CTPartners Executive Search 10-K 2012 FY Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For fiscal year ended December 31, 2012

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 001-34993

CTPARTNERS EXECUTIVE SEARCH INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	52-2402079
(State or other Jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1166 Avenue of the Americas, 3rd Fl., New York, NY	10036
(Address of principal executive offices)	(Zip Code)

(212) 588-3500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, par value $0.001 per share	NYSE MKT
(Title of each Class)	(Name of each exchange on which registered)

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    ý  No

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

Indicate by checkmark 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 such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ý  Yes    ¨  No

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ý  Yes    ¨  No

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) 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.    ý  YES    ¨  NO

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

Large Accelerated Filer	¨	Accelerated Filer	¨
Non-Accelerated Filer	¨  (Do not check if a smaller reporting company)	Smaller Reporting Company	ý

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

The aggregate market value of the voting and non-voting equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and ask price of such common equity, as of the last business day of the registrant’s most recently completed fiscal year end was $31,845,038.

The number of the registrant’s common shares outstanding as of March 21, 2013, was 7,017,251. 

Documents incorporated by reference: portions of the definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 12, 2013 are incorporated by reference into Part III of this Form 10-K.

TABLE OF CONTENTS

PART I	PAGE
ITEM 1. BUSINESS	1
ITEM 1A. RISK FACTORS	5
ITEM 1B. UNRESOLVED STAFF COMMENTS	10
ITEM 2. PROPERTIES	10
ITEM 3. LEGAL PROCEEDINGS	10
ITEM 4. MINE SAFETY DISCLOSURES	10
PART II
ITEM  5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	10
ITEM 6. SELECTED FINANCIAL DATA	11
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	12
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	18
ITEM 8. FINANCIAL STATEMENTS	24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	40
ITEM 9A. CONTROLS AND PROCEDURES	41
ITEM 9B. OTHER INFORMATION	41
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	41
ITEM 11. EXECUTIVE COMPENSATION	41
ITEM  12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	42
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	42
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES	42
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	X
EX-21
EX-23.1
EX-24
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

PART I

ITEM 1. BUSINESS.

The Company

We were incorporated on April 4, 1980, as Christian and Timbers, Inc. In 2007, we changed our name to CTPartners Executive Search LLC. In connection with our initial public offering, which was on December 7, 2010, we converted from a Delaware limited liability company to a “C” corporation organized under the laws of the state of Delaware and our name became CTPartners Executive Search Inc. on December 1, 2010. We completed the acquisition of the business of CTPartners Latin America, Inc., our formerly independently-owned licensee that operates in Latin America, effective January 2, 2012.

Our principal executive offices are located at 1166 Avenue of the Americas, 3rd Floor, New York, New York 10036, and our telephone number is (212) 588-3500. Our corporate website address is www.ctnet.com. We do not incorporate the information contained on, or accessible through, our corporate website into this form 10-K, and it should not be considered part of this form 10-K. For convenience in this form 10-K, “CTPartners,” “we,” “us,” and “our” refer to CTPartners Executive Search Inc. and its subsidiaries, taken as a whole, unless otherwise noted.

Business Overview

We are a leading provider of retained executive search services to clients on a global basis. We provide these services through twenty-three offices in the Americas, Europe, the Middle East and Asia Pacific. We help our clients build stronger leadership teams by facilitating the recruitment and hiring of “C-level” (chief executive officers, chief financial officers, chief legal officers, chief marketing officers and chief human resource officers) executives, other senior executives and board members. Our retained executive search services focus on successfully making placements for our clients in a timely manner. We use a proprietary search process and proprietary technology and communication tools to successfully execute our retained searches. In 2012, we were engaged to perform 1,352 searches, including 1,039 performed directly by us and 313 performed by our offices in Latin America, and we generated consolidated net revenue and an operating loss of $128.4 million and $5.1 million, respectively, including net revenue and operating loss from Latin America of $13.4 million and $3.0 million, respectively.

