ACQUISITION

9 Months Ended

Sep. 30, 2022

Hunt & Badge Consulting Private Limited

On August 19, 2022, the Company entered into a share purchase agreement by and among Hudson RPO Limited, a wholly owned subsidiary of the Company (“HnB Buyer”), Hunt & Badge Consulting Private Limited (“Seller”), and certain principals of HnB, and completed the acquisition by HnB Buyer of all of the membership interests of the Seller (the “HnB Acquisition”).

Hunt & Badge Consulting Private Limited is a provider of recruitment services to customers operating in India. HnB partners with companies of all sizes, including well-known multinationals, across a variety of industries to help meet their talent procurement needs.

In connection with the HnB Acquisition, Seller received $1,064 in cash, subject to certain adjustments, at the closing of the HnB Acquisition. Additionally, Seller has a contingent right to receive earn-out payments not to exceed $350 in aggregate payable over an eighteen-month period, subject to the achievement of certain performance thresholds and, the satisfaction of certain conditions.

The HnB Acquisition was accounted for as a business combination under the acquisition method of accounting. The purchase price of $1,274, which consists of the amount paid in cash of $1,064, a preliminary working capital adjustment of $60, net of an owner receivable of $15, and contingent earn-out payments of up to $350 (which such earn-out payments are contingent upon the achievement of certain revenue milestones through December 2023), was allocated to the net tangible and intangible assets and liabilities based on their fair values on the acquisition date of August 19, 2022, with the excess recorded as goodwill. The purchase price included $314 of cash and cash equivalents acquired. As of September 30, 2022, the estimated fair value for the contingent earn-out payments that the Company classified as Level 3 in the fair value hierarchy was $150, which is based on achievement of 70% of the specified revenue targets. These fair value estimates are classified as Level 3 measurements, and they are based on significant inputs not observed in the market and reflect our own assumptions (forecasted revenue) through December 31, 2023.

In determining the fair value of the contingent consideration liability, the Company used an estimate based on a number of possible projections over the earn-out period. Given the short duration of the earn-out period, the fair value of contingent liability was measured on an undiscounted basis. The Company will continue to reassess the fair value of the acquisition-related contingent consideration at each reporting period based on additional information as it becomes available. This contingent consideration will be remeasured quarterly. If, as a result of remeasurement, the value of the contingent consideration changes, any charges or income will be marked to market and included in “Other income (expense), net” on the

Company’s Condensed Consolidated Statements of Operations. For the three months ended September 30, 2022, no gains or losses were recognized in earnings for changes in the remeasurement of the contingent consideration.

The estimate of the fair value of contingent consideration requires very subjective assumptions to be made of various potential revenue results. The values assigned to the assets acquired and liabilities assumed are based on the fair value available and may be adjusted during the measurement period of up to 12 months from the date of acquisition as further information becomes available. Excluding the contingent consideration, any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill. The Company incurred transaction costs related to the HnB Acquisition of $37 that were expensed as part of “Office and general”.

The Company’s Consolidated Statements of Operations for the three months ended September 30, 2022 included revenue of $18 and net income of $3 from HnB.

Below is a summary of the fair value of the net assets acquired on the acquisition date based on internal valuations at the date of acquisition.


	Fair Value
Assets Acquired:
Cash and cash equivalents	$	314
Accounts receivable	84
Prepaid expenses and other assets	77
Property and equipment	35
Intangible assets	150
Goodwill	687
Assets Acquired	$	1,347
Liabilities Assumed:
Accrued expenses and other current liabilities	$	20
Other long-term liabilities	53
Liabilities Assumed	$	73

Fair value of net assets acquired and consideration transferred	$	1,274

Intangible assets are amortized on a straight-line basis over their estimated useful lives. The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives on the date of acquisition.


	Fair Value		Useful Life
Non-compete agreements	$	40	3 years
Customer lists	60		3 years
Trade name	50		5 years
Total identifiable assets	$	150

Karani, LLC

On October 29, 2021, the Company entered into a membership interest purchase agreement (the “MIPA”) by and among the Company, Hudson Global Resources Management, Inc. (“HGRM”), a wholly owned subsidiary of the Company, and Daniel Williams (“Williams”), and completed the acquisition (the “Karani Acquisition”) by HGRM of all of the membership interests of Karani, LLC, a Delaware limited liability company.

Karani partners with recruitment and staffing firms to assist with recruiting, sourcing, screening, onboarding, and other talent-related services across a variety of industries to customers primarily located in the United States. On the date of acquisition, Karani had approximately 560 employees in India and 120 employees in the Philippines.

As outlined in the MIPA, Williams received (i) $6,805 in cash subject to certain adjustments set forth in the MIPA at the closing of the Karani Acquisition; and (ii) a non-interest bearing promissory note in the aggregate principal amount of $2,000, payable in installments on the six-month and eighteen-month anniversaries of the closing date subject to the satisfaction of certain conditions as further described in the MIPA. There are no employment stipulations for Williams associated with the MIPA.

The Karani Acquisition was accounted for as a business combination under the acquisition method of accounting. The purchase price of $8,673, which consists of the amount paid in cash of $6,805, a promissory note of $2,000, and a working capital credit of $132, was allocated to the net tangible and intangible assets and liabilities based on their fair values on the acquisition date of October 29, 2021, with the excess recorded as goodwill. The purchase price included $737 of cash and cash equivalents acquired. The Company incurred transaction costs related to the acquisition of approximately $200 that were expensed as part of Office and general on the Consolidated Statements of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. In addition to the purchase price, Hudson agreed to pay a $250 retention payment to the Chief Financial Officer of Karani, which is classified as compensation expense, recorded on a straight-line basis.

The Company’s Consolidated Statements of Operations for the three and nine months ended September 30, 2022 included revenue of $2,541 and $7,658, respectively, and net income of $385 and $744, respectively, from Karani.

Below is a summary of the fair value of the net assets acquired on the acquisition date based on external valuations at the date of acquisition.


	Fair Value
Assets Acquired:
Cash and cash equivalents	$	737
Accounts receivable	1,521
Restricted cash, current	50
Prepaid expenses and other assets	177
Property and equipment	119
Operating lease right-of-use assets	100
Restricted cash	3
Other long-term assets	19
Intangible assets	4,540
Goodwill	2,131
Assets Acquired	$	9,397
Liabilities Assumed:
Accrued expenses and other current liabilities	$	436
Operating lease obligations, current	88
Operating lease obligations, non current	12
Other long-term liabilities	188
Liabilities Assumed	$	724

Fair value of net assets acquired and consideration transferred	$	8,673


	Fair Value		Useful Life
Developed technology	$	640	3 years
Customer lists	2,800		6 years
Trade name	1,100		10 years
Total identifiable assets	$	4,540

Unaudited Pro Forma Financial Information

The following unaudited consolidated pro forma information gives effect to the acquisitions of Karani and HnB as if the transactions had occurred on January 1, 2021.


	September 30, 2022				September 30, 2021
	Three Months Ended		Nine Months Ended		Three Months Ended		Nine Months Ended
Revenue	$	48,761	$	151,800	$	47,574	$	125,558
Net income	$	983	$	7,115	$	1,724	$	1,491

The unaudited pro forma supplemental information provided above is based on estimates and assumptions that the Company believes are reasonable, and reflects the pro forma impact of additional amortization related to the fair value of acquired intangible assets for the three and nine months ended September 30, 2022 and 2021. This supplemental pro forma information has been prepared for comparative purposes and is not intended to reflect what would have occurred had the HnB Acquisition and the Karani Acquisition taken place on January 1, 2021.