3,600 aggregate square feet. All leased space is considered to be adequate for the operation of our business, and no difficulties are foreseen in meeting any future space requirements.

ITEM 3.    LEGAL PROCEEDINGS

    The Company is involved in various legal proceedings that are incidental to the conduct of its business. The Company is not involved in any pending or threatened legal proceedings that it believes could reasonably be expected to have a material adverse effect on its financial condition or results of operations.

ITEM 4.    MINE SAFETY DISCLOSURES

    Not applicable.
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PART II

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

MARKET FOR COMMON STOCK

    The Company’s common stock was listed for trading on the NASDAQ Global Select Market during 2020 under the symbol “HSON.” As of January 31, 2021, there were approximately 239 holders of record of the Company’s common stock.

    The following is a list by fiscal quarter of the market prices of the Company’s common stock.
  Market Price
HighLow
2020
Fourth quarter$11.96 $9.37 
Third quarter$10.18 $8.63 
Second quarter$9.50 $8.38 
First quarter$13.10 $6.06 
2019
Fourth quarter$12.90 $10.82 
Third quarter$12.99 $10.26 
Second quarter$16.80 $12.00 
First quarter$16.20 $12.20 

ISSUER PURCHASES OF EQUITY SECURITIES

    The Company’s purchases of its common stock during the fourth quarter of fiscal 2020 were as follows:

PeriodTotal 
Number of Shares 
Purchased
Average 
Price
Paid 
per Share
Total Number of
Shares Purchased 
as Part of Publicly
Announced Plans or Programs
Approximate Dollar 
Value of Shares
that May Yet Be
Purchased Under
the Plans or Programs
(a)
October 1, 2020 - October 31, 2020— $— — $1,703,000 
November 1, 2020 - November 30, 2020— $— — $1,703,000 
December 1, 2020 - December 31, 2020— $— — $1,703,000 
Total— $— — $1,703,000 

(a)     On July 30, 2015, the Company announced that its Board of Directors authorized the repurchase of up to $10 million of the Company’s common stock. The authorization does not expire. As of December 31, 2020, the Company had repurchased 432,563 shares for a total cost of approximately $8.3 million under this authorization. From time to time, the Company may enter into a Rule 10b5-1 trading plan for purposes of repurchasing common stock under this authorization. During the year ended December 31, 2019, the Company repurchased 54,138 shares in the open market for a total cost of $718.

In addition to the shares repurchased above under the $10 million authorization plan, the Company completed the purchase on March 25, 2019, of 246,863 shares for a total cost of $3.8 million, including fees and expenses, in connection with a tender offer (see Note 12 to the Consolidated Financial Statements in Item 8 for further information). On March 27, 2020, the Company completed the purchase of 259,331 shares in connection with transactions with certain stockholders for a total cost of $2.2 million, including fees (see Note 12 to the Consolidated Financial Statements in Item 8 for further information).


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ITEM 6.    SELECTED FINANCIAL DATA

    Not applicable.

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
    This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Consolidated Financial Statements and the notes thereto, included in Item 8 of this Form 10-K. This MD&A contains forward-looking statements. Please see “FORWARD-LOOKING STATEMENTS” for a discussion of the uncertainties, risks, and assumptions associated with these statements. This MD&A also uses the non-generally accepted accounting principle measure of earnings before interest, taxes, depreciation and amortization (“EBITDA”). See Note 15 to the Consolidated Financial Statements in Item 8 for EBITDA segment reconciliation information. Note that amounts within this Item shown in millions may not recalculate due to rounding.
This MD&A includes the following sections:
Executive Overview
Results of Operations
Liquidity and Capital Resources
Contingencies
Critical Accounting Policies
Recent Accounting Pronouncements
Forward-Looking Statements

Executive Overview

The Company’s strategy is to provide global RPO solutions to customers. With direct operations in twelve countries and relationships with specialized professionals and organizations around the globe, the Company brings a strong ability to match talent with opportunities by assessing, recruiting, developing, and engaging highly successful people for the Company’s clients. The Company combines broad geographic presence, world-class talent solutions and a tailored, consultative approach to help businesses and professionals achieve maximum performance. The Company’s focus is to continually upgrade its service offerings and delivery capability tools to make candidates more successful in achieving its clients’ business requirements.

    The Company’s proprietary frameworks, assessment tools, and leadership development programs, coupled with its broad geographic footprint, allow the Company to design and implement regional and global outsourced recruitment solutions that the Company believes greatly enhance the quality and efficiency of its clients’ hiring.

    To accelerate the implementation of the Company’s strategy, the Company engaged in the following initiatives:
Facilitating growth and development of the global RPO business through strategic investments in people, innovation, and technology.
Building and differentiating the Company’s brand through its unique outsourcing solutions offerings.
Improving the Company’s cost structure and efficiency of its support functions and infrastructure.

    We continue to explore all strategic alternatives to maximize value for shareholders, including without limitation, improving the market position and profitability of our services in the marketplace, and enhancing our valuation. We may pursue our goals through organic growth, strategic initiatives, or other alternatives. We will also continue to monitor capital markets for opportunities to repurchase shares, and consider other actions designed to enhance shareholder value, as well as review information regarding potential acquisitions and provide information to third parties, from time to time.

    This MD&A discusses the results of the Company’s RPO businesses for the years ended December 31, 2020 and 2019.

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Current Market Conditions

    After a challenging year in 2020, economic conditions in most of the world’s major markets are expected to rebound in 2021, although activity is expected to remain below pre-COVID levels. The approval and rollout of COVID-19 vaccines in some countries provides a potential path for an eventual end to the pandemic, however expectations for recovery are hampered by rising infections and new variants of the virus. Policy measures enacted by country governments to combat the economic impact of the virus are expected to provide additional support to local economies. In addition the continued uncertainty has resulted in increased volatility in global currencies. Effective containment measures in China have resulted in a stronger recovery, and agreement on the terms of the United Kingdom’s exit from the European Union have eliminated some of the uncertainty in that country. Stronger foreign currencies in these and other markets compared to the U.S. dollar during a reporting period cause local currency results of the Company’s foreign operations to be translated into more U.S. dollars. The Company closely monitors the economic environment and business climate in its markets and responds accordingly.

COVID-19 Pandemic

The continuing impact of COVID-19 around the world presents significant risks to the Company, which the Company is unable to fully evaluate or even to foresee at the current time. In 2020, some of our customers instituted hiring freezes, while other customers operating in the banking, pharmaceutical and technology industries, which may be considered as essential businesses in different jurisdictions, or customers that were more capable of working remotely than other industries, have been allowed to operate as usual. The inability to conduct in-person interviews also impacted our business. In addition, the COVID-19 pandemic negatively impacted certain currencies compared to the U.S. dollar in several countries where we operate, including Australia.

The COVID-19 pandemic affected the Company’s operations in the 2020 and may continue to do so in the future. All of these factors may have far reaching impacts on the Company’s business, operations, and financial results and conditions, directly and indirectly, including without limitation impacts on the health of the Company’s management and employees, marketing and sales operations, customer and consumer behaviors, and on the overall economy. The scope and nature of these impacts, most of which are beyond the Company’s control, continue to evolve and the outcomes are uncertain.

Due to the above circumstances and as described generally in this Form 10-K, the Company’s results of operations for the year ended December 31, 2020 are not necessarily indicative of the results to be expected in future years. Management cannot predict the full impact of the COVID-19 pandemic on the Company’s sales or on economic conditions generally. The ultimate extent of the effects of the COVID-19 pandemic on the Company is highly uncertain and will depend on future developments, and such effects could exist for an extended period of time even after the pandemic might end.