We believe that our proven and proprietary retained executive search process, SearchSigma, differentiates us from our peers. SearchSigma was developed based on analyzing three years of detailed client surveys. In our analysis, we identified the common criteria and timetables our clients expect from a successful search. We then developed a proprietary search process to respond accordingly. Based on our findings, we structured SearchSigma as a workflow process with six distinct segments and milestones, at forty-eight hours, seven days, fourteen days, forty days, seventy-five days and one-hundred days, designed to complete a successful placement within one-hundred days of our engagement. SearchSigma also enables our executive search consultants and our clients to actively monitor the status of each search and make adjustments to the search process as necessary. Our focus on the SearchSigma process enhances our ability to successfully and expeditiously identify and place candidates with our clients within our stated goal of 100 days from our engagement.

We believe that a high level of communication and process transparency with our clients is very important to their level of satisfaction and to the ultimate success of our searches. The cornerstone of our client communication is our proprietary system, ClientNet^®. Through ClientNet^®, our clients can access password-protected information over the internet to check the status of their search engagements. Another important element of our transparency and accountability is the audit that we offer to conduct at the forty-day milestone. This key process step is executed by one of our executive search consultants who is not otherwise involved in a particular search. This executive search consultant contacts the client to assess the progress of the search and to gather client feedback along with any suggested refinements to the process. We have found the forty-day audit process to be very helpful in ensuring that a search is tracking as planned and that any necessary adjustments are made early in the process.

Our organizational structure is designed to provide high quality, industry-focused executive search services to our clients worldwide. Our executive search consultants are dedicated to specific industry verticals and are leading experts in their given sectors. Our support teams of researchers and associates are organized by industry practice group in various geographic locations. We believe that industry specialization enables us to better understand our clients’ cultures, operations, business strategies and industries. Executive search consultants in our industry practice groups bring an in-depth understanding of the market conditions and strategic and management issues faced by clients within their specific industry. Our six largest industry practice groups are financial services, professional services, life sciences, technology/media/telecom, consumer/retail and industrial.

We have a diverse group of clients located throughout the world and in a variety of industries. From January 1, 2005, through December 31, 2012, we have performed 7,167 searches for over 2,000 clients, including some of the leading Fortune 1000, FTSE 100, DAX and CAC 40 companies as well as private equity and venture capital firms and their portfolio companies.

Historically, we have been successful in both adding new clients and generating repeat business from existing clients. We believe that our disciplined adherence to our proprietary search process has enabled us to develop a strong and loyal client base. Over the past three years, approximately 78% of our retained search engagements came from clients who had previously used our services. At the conclusion of each search, we solicit client feedback with a client satisfaction survey. Our surveys provide us with critical feedback to gauge client satisfaction as well as feedback that we utilize to continually evaluate and improve our processes and performance. In 2012, 277 clients completed client satisfaction surveys, and 90.4% of such surveys stated that the client planned to use our services in the future.

We believe that our global presence enables us to more effectively serve our clients who have operations throughout the world. We leverage our industry specialization with local geographic knowledge and contacts to provide clients with comprehensive executive search

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services. We have wholly-owned operations in eight U.S. cities and in fifteen non-U.S. locations. Our wholly-owned non-U.S. operations are in Brazil, Chile, China, Colombia, France, Germany, Hong Kong, Mexico, Panama, Peru, Singapore, Switzerland, the United Arab Emirates, the United Kingdom and Venezuela. In 2012, we placed candidates in 462 U.S. searches and 571 non-U.S. searches, including 200 candidates by our Latin America offices.

As of December 31, 2012, we had 103 executive search consultants and 350 other employees, all of whom were full-time employees, of which Latin America had 16 executive search consultants and 69 other employees. Our principal executive offices are located in New York, New York. Our corporate, administrative and research functions are located in our office in Cleveland, Ohio.

Executive Search Industry Overview

The executive search business is highly fragmented, consisting of several large global firms and several thousand smaller firms that are generally focused on a specific geographic region or on a specific vertical sector. We believe our most direct competition comes from the following five global retained executive search firms: Egon Zehnder International, Heidrick & Struggles International (NASDAQ: HSII), Korn/Ferry International (NYSE: KFY), Russell Reynolds Associates, Inc. and Spencer Stuart.

Executive search firms are generally separated into two broad categories: retained search firms and contingency search firms. Retained search firms generally operate on an exclusive basis for a specific search and are compensated for their services regardless of whether they are successful in placing a candidate with the client. Retained executive search firms typically focus on “C-level” and other senior level executive and board of director positions, and the fee for such services is typically 33% of the first year total cash compensation for the position being filled. The fee for a retained executive search is typically paid in three installments. Contingency executive search firms are generally not hired on an exclusive basis and are only compensated upon placing a recommended candidate, and the fee for such services is typically 25% of the first year base salary of the position being filled.