Financial Performance

Constant Currency (Non-GAAP measure)
    The Company operates on a global basis, with the majority of its revenue generated outside of the U.S. Accordingly, fluctuations in foreign currency exchange rates can affect our results of operations. For the discussion of reportable segment results of operations, the Company uses constant currency information. Constant currency compares financial results between periods as if exchange rates had remained constant period-over-period. The Company defines the term “constant currency” to mean that financial data for previously reported periods are translated into U.S. dollars using the same foreign currency exchange rates that were used to translate financial data for the current period. Constant currency metrics should not be considered in isolation or as a substitute for reported results prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”). The Company’s management reviews and analyzes business results in constant currency and believes these results better represent the Company’s underlying business trends.

    The following is a summary of the highlights for the years ended December 31, 2020 and 2019. These should be considered in the context of the additional disclosures in this MD&A.
Revenue was $101.4 million for the year ended December 31, 2020, compared to $93.8 million for 2019, an increase of $7.6 million, or 8%. The increase in revenue was driven by growth in Australia offset by declines in the UK, Americas, and Asia.
On a constant currency basis, revenue increased $7.2 million, or 8%. Contracting revenue increased $12.4 million (up 25% compared to 2019) and RPO recruitment revenue decreased $5.2 million (down 12% compared to 2019). Revenue included $1.1 million from the acquisition of Coit Staffing, Inc. (see Note 4 to
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the Consolidated Financial Statements in Item 8), which contributed 1 percentage point to the revenue growth.
Selling, general and administrative expenses, and other non-operating income (expense) (“SG&A and Non-Op”) was $39.8 million for the year ended December 31, 2020, compared to $45.5 million for 2019, for a decrease of $5.7 million, or 13%. 
On a constant currency basis, SG&A and Non-Op decreased $5.8 million or 13%. SG&A and Non-Op, as a percentage of revenue, was 39% for the year ended December 31, 2020, compared to 48% for 2019. The decrease was principally due to lower staff costs of $2.1 million, Paycheck Protection Program (“PPP”) debt extinguishment (see Note 2 to the Consolidated Financial Statements in Item 8 for further information) of $1.3 million, lower travel and entertainment costs of $1 million, and COVID-19 foreign government assistance credits of $0.5 million.
EBITDA loss was $0.7 million for the year ended December 31, 2020, compared to EBITDA loss of $1.9 million for 2019. On a constant currency basis, EBITDA loss decreased $1.1 million in 2020 compared to 2019. The acquisition of Coit Staffing, Inc. positively contributed EBITDA of $63.
Net loss was $1.2 million for the year ended December 31, 2020, compared to net loss of $1.0 million for 2019. On a constant currency basis, net loss decreased $0.4 million in 2020 compared to 2019.
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    Changes in revenue, adjusted net revenue, SG&A and Non-Op, operating income (loss), net income (loss) and EBITDA (loss) include the effect of changes in foreign currency exchange rates. The tables below include a reconciliation of constant currency results to the most directly comparable GAAP financial measures, and summarize the impact of foreign currency exchange rate adjustments on the Company’s operating results for the years ended December 31, 2020 and 2019.

 Year Ended December 31,
 20202019
AsAsCurrencyConstant
$ in thousandsreportedreportedtranslationcurrency
Revenue:    
Americas$10,866 $13,565 $(12)$13,553 
Asia Pacific75,633 61,438 300 61,738 
Europe14,949 18,808 170 18,978 
Total$101,448 $93,811 $458 $94,269 
Adjusted net revenue (a):
    
Americas$9,598 $12,291 $(6)$12,285 
Asia Pacific19,814 21,177 16 21,193 
Europe9,669 10,098 141 10,239 
Total$39,081 $43,566 $151 $43,717 
SG&A and Non-Op (b):
    
Americas$10,738 $12,302 $— $12,302 
Asia Pacific16,943 18,914 (95)18,819 
Europe9,086 10,017 143 10,160 
Corporate2,992 4,247 — 4,247 
Total$39,759 $45,480 $48 $45,528 
Operating (loss) income:    
Americas$(2,218)$605 $(6)$599 
Asia Pacific3,827 3,112 102 3,214 
Europe383 605 — 605 
Corporate(4,638)(5,983)— (5,983)
Total$(2,646)$(1,661)$96 $(1,565)
Net loss, consolidated$(1,243)$(955)$62 $(893)
EBITDA (loss) from continuing operations(c):
    
Americas$(1,044)$60 $(5)$55 
Asia Pacific2,877 2,194 110 2,304 
Europe481 84 (6)78 
Corporate(2,992)(4,252)(2)(4,254)
Total$(678)$(1,914)$97 $(1,817)
 

(a)Represents Revenue less the Direct contracting costs and reimbursed expenses caption on the Consolidated Statements of Operations.
(b)SG&A and Non-Op is a measure that management uses to evaluate the segments’ expenses, which include the following captions on the Consolidated Statements of Operations: Salaries and related, Office and general, Marketing and promotion, PPP loan forgiveness, and Other income (expense), net. Corporate management expenses are included in the segments’ other income (expense).

(c)See EBITDA reconciliation in the following section.


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Use of EBITDA (Non-GAAP measure)

    Management believes EBITDA is a meaningful indicator of the Company’s performance that provides useful information to investors regarding the Company’s financial condition and results of operations. EBITDA is also considered by management as an indicator of operating performance and the most comparable measure across the regions in which we operate. Management also uses this measurement to evaluate capital needs and working capital requirements. Similar to constant currency, EBITDA should not be considered in isolation or as a substitute for operating income or net income prepared in accordance with GAAP or as a measure of the Company’s profitability. EBITDA is derived from net income (loss) adjusted for the provision for (benefit from) income taxes, interest expense (income), and depreciation and amortization.
 
    The reconciliation of EBITDA loss to the most directly comparable GAAP financial measure is provided in the table below:
 
 Year Ended December 31,
$ in thousands20202019
Net loss$(1,243)$(955)
Adjustment for loss from discontinued operations, net of income taxes— (113)
Loss from continuing operations$(1,243)$(842)
Adjustments to loss from continuing operations  
Provision for (benefit from) income taxes535 (540)
Interest income, net(149)(617)
Depreciation and amortization179 85 
Total adjustments from loss from continuing operations to EBITDA (loss)565 (1,072)
EBITDA (loss)$(678)$(1,914)
 
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Results of Operations:
Americas (reported currency) 
Revenue
 Year Ended December 31,
 20202019Change in amountChange in %
$ in millions As reported As reported
Americas
Revenue$10.9 $13.6 $(2.7)(20)%
 
    For the year ended December 31, 2020, RPO recruitment revenue decreased $2.9 million, or 23%, partially offset by an increase in contracting revenue of $0.2 million, or 15%, as compared to 2019. The decrease in RPO recruitment revenue was attributable to slower demand for services from existing clients, due in part to the impact of COVID-19, while the increase in contracting revenue was due to growth of existing clients. The acquisition of Coit Staffing, Inc. (see Note 4 to the Consolidated Financial Statements in Item 8) positively contributed 8 percentage points to the revenue performance.
Adjusted net revenue 
Year Ended December 31,
 20202019Change in amountChange in %
$ in millions As reported As reported
Americas
Adjusted net revenue$9.6 $12.3 $(2.7)(22)%
Adjusted net revenue as a percentage of revenue88 %91 %N/AN/A
 
    For the year ended December 31, 2020, RPO recruitment adjusted net revenue decreased $2.5 million, or 22%, and contracting adjusted net revenue decreased $0.2 million, or 29% as compared to 2019. The decrease in RPO recruitment adjusted net revenue was due to the same factors noted above for revenue. The acquisition of Coit Staffing, Inc. positively contributed 9 percentage points to the adjusted net revenue performance.

Total adjusted net revenue, as a percentage of revenue, decreased to 88% for 2020, as compared to 91% for 2019, primarily attributable to the lower mix of RPO recruitment to contracting revenue in 2020 as compared to 2019.

SG&A and Non-Op
Year Ended December 31,
 20202019Change in amountChange in %
 $ in millions As reported As reported
Americas
SG&A and Non-Op$10.7 $12.3 $(1.6)(13)%
SG&A and Non-Op as a percentage of revenue99 %91 %N/AN/A
 
    For the year ended December 31, 2020, SG&A and Non-Op decreased $1.6 million or 13%, as compared to 2019, primarily due to the PPP debt extinguishment of $1.3 million (see Note 11 to Consolidated Financial Statements in Item 8 for further details).
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Operating Income and EBITDA
Year Ended December 31,
 20202019Change in amountChange in %
$ in millions As reported As reported
Americas
Operating (loss) income$(2.2)$0.6 $(2.8)(467)%
EBITDA$(1.0)$0.1 $(1.1)N/M
EBITDA as a percentage of revenue(10)%— %N/AN/A
N/M = not meaningful
Operating loss was $2.2 million for the year ended December 31, 2020, as compared to an operating income $0.6 million for 2019. The increase in operating loss was principally due to the change in adjusted net revenue, as described above.
For the year ended December 31, 2020, EBITDA loss was $1.0 million, or 10% of revenue, as compared to EBITDA of $0.1 million in 2019. The increase in EBITDA loss was primarily due to the decrease in adjusted net revenue, partially offset by the decrease in SG&A and Non-op.
The difference between operating (loss) income and EBITDA (loss) for the years ended December 31, 2020 and 2019 was primarily due to the PPP debt extinguishment of $1.3 million, and lower corporate management expenses compared to the prior year.
Asia Pacific (constant currency)
Revenue 
 Year Ended December 31,
 20202019Change in amountChange in %
$ in millionsAs
reported
Constant
currency
Asia Pacific
Revenue$75.6 $61.7 $13.9 23 %
 
    For the year ended December 31, 2020, contracting revenue increased by $15.6 million, or 38%, partially offset by a decrease in RPO recruitment revenue of $1.7 million, or 8%, as compared to 2019.

    In Australia, for the year ended December 31, 2020, revenue increased $14.5 million, or 27%, as compared to 2019. The increase was primarily in contracting revenue, which increased by $15.6 million, or 41%, partially offset by a decrease in RPO recruitment revenue of $1.1 million, or 7%, as compared to 2019. The increase in contracting revenue primarily reflected the implementation of a new contract win, while the decrease in RPO recruitment revenue was due to lower demand from existing clients.

    In Asia, revenue decreased $0.8 million, or 9%, for the year ended December 31, 2020, as compared to 2019. The decrease in revenue was due to lower demand from existing clients.
Adjusted net revenue 
 Year Ended December 31,
 20202019Change in amountChange in %
$ in millionsAs
reported
Constant
currency
Asia Pacific
Adjusted net revenue$19.8 $21.2 $(1.4)(7)%
Adjusted net revenue as a percentage of revenue26 %34 %N/AN/A
 
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For the year ended December 31, 2020, RPO recruitment adjusted net revenue decreased by $1.5 million, or 8%, partly offset by contracting adjusted net revenue, which increased by $0.1 million, or 8%, as compared to the same period in 2019.
    
In Australia, adjusted net revenue decreased by $0.8 million, or 5%, for the year ended December 31, 2020, as compared to the same period in 2019. The decrease was driven by a decline in RPO recruitment adjusted net revenue of $1.0 million, or 7%, year ended December 31, 2020, as compared to the same period in 2019. This decrease was partially offset by an increase in contracting adjusted net revenue of $0.2 million, or 14.0%.

In Asia, adjusted net revenue decreased $0.6 million, or 12%, for the year ended December 31, 2020, as compared to 2019. The decrease in Asia was primarily driven by Hong Kong.

Adjusted net revenue as a percentage of revenue, for the year ended December 31, 2020, was 26%, as compared to 34% for 2019. The decrease in total adjusted net revenue as a percentage of revenue was attributed to the higher mix of contracting, a lower margin service, to RPO recruitment revenue in 2020 as compared to 2019.

SG&A and Non-Op
Year Ended December 31,
 20202019Change in amountChange in %
$ in millionsAs
reported
Constant
currency
Asia Pacific
SG&A and Non-Op$16.9 $18.8 $(1.9)(10)%
SG&A and Non-Op as a percentage of revenue22 %30 %N/AN/A
  
    For the year ended December 31, 2020, SG&A and Non-Op decreased $1.9 million, or 10%, as compared to 2019. The decrease was due to lower consultant staff costs and overhead costs, partly reflecting cost-cutting efforts due to the impact of COVID-19. SG&A and Non-Op, as a percentage of revenue, was 22% for 2020, as compared to 30% for 2019.


Operating Income and EBITDA
Year Ended December 31,
 20202019Change in amountChange in %
$ in millionsAs
reported
Constant
currency
Asia Pacific
Operating income$3.8 $3.2 $0.6 19 %
EBITDA$2.9 $2.3 $0.6 25 %
EBITDA as a percentage of revenue%%N/AN/A

    Operating income was $3.8 million for the year ended December 31, 2020, as compared to $3.2 million for 2019. The increase in operating income was principally due to the decrease in SG&A and Non-Op noted above, partly offset by the decline in adjusted net revenue.

For the year ended December 31, 2020, EBITDA was $2.9 million, or 4% of revenue, as compared to EBITDA of $2.3 million, or 4% of revenue, for 2019. The increase in EBITDA for the year ended December 31, 2020 was principally due to the factors noted above.
    The difference between operating income and EBITDA for the years ended December 31, 2020 and 2019 was principally due to corporate management expenses.

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Europe (constant currency)
Revenue
Year Ended December 31,
 20202019Change in amountChange in %
$ in millionsAs
reported
Constant
currency
Europe
Revenue$14.9 $19.0 $(4.0)(21)%
  
    For the year ended December 31, 2020, contracting and RPO recruitment revenue decreased $3.4 million and $0.7 million, or 41% and 6%, respectively, as compared to 2019.

    In the U.K., for the year ended December 31, 2020, revenue decreased $4.0 million, or 24%, to $12.9 million from $16.9 million in 2019. The decrease in the U.K. was primarily driven by an decline in contracting revenue of $3.4 million, or 41%, as compared to 2019.

    In Continental Europe, for the year ended December 31, 2020, total revenue was $2.0 million, as compared to $2.0 million for 2019, for a slight decrease of 1%. The decrease was due to lower demand at existing recruitment clients.

Adjusted net revenue
 Year Ended December 31,
20202019Change in amountChange in %
$ in millionsAs
reported
Constant
currency
Europe
Adjusted net revenue$9.7 $10.2 $(0.6)(6)%
Adjusted net revenue as a percentage of revenue65 %54 %N/AN/A
 
    For the year ended December 31, 2020, adjusted net revenue decreased by $0.6 million, or 6%, driven by a decrease in RPO recruitment and contracting revenue of $0.4 million, or 4%, and $0.2 million, or 34%, respectively, as compared to the same period in 2019.

In the U.K., total adjusted net revenue or the year ended December 31, 2020, decreased $0.6 million, or 7%, as compared to the same period in 2019. The change in the U.K. was driven by a decrease in RPO recruitment and contracting of $0.4 million or 5%, and $0.2 million or 34%, respectively.

In Continental Europe, for the year ended December 31, 2020, total adjusted net revenue decreased slightly, as compared to the same period in 2019.

SG&A and Non-Op
 
Year Ended December 31,
 20202019Change in amountChange in %
$ in millionsAs
reported
Constant
currency
Europe
SG&A and Non-Op$9.1 $10.2 $(1.1)(11)%
SG&A and Non-Op as a percentage of revenue61 %54 %N/AN/A
  
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    For the year ended December 31, 2020, SG&A and Non-Op decreased $1.1 million, or 11%, as compared to 2019. The decrease in SG&A and Non-Op was due to lower consultant staff costs and overhead costs, partly reflecting cost-cutting efforts due to the impact of COVID-19 as compared to the prior year. SG&A and Non-Op, as a percentage of revenue, was 61% for 2020 compared to 54% for 2019. The increase in SG&A and Non-Op, as a percentage of revenue, was primarily due to the decline in revenue noted above.
Operating Income and EBITDA
Year Ended December 31,
 20202019Change in amountChange in %
$ in millionsAs
reported
Constant
currency
Europe
Operating income:$0.4 $0.6 $(0.2)(37)%
EBITDA$0.5 $0.1 $0.4 N/M
EBITDA as a percentage of revenue%— N/AN/A
N/M = not meaningful

    Operating income was $0.4 million for the year ended December 31, 2020, as compared to $0.6 million for 2019. The decrease in operating income was principally due to the decline in adjusted net revenue, partly offset by lower SG&A and Non-Op as described above.

For the year ended December 31, 2020, EBITDA was $0.5 million, or 3% of revenue, as compared to EBITDA of $0.1 million for 2019. The increase in EBITDA for the year ended December 31, 2020 was principally due to COVID-19 foreign government assistance credits of $0.3 million.
    The difference between operating income (loss) and EBITDA (loss) for the years ended December 31, 2020 and 2019 was principally due to the government assistance credits, as well as lower foreign currency exchange and corporate management expenses compared to the prior year period.
The following are discussed in reported currency

Corporate expenses, net of corporate management expenses

    For the year ended December 31, 2020, corporate expenses were $3.0 million as compared to $4.2 million for 2019, a decrease of $1.2 million, or 29%. The decrease was primarily due to lower staff costs, which in 2019 included severance expense of $0.5 million (see Note 11 to Consolidated Financial Statements in Item 8 for further details), compared to severance expense of $0.1 million in 2020. The decrease also reflected lower stock compensation expense and professional fees.
Depreciation and Amortization Expense

    Depreciation and amortization expense was $0.2 million and $0.1 million for the years ended December 31, 2020 and 2019, respectively.

Interest Income, Net

    Net interest income was $0.1 million and $0.6 million for the years ended December 31, 2020 and 2019, respectively.

PPP loan forgiveness

    PPP loan forgiveness of $1.3 million consisted of the forgiveness of a loan received earlier in the year administered by the U.S. Small Business Administration, under the Coronavirus Aid, Relief, and Economic Security Act, in exchange for maintaining certain levels of compensation and other costs in response to the COVID-19 pandemic between April 25, 2020 and October 9, 2020.


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Other income (expense), Net

Other income was $0.5 million for the year ended December 31, 2020, as compared to other expense of $0.3 million for the same periods in 2019. The increase in income was primarily due to government assistance received in exchange for maintaining certain levels of compensation and other costs in response to the COVID-19 pandemic, mainly in the U.K., Hong Kong, and in Singapore, (See Note 2 to Consolidated Financial Statements in Item 8 for further details).

Provision for (benefit from) Income Taxes

    The provision for income taxes from continuing operations for the year ended December 31, 2020 was $0.5 million, on $0.7 million of pre-tax loss from continuing operations, as compared to a benefit from income taxes of $0.5 million on $1.4 million of pre-tax loss from continuing operations for 2019. The effective tax rate from continuing operations for the year ended December 31, 2020 was negative 75.5%, as compared to 39.1% for 2019. The change in the Company’s effective tax rate for the year ended December 31, 2020, as compared to 2019, was primarily attributable to reductions in uncertain tax positions in 2019. For the year ended December 31, 2020, the effective tax rate difference from the U.S. Federal statutory rate of 21% was primarily attributable to the mix of income and losses in different jurisdictions taxed at different rates, as well as changes in valuations allowances in the U.S. and in our foreign subsidiaries.

Loss from Discontinued Operations

    Loss from discontinued operations was $0.1 million for the year ended December 31, 2019.

Net Loss

    Net loss was $1.2 million for the year ended December 31, 2020, as compared to net loss of $1.0 million for 2019, an increase in net loss of $0.3 million. Basic and diluted loss per share were $0.43 for the year ended December 31, 2020, as compared to basic and diluted loss per share of $0.30 in 2019.


Liquidity and Capital Resources 

    As of December 31, 2020, cash and cash equivalents and restricted cash totaled $26.2 million, as compared to $31.7 million as of December 31, 2019. The following table summarizes the cash flow activities for the years ended December 31, 2020 and 2019: 
For The Year Ended December 31,
$ in millions20202019
Net cash used in operating activities$(1.4)$(4.8)
Net cash used in by investing activities(4.0)(0.1)
Net cash used in financing activities(0.9)(4.6)
Effect of exchange rates on cash, cash equivalents, and restricted cash0.9 0.2 
Net decrease in cash, cash equivalents, and restricted cash$(5.5)$(9.3)
 

Cash Flows from Operating Activities

For the year ended December 31, 2020, net cash used in operating activities was $1.4 million, as compared to $4.8 million of net cash used in operating activities for the same period in 2019, resulting in a decrease in net cash used in operating activities of $3.4 million. The decrease in net cash used in operating activities resulted principally from more favorable working capital comparisons to the prior year.

Cash Flows from Investing Activities

    For the year ended December 31, 2020, net cash used in investing activities was $4.0 million, as compared to $0.1 million of net cash used by investing activities in 2019. The increase in net cash used in investing activities primarily reflects the cash paid of $4.0 million on October 1, 2020 for the acquisition of Coit Staffing, Inc. See Note 4 to Consolidated Financial Statements in Item 8 for additional information.
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Cash Flows from Financing Activities

For the year ended December 31, 2020, net cash used in financing activities was $0.9 million, as compared to net cash used in financing activities of $4.6 million for the same period in 2019, resulting in a decrease in net cash used by financing activities of $3.7 million. The decrease in net cash used in financing activities was attributable to fewer shares repurchased, for an aggregate of $2.3 million in 2020 compared to $4.6 million in 2019, as well as proceeds from the PPP loan of $1.3 million in 2020.

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 up to a maximum of 4 million Australian dollars. No receivables have terms greater than 90 days, and any risk of loss is retained by the Australian Borrower. 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 December 31, 2020, there were no amounts outstanding under the NAB Facility Agreement. Interest expense and fees incurred on the NAB Facility Agreement were $19 thousand and $20 thousand for the years ended December 31, 2020 and 2019, respectively. The Company was in compliance with all financial covenants under the NAB Facility Agreement as of December 31, 2020.

Liquidity Outlook

    As of December 31, 2020, the Company had cash and cash equivalents on hand of $25.8 million. The Company also has the capability to borrow an additional 4 million Australian dollars under the NAB Facility Agreement. Other than as described above, the Company has no financial guarantees, outstanding debt or other lease agreements or arrangements that could trigger a requirement for an early payment or that could change the value of our assets. The Company believes that it has sufficient liquidity to satisfy its needs through at least the next 12 months, based on the Company’s financial position as of December 31, 2020. The Company’s near-term cash requirements during 2021 are primarily related to funding operations. For the full year 2021, the Company expects to make capital expenditures of less than $0.5 million. The Company is closely managing its capital spending and will perform capital additions where economically prudent, while continuing to invest strategically for future growth.

    As of December 31, 2020, $15.2 million of the Company’s cash and cash equivalents noted above was held in the U.S. and the remainder was held internationally, primarily in Australia ($2.5 million), the U.K. ($2.4 million), Switzerland ($1.6 million), Hong Kong ($1.1 million), China ($1.0 million), and Singapore ($0.6 million). The majority of the Company’s offshore cash is available to it as a source of funds, net of any tax obligations or assessments.

    The Company believes that future external market conditions remain uncertain, particularly access to credit, rates of near-term projected economic growth, and levels of unemployment in the markets in which the Company operates. Due to these uncertain external market conditions, the Company cannot provide assurance that its actual cash requirements will not be greater in the future than those currently expected, especially if market conditions deteriorate substantially. If sources of liquidity are not available or if the Company cannot generate sufficient cash flow from operations, the Company could be required to obtain additional sources of funds through additional operating improvements, capital market transactions, asset sales or financing from third parties, or a combination of those sources. The Company cannot provide assurance that these additional sources of funds will be available or, if available, would have reasonable terms.

Off-Balance Sheet Arrangements

    None.

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Contingencies
    From time to time in the ordinary course of business, the Company is subject to compliance audits by U.S. federal, state, local, and foreign government regulatory, tax, and other authorities relating to a variety of regulations, including wage and hour laws, unemployment taxes, workers’ compensation, immigration, and income, value-added, and sales taxes. The Company is also subject to, from time to time in the ordinary course of business, various claims, lawsuits, 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. Periodic events and management actions such as business reorganization initiatives can change the number and type of audits, claims, lawsuits, contract disputes, or complaints asserted against the Company. Events can also change the likelihood of assertion and the behavior of third parties to reach resolution regarding such matters.
    The economic conditions in the recent past have given rise to many news reports and bulletins from clients, tax authorities and other parties about changes in their procedures for audits, payment, plans to challenge existing contracts and other such matters aimed at being more aggressive in the resolution of such matters in their own favor. The Company believes that it has appropriate procedures in place for identifying and communicating any matters of this type, whether asserted or likely to be asserted, and it evaluates its liabilities in light of the prevailing circumstances. Changes in the behavior of third parties could cause the Company to change its view of the likelihood of a claim and what might constitute a trend. Employment laws vary in the markets in which we operate, and in some cases, employees and former employees have extended periods during which they may bring claims against the Company.
    For matters that reach the threshold of probable and estimable, the Company establishes reserves for legal, regulatory, and other contingent liabilities. The Company’s reserves were $0.0 million as of both December 31, 2020 and 2019. Although the outcome of these matters cannot be determined, the Company believes that none of the currently pending matters, individually or in the aggregate, will have a material adverse effect on the Company’s financial condition, results of operations, or liquidity.

Critical Accounting Policies
    Our discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of financial statements in accordance with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. GAAP provides the framework from which to make these estimates, assumptions and disclosures. We choose accounting policies within GAAP that our management believes are appropriate to accurately and fairly report our operating results and financial position in a consistent manner. Our management regularly assesses these policies in light of current and forecasted economic conditions. Our accounting policies are stated in Note 2 to the Consolidated Financial Statements in Item 8. We believe the following accounting policies are critical to understanding our results of operations and affect the more significant judgments and estimates used in the preparation of our Consolidated Financial Statements that are inherently uncertain.

Revenue Recognition

    The Company recognizes 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 contain both fixed fee and variable usage-based consideration. Variable usage-based consideration is constrained by candidates accepting offers of permanent employment. We recognized revenue on the fixed fee as the performance obligations are satisfied and usage-based 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.

    The Company recognizes revenue for our 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 contracting contracts. The costs incurred to fulfill these contracts are expensed as incurred.

    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.

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Accounts Receivable

    The Company’s accounts receivable balances are composed of trade and unbilled receivables. Unbilled accounts receivable represent revenue recorded in advance of processing formal invoices pursuant to the completion of contract provisions and, generally, become billable at contractually specified dates. Unbilled amounts are expected to be invoiced and collected within one year. The Company records 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. The Company maintains an allowance for doubtful accounts in order to record accounts receivable at their net realizable value. Judgment is involved as to the collectability of the various receivables. If the Company determines that the allowance for doubtful accounts is not adequate to cover estimated losses, an expense to provide for doubtful accounts is recorded in selling, general and administrative expenses. If an account is determined to be uncollectible, it is written off against the allowance for doubtful accounts. Management’s assessment and judgment are vital requirements in assessing the ultimate realization of these receivables, including the current credit-worthiness, financial stability and effect of market conditions on each customer.

Income Taxes

    We account for income taxes using the asset and liability method in accordance with ASC 740, “Income Taxes.” This standard establishes financial accounting and reporting standards for the effects of income taxes that result from an enterprise’s activities. It requires an asset and liability approach for financial accounting and reporting of income taxes.

    The calculation of net deferred tax assets assumes sufficient future earnings for the realization of such assets as well as the continued application of currently anticipated tax rates. Included in net deferred tax assets is a valuation allowance for deferred tax assets where management believes it is more likely than not that the deferred tax assets will not be realized in the relevant jurisdiction. If we determine that a deferred tax asset will not be realizable, an adjustment to the deferred tax asset will result in a reduction of earnings at that time. Our assessment includes an analysis of whether deferred tax assets will be realized in the ordinary course of operations based on the available positive and negative evidence, including the scheduling of deferred tax liabilities and forecasted income from operations. The underlying assumptions we use in forecasting future taxable income require significant judgment. In the event that actual income from operations differs from forecasted amounts, or if we change our estimates of forecasted income from operations, we could record additional charges or reduce allowances in order to adjust the carrying value of deferred tax assets to their realizable amount. Such adjustments could be material to our consolidated financial statements. See Note 7 to the Consolidated Financial Statements in Item 8 for further information regarding deferred tax assets and valuation allowances.

    ASC 740-10-55-3, “Recognition and Measurement of Tax Positions - a Two Step Process,” provides implementation guidance related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a two-step evaluation process for a tax position taken or expected to be taken in a tax return. The first step is recognition and the second is measurement. ASC 740 also provides guidance on derecognition, measurement, classification, disclosures, transition and accounting for interim periods. In addition, ASC 740-10-25-9 provides guidance on how to determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. As of December 31, 2020, the gross liability for income taxes associated with uncertain tax positions was $1.1 million.

    The Company’s unrecognized tax benefits, if recognized in the future, would affect the annual effective income tax rate. See Note 7 to the Consolidated Financial Statements in Item 8 for further information regarding unrecognized tax benefits. We elected to continue our historical practice of classifying applicable interest and penalties as a component of the provision for income taxes.

    We provide tax reserves for Federal, state, local and international exposures relating to periods subject to audit. The development of reserves for these exposures requires judgments about tax issues, potential outcomes and timing, and is a subjective critical estimate. We assess our tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances and information available at the reporting dates. For those tax positions where it is more likely than not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with greater than 50% likelihood of being realized upon settlement with a tax authority that has full knowledge of all relevant information. For those tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the Consolidated Financial Statements. Where applicable, associated interest and penalties have also been recognized. Although the outcome relating to these exposures are uncertain, we believe that our reserves reflect the probable outcome of known tax contingencies. In certain circumstances, the ultimate outcome of exposures and risks involves significant uncertainties which render them inestimable. If actual outcomes differ materially from these estimates, including those that cannot be quantified, they could have a material impact on our results of operations.
- 25 -



    The Company has provided tax on all unremitted earnings of our foreign subsidiaries taking into consideration all expected future events based on presently existing tax laws and rates.

    The Company has elected to recognize the tax on Global Intangible Low Taxed Income (“GILTI”) as a period expense in the year the tax is incurred.

Business Combinations and Asset Acquisitions

Business Combinations are accounted for under the acquisition method in accordance with ASC 805, Business Combinations. The acquisition method requires identifiable assets acquired and liabilities assumed and any non-controlling interest in the business acquired to be recognized and measured at fair value on the acquisition date, which is the date that the acquirer obtains control of the acquired business. The amount by which the fair value of consideration transferred as the purchase price exceeds the net fair value of assets acquired and liabilities assumed is recorded as goodwill. Acquisitions that do not meet the definition of a business under the ASC are accounted for as asset acquisitions. Asset acquisitions are accounted for by allocating the cost of the acquisition to the individual assets acquired and liabilities assumed on a relative fair value basis. Goodwill is not recognized in an asset acquisition with any consideration in excess of net assets acquired allocated to acquired assets on a relative fair value basis. Transaction costs are expensed in a business combination and are considered a component of the cost of the acquisition in an asset acquisition.

Intangible Assets

Intangible assets consist primarily of customer relationships, trade names and a non-competition agreement. The Company’s definite-life intangible assets are being amortized on a straight-line basis over their estimated lives ranging from two to five years. The Company periodically evaluates whether events or changes in circumstances have occurred that indicate long-lived assets may not be recoverable. When such circumstances are present, the Company assesses whether the carrying value will be recovered though the expected undiscounted future cash flows resulting from the use and eventual disposition of the long-lived asset. In the event the sum of the expected undiscounted future cash flows is less than the carrying value of the long-lived asset, an impairment loss equal to the excess of the long-lived asset’s carrying value over its fair value is recorded in ASC 360-1-35.

Goodwill

The Company records the excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed as goodwill. Goodwill recorded in connection with the acquisition of Coit Staffing Inc. is recognized in the Company's Americas reportable segment. Goodwill is not amortized and is tested for impairment on an annual basis on October 1, or when an event or changes in circumstances indicate that its carrying value may not be recoverable and has identified one reporting unit that currently carries a goodwill balance. Goodwill impairment is tested at the reporting unit level, which is defined as an operating segment or one level below the operating segment. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

The Company still has the option to perform the qualitative assessment for a reporting unit to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of one or more of its reporting units is greater than its carrying amount. If, after assessing the totality of events or circumstances, the Company determines it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, there is no need to perform any further testing. However, if the Company concludes otherwise, then it is required to perform a quantitative impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded based on that difference.

The Company has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test. There was no impairment charge recorded in fiscal year 2020.

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Stock-Based Compensation

    The Company applies the fair value recognition provisions of ASC 718, “Compensation - Stock Compensation.” The Company determines the fair value as of the grant date. Determining the appropriate amount of associated periodic expense requires management to estimate the likelihood of achievement of certain performance targets. The assumptions used in calculating the fair value of stock compensation awards and the associated periodic expense represent management’s best estimates, but these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change and the Company deems it necessary in the future to modify the assumptions it made or to use different assumptions, or if the quantity and nature of the Company’s stock-based compensation awards changes, then the amount of expense may need to be adjusted and future stock compensation expense could be different from what has been recorded in the current period.

    For awards with graded vesting conditions, the values of the awards are determined by valuing each tranche separately and expensing each tranche over the required service period. The service period is the period over which the related service is performed, which is generally the same as the vesting period. The Company accounts for forfeitures as they occur.

Recent Accounting Pronouncements

    See Note 2 to our Consolidated Financial Statements in Item 8 regarding the impact or potential impact of recent accounting pronouncements upon our financial position and results of operations.

Forward-Looking Statements

    This Form 10-K contains statements that the Company believes to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this Form 10-K, including statements regarding the Company’s future financial condition, results of operations, business operations and business prospects, are forward-looking statements. Words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “predict,” “believe,” and similar words, expressions, and variations of these words and expressions are intended to identify forward-looking statements. All forward-looking statements are subject to important factors, risks, uncertainties, and assumptions, including industry and economic conditions that could cause actual results to differ materially from those described in the forward-looking statements. Such factors, risks, uncertainties, and assumptions include, but are not limited to, (1) global economic fluctuations, (2) the adverse impacts of the recent coronavirus, or COVID-19 outbreak, (3) the Company’s ability to successfully achieve its strategic initiatives, (4) risks related to potential acquisitions or dispositions of businesses by the Company, (5) the Company’s ability to retain and recruit qualified management and/or advisors, (6) the Company’s ability to operate successfully as a company focused on its RPO business, (7) risks related to fluctuations in the Company’s operating results from quarter to quarter, (8) the loss of or material reduction in our business with any of the Company’s largest customers, (9) the ability of clients to terminate their relationship with the Company at any time, (10) competition in the Company’s markets, (11) the negative cash flows and operating losses that may recur in the future, (12) risks relating to how future credit facilities may affect or restrict our operating flexibility, (13) risks associated with the Company’s investment strategy, (14) risks related to international operations, including foreign currency fluctuations, political events, natural disasters or health crises, including the ongoing COVID-19 outbreak, (15) the Company’s dependence on key management personnel, (16) the Company’s ability to attract and retain highly skilled professionals, (17) the Company’s ability to collect accounts receivable, (18) the Company’s ability to maintain costs at an acceptable level, (19) the Company’s heavy reliance on information systems and the impact of potentially losing or failing to develop technology, (20) risks related to providing uninterrupted service to clients, (21) the Company’s exposure to employment-related claims from clients, employers and regulatory authorities, current and former employees in connection with the Company’s business reorganization initiatives, and limits on related insurance coverage, (22) the Company’s ability to utilize net operating loss carry-forwards, (23) volatility of the Company’s stock price, (24) the impact of government regulations, and (25) restrictions imposed by blocking arrangements. The foregoing list should not be construed to be exhaustive. Actual results could differ materially from the forward-looking statements contained in this Form 10-K. In view of these uncertainties, you should not place undue reliance on any forward-looking statements, which are based on our current expectations. These forward-looking statements speak only as of the date of this Form 10-K. The Company assumes no obligation, and expressly disclaims any obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise.
 
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ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    The Company conducts operations in various countries and faces both translation and transaction risks related to foreign currency exchange. For the year ended December 31, 2020, the Company earned approximately 91% of its revenue outside the U.S., and it collected payments in local currency and paid related operating expenses in such corresponding local currency. Revenues and expenses in foreign currencies translate into higher or lower revenues and expenses in U.S. dollars as the U.S. dollar weakens or strengthens against other currencies. Therefore, changes in exchange rates may affect our consolidated revenues and expenses (as expressed in U.S. dollars) from foreign operations.
    Amounts invested in our foreign operations are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. The resulting translation adjustments are recorded as a component of accumulated other comprehensive income in the stockholders’ equity section of the Consolidated Balance Sheets. The translation of the foreign currency into U.S. dollars is reflected as a component of stockholders’ equity and did not impact our reported net income (loss).
    The Brexit referendum resulted in a decline in the value of the British pound, as compared to the U.S. dollar. The Company’s U.K. operations, future financial performance and translation of results may be affected, in part, by the outcome of tariff, trade, regulatory, and other negotiations as the U.K. finalizes its exit from the European Union. In addition, the recent COVID-19 pandemic has negatively impacted certain currencies compared to the U.S. dollar in the countries where we do business.


ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management’s Annual Report on Internal Control Over Financial Reporting

    The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15(d)-15(f) of the Securities Exchange Act of 1934. 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 generally accepted accounting principles.

    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 risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

    The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020 using the criteria set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, the Company’s management believes that, as of December 31, 2020, the Company’s internal control over financial reporting was effective based on those criteria.

    This Form 10-K 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 the SEC’s “smaller reporting company” rules that permit the Company to provide only management’s assessment report for the year ended December 31, 2020.

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Report of Independent Registered Public Accounting Firm


Stockholders and Board of Directors
Hudson Global, Inc.
Old Greenwich, Connecticut

Opinion on the Consolidated Financial Statements
    We have audited the accompanying consolidated balance sheets of Hudson Global, Inc. and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively, referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
    These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
    We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
    Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provides a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the Audit Committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Business Combination
As described in Notes 2 and 4 to the Company’s consolidated financial statements, the Company completed the acquisition of Coit Staffing, Inc., for net consideration of $4.0 million on October 1, 2020, which resulted in $1.0 million of customer relationships being recognized. Management was required to determine fair values of the identifiable assets and liabilities at the acquisition date.

We identified management’s judgements used to determine the fair value of customer relationships as a critical audit matter. Auditing management’s judgments and assumptions related to forecasts of expected customer attrition rates and future cash flows involved a high degree of auditor judgment and specialized skills and knowledge was needed.

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The primary procedures we performed to address this critical audit matter included:

Assessing the reasonableness of significant underlying assumptions used to calculate the fair value through: (i) evaluating historical performance of the target entity, (ii) evaluating the reasonableness of customer attrition rates, and (iii) performing sensitivity analysis and evaluating the potential effect of changes in certain assumptions on the future cash flows.

/s/ BDO USA, LLP
We have served as the Company’s auditor since 2019.

Stamford, Connecticut
March 11, 2021

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HUDSON GLOBAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
 Year Ended December 31,
 20202019
Revenue$101,448 $93,811 
Operating expenses:
Direct contracting costs and reimbursed expenses62,367 50,245 
Salaries and related33,974 36,176 
Office and general6,632 8,117 
Marketing and promotion942 849 
Depreciation and amortization179 85 
Total operating expenses104,094 95,472 
Operating loss(2,646)(1,661)
Non-operating income (expense):
Interest income, net149 617 
PPP loan forgiveness1,326  
Other income (expense), net463 (338)
Loss from continuing operations before provision for income taxes(708)(1,382)
Provision for (benefit from) income taxes from continuing operations535 (540)
Loss from continuing operations(1,243)(842)
Loss from discontinued operations, net of income taxes (113)
Net loss$(1,243)$(955)
Loss per share:
Basic and diluted
Loss per share from continuing operations$(0.43)$(0.27)
Loss per share from discontinued operations (0.04)
Loss per share$(0.43)$(0.30)
Weighted-average shares outstanding:
Basic2,911 3,131 
Diluted2,911 3,131 
 

See accompanying notes to consolidated financial statements.
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HUDSON GLOBAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)


 Year Ended December 31,
 20202019
Comprehensive loss:
Net loss$(1,243)$(955)
Other comprehensive income:
Foreign currency translation adjustment, net of applicable income taxes1,005 127 
Total other comprehensive income, net of income taxes1,005 127 
Comprehensive loss$(238)$(828)

See accompanying notes to consolidated financial statements.
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HUDSON GLOBAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)

As of December 31,
20202019
ASSETS  
Current assets:  
Cash and cash equivalents$25,806 $31,190 
Accounts receivable, less allowance for doubtful accounts of $10 and $174, respectively
13,445 12,795 
Restricted cash, current152 148 
Prepaid and other889 804 
Total current assets40,292 44,937 
Property and equipment, net115 186 
Operating lease right-of-use assets210 401 
Goodwill2,088  
Intangible assets, net1,400  
Deferred tax assets1,037 793 
Restricted cash241 380 
Other assets3 7 
Total assets$45,386 $46,704 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$576 $1,064 
Accrued expenses and other current liabilities9,241 8,178 
Operating lease obligations, current192 246 
Total current liabilities10,009 9,488 
Income tax payable887 845 
Operating lease obligations22 160 
Other liabilities188 177 
Total liabilities11,106 10,670 
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 shares authorized; 3,672 and 3,663 shares issued; 2,685 and 2,936 shares outstanding, respectively
4 4 
Additional paid-in capital486,825 486,088 
Accumulated deficit(437,750)(436,507)
Accumulated other comprehensive income (loss), net of applicable tax526 (479)
Treasury stock, 987 and 726 shares, respectively, at cost
(15,325)(13,072)
Total stockholders’ equity34,280 36,034 
Total liabilities and stockholders’ equity$45,386 $46,704 
 


See accompanying notes to consolidated financial statements.
 


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HUDSON GLOBAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) 
 Year Ended December 31,
 20202019
Cash flows from operating activities:  
Net loss$(1,243)$(955)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization179 85 
Provision for doubtful accounts34 80 
Benefit from deferred income taxes(169)(210)
Stock-based compensation737 961 
Changes in operating assets and liabilities, net of effect of acquisitions and dispositions:
Decrease (increase) in accounts receivable672 (2,941)
(Increase) decrease in prepaid and other assets(34)652 
Decrease in accounts payable, accrued expenses and other liabilities(1,602)(2,500)
Net cash used in operating activities(1,426)(4,828)
Cash flows from investing activities:  
Capital expenditures(22)(84)
Net cash paid for acquisitions(3,997) 
Net cash used in investing activities(4,019)(84)
Cash flows from financing activities:  
Proceeds from government lending1,326  
Purchases of treasury stock(2,239)(4,545)
Purchases of restricted stock from employees(14)(41)
Net cash used in financing activities(927)(4,586)
Effect of exchange rates on cash and cash equivalents and restricted cash853 156 
Net decrease in cash and cash equivalents and restricted cash(5,519)(9,342)
Cash, cash equivalents, and restricted cash beginning of the period31,718 41,060 
Cash, cash equivalents, and restricted cash end of the period$26,199 $31,718 
Supplemental disclosures of cash flow information:  
Cash payments during the period for interest$1 $6 
Cash payments during the period for income taxes, net of refunds$1,108 $648 
     Cash paid for amounts included in operating lease liabilities$272 $317 
Supplemental non-cash disclosures:
Right-of-use assets obtained in exchange for operating lease liabilities$77 $723 
PPP loan forgiveness$1,326 $ 
 
See accompanying notes to consolidated financial statements. 

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HUDSON GLOBAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in thousands)
 
 Common stockAdditional
paid-in
capital
Accumulated deficitAccumulated other comprehensive income (loss)Treasury
stock
Total
 
Shares(a)
Value   
Shares(a)
Value 
Balance at December 31, 20183,613 $4 $485,127 $(435,552)$(606)(423)$(8,486)$40,487 
Net loss— — — (955)— — — (955)
Other comprehensive loss, translation adjustments— — — — 127 — — 127 
Purchase of treasury stock— — — — — (301)(4,545)(4,545)
Purchase of restricted stock from employees— — — — — (2)(41)(41)
Stock-based compensation and vesting of restricted stock units50 — 961 — — — — 961 
Balance at December 31, 20193,663 $4 $486,088 $(436,507)$(479)(726)$(13,072)$36,034 
Net loss— — — (1,243)— — — (1,243)
Other comprehensive loss, translation adjustments— — — — 1,005 — — 1,005 
Purchase of treasury stock— — — — — (260)(2,239)(2,239)
Purchase of restricted stock from employees— — — — — (1)(14)(14)
Stock-based compensation and vesting of restricted stock units9 — 737 — — — — 737 
Balance at December 31, 20203,672 $4 $486,825 $(437,750)$526 (987)$(15,325)$34,280 


(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 consolidated financial statements. 

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

NOTE 1 – DESCRIPTION OF BUSINESS
    Hudson Global, Inc. and its subsidiaries (the “Company”) are comprised of the operations, assets and liabilities of the three Hudson regional businesses of Hudson Americas, Hudson Asia Pacific, and Hudson Europe. The Company provides Recruitment Process Outsourcing (“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.
On October 1, 2020, Hudson completed its acquisition of Coit Staffing, Inc., which expanded its presence in the technology sector and established a Technology Group located in San Francisco. The Technology Group operates jointly with Hudson RPO’s existing teams in the Americas, Asia Pacific, and in Europe, to provide continuous access to knowledge regarding new and emerging technologies in the RPO, Managed Solutions Provider ("MSP"), and Total Talent Solutions space, enabling the Company to better serve its clients around the world.
    As of December 31, 2020, the Company operated directly in twelve countries with three reportable geographic business segments: Americas, Asia Pacific, and Europe.

    
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

    The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Certain prior period amounts have been reclassified to conform to the current year presentation with no material impact on the consolidated financial statements. Unless otherwise stated, amounts are presented in United States of America (“U.S.”) dollars and all amounts are in thousands, except for number of shares and per share amounts. All per share amounts and shares outstanding reflect the Company’s 1-for-10 reverse stock split, which was effective June 10, 2019.

Recently Adopted Accounting Standards

On October 1, 2019, we elected to adopt ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”) on a prospective basis. This ASU provides guidance on implementation costs incurred in a cloud computing arrangement (“CCA”) that is a service contract. ASU 2018-15 aligns the accounting for such costs with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Specifically, ASU 2018-15 amends Accounting Standards Codification (“ASC”) 350 to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply ASC 350 to determine which implementation costs should be capitalized in such a CCA. The adoption had no impact on the Company’s consolidated financial statements.    

On January 1, 2019, we adopted 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 11.

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

    The Consolidated Financial Statements include the accounts of the Company and all of its wholly owned and majority-owned subsidiaries. All significant inter-company accounts and transactions between and among the Company and its subsidiaries have been eliminated in consolidation.

Impact of COVID-19 Pandemic on Consolidated Financial Statements.

In December 2019, a novel strain of coronavirus, referred to as COVID-19, was reported to have originated in Wuhan, Hubei Province, China. On January 30, 2020, the World Health Organization (“WHO”) declared that the virus had become a global public-health emergency. On March 11, 2020, the WHO declared the outbreak to be a pandemic, based on the rapid increase in exposure globally. Many countries around the world have imposed quarantines and restrictions on travel and mass gatherings to slow the spread of the virus. Our business continues to be impacted by the outbreak and the accompanying economic downturn.

Some of our customers continue to have instituted hiring freezes, while other customers operating in the banking, pharmaceutical and technology industries, which may be considered as essential businesses in different jurisdictions, or customers that are more capable of working remotely than other industries, have been allowed to operate as usual. The inability to conduct in-person interviews has also impacted our business. The expected timeline for this reduction in demand for our services remains uncertain and difficult to predict considering the rapidly evolving landscape.

In connection with the COVID-19 pandemic, certain foreign government organizations have begun to offer wage assistance subsidies and tax credits to companies in exchange for maintaining specified levels of compensation and related costs for employees residing in those countries. The Company recognizes the receipt of funds from these organizations in the Other income (expense), net caption on the Condensed Consolidated Statements of Operations. For the year ended December 31, 2020, the Company received $527 related to foreign government assistance, which amounts are included within Other income (expense), net. In the United States, the Company on April 26, 2020 received a $1,326 loan in connection with the Paycheck Protection Program (“PPP”), administered by the U.S. Small Business Administration (“SBA”), under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The Company submitted its application for forgiveness on September 2020 and the SBA approved the forgiveness of the full amount of the loan on November 30, 2020. The Company recognized $1,326 of loan forgiveness on the consolidated statements of operations (see Note 11).

Use of Estimates

    The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the reported amounts of assets and liabilities, the disclosures about contingent assets and liabilities, and the reported amounts of revenue and expenses. Such estimates include the value of allowances for doubtful accounts, goodwill, intangible assets, other long-lives assets and the valuation of deferred tax assets. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates the estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates.

Concentration and Credit Risk

    The Company’s revenue is comprised of the operations, assets, and liabilities of the three regional businesses of Americas, Asia Pacific, and Europe. For the years ended December 31, 2020 and 2019, the Company’s top 25 clients generated
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Index
HUDSON GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
over 90% of revenue. Two clients accounted for 66% and 58% of revenue in 2020 and 2019, respectively. Three clients each accounted for 10% or greater of accounts receivable as of December 31, 2020 and 2019, respectively.

Financial instruments, which potentially subject the Company to concentrations of credit risk, are primarily cash and accounts receivable. The Company performs continuing credit evaluations of its customers and does not require collateral. The Company has not experienced significant losses related to receivables in the Consolidated Statements of Operations.
 
Revenue Recognition

    Revenue is measured according to ASC 606, Revenue - Revenue from Contracts with Customers, and is recognized based on consideration specified in a contract with a client. 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 allows either party to cancel within a short termination period, without cause. Revenue includes billable travel and other reimbursable costs and are reported net of value added taxes, sales, or use taxes collected from clients and remitted to taxing authorities.

    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 at period end 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. The Company’s accounts receivable balances are composed of trade and unbilled receivables. Unbilled accounts receivable represent revenue recorded in advance of processing formal invoices pursuant to the completion of contract provisions and, generally, become billable at contractually specified dates. Unbilled amounts are expected to be invoiced and collected within one year. 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 years ended December 31, 2020 and 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 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.

    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 contain both fixed fee and variable usage-based consideration. Variable usage based consideration is constrained by candidates accepting offers of permanent employment. We recognized revenue on the fixed fee as the performance obligations are
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Index
HUDSON GLOBAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
satisfied and usage-based 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.

    We recognize permanent placement revenue when employment candidates accept offers of permanent employment. We have a substantial history of estimating the financial impact of permanent placement candidates who do not remain with our clients through a guarantee period. Fees to clients are generally calculated as a percentage of the new employee’s annual compensation. No fees for permanent placement services are charged to employment candidates.

    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 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 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. See Note 3 for information on disaggregated revenue.
Operating Expenses

    Salaries and related expenses include the salaries, commissions, payroll taxes and employee benefits related to recruitment professionals, executive level employees, administrative staff, and other employees of the Company who are not temporary contractors. Office and general expenses include occupancy, equipment leasing and maintenance, utilities, travel expenses, professional fees, and provision for doubtful accounts. The Company expenses the costs of advertising and legal costs as incurred.

Stock-Based Compensation

    The Company applies the fair value recognition provisions of ASC 718, “Compensation - Stock Compensation.” The Company determines the fair value as of the grant date. For awards with graded vesting conditions, the values of the awards are determined by valuing each tranche separately and expensing each tranche over the required service period. The service period is the period over which the related service is performed, which is generally the same as the vesting period. The Company accounts for forfeitures as they occur. During the years ended December 31, 2020 and 2019 the Company only granted restricted stock units and restricted shares of common stock.

Employee Benefit Programs

    The Company in the U.S. sponsors a defined contribution plan covering substantially all full-time employees (the “401(k) Plan”). The Company recognized expense related to the 401(k) Plan totaling approximately $92 and $120, respectively, for the years ended December 31, 2020 and 2019, respectively.

Income Taxes

    Earnings from the Company’s global operations are subject to tax in various jurisdictions both within and outside the United States. The Company accounts for income taxes in accordance with ASC 740, “Income Taxes”. This standard establishes financial accounting and reporting standards for the effects of income taxes that result from an enterprise’s activities. It requires an asset and liability approach for financial accounting and reporting of income taxes.