Our Services

Retained Executive Search

Our retained executive search services are used to fill executive level positions, such as chief executive officers, chief financial officers, chief operating officers, chief information officers and other senior executive officers, as well as board of directors’ positions. Our executive search consultants work closely with our clients to identify, assess and place qualified candidates. Our clients are primarily from six large industry verticals: financial services, professional services, life sciences, technology/media/telecom, consumer/retail and industrial.

Our retained search engagements are typically led by executive search consultants with vertical market expertise and one-call access to the most sought-after talent in each market. Supporting our executive search consultants is a team of experienced recruiting associates and research professionals, many with decades of experience utilizing executive search industry best practices. We work closely with our clients to understand their business strategy and develop a profile of the ideal candidate. Once the position is defined, the research team identifies appropriate individuals through the use of our proprietary databases and other search media. In addition, the team consults with its established network of sources to help identify individuals with the right backgrounds and professional abilities. Leveraging our network of resources and research capabilities, we strive to develop an extensive list of potential candidates, who are then carefully screened through face-to-face meetings, phone interviews and/or video conferences. The client is then presented with a specified number of qualified candidates to interview. We conduct third-party reference checks throughout the process. Our executive search consultants actively participate in negotiations until a final offer is made and accepted. Throughout the process, we maintain ongoing communication with our client and actively involve them in the process.

In 2012, we utilized our proprietary SearchSigma process to identify and place 1,033 candidates, including 200 placements made by our offices in Latin America. Every aspect of our search process is oriented to achieving the desired outcome of placing the right individual at the right firm as swiftly and efficiently as possible. Based on a three-year analysis of client surveys, we have designed SearchSigma, a workflow process with six distinct segments and milestones, described in more detail as follows:

Milestone #1 — Forty-eight hours. During the first forty-eight hours, we develop a strategy that includes identification of the internal resources and personnel needed in the search, scoping the necessary geographic reach of the search, determination of the appropriate title of the position offered, creating a description of the ideal candidate and the identification of the top twenty source companies. Identifying the best internal team is largely based on industry expertise. Once the team is in place, the lead partner chooses the breadth of geographic reach based on the title and description of position.

Milestone #2 — Seven days. After seven days, we hold a kick-off meeting with the client at which we present our overarching search strategy, including our research and recruiting approach, as well as a detailed position description that embodies the required leadership characteristics. Clients receive a competitive analysis and an assessment of the market. With a two-way sharing of information, we begin the process by identifying the unique priorities, challenges, and opportunities that characterize a particular client’s search assignment.

Milestone #3 — Fourteen days. After fourteen days, we hold a follow-up meeting with the client to confirm our strategy, present industry research and provide our view on candidate backgrounds reviewed to date. At this point we will have typically identified two benchmark candidates and spoken with at least twenty potential candidates. The client is asked to approve our strategy at this milestone.

Over the next several weeks, the team consults with its established network of resources and searches proprietary databases containing profiles of over 1.1 million executives to assist in identifying individuals with the right background, cultural fit and abilities. An initial list of candidates is carefully screened through face-to-face meetings, phone interviews or video conferences.

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Milestone #4 — Forty days. After forty days, we have conferred with at least 50% of the identified candidates, interviewed at least five prospects and presented at least three candidates to the client. At this time, we also offer to conduct our forty-day audit which provides us with the opportunity to course-correct our search strategy and target candidate profile, if necessary.

Milestone #5 — Seventy-five days. After seventy-five days, our team has conferred with approximately 90% of the identified candidates, the client has been presented with two qualified candidates, and we have secured two alternative qualified candidates should a final offer not be made or accepted.

Milestone #6 — One-hundred days. At the one-hundred-day mark, we have typically successfully identified and placed the client’s ideal candidate. At the conclusion of each search, we solicit client feedback with a client satisfaction survey. Our surveys provide us with critical feedback to gauge client satisfaction as well as feedback that we utilize to continually evaluate and improve our processes and performance. The survey findings are used to rank our executive search consultants which are then reviewed and posted internally and are considered in making decisions with regard to internal promotions, illustrating our commitment to exceeding the expectations of our clients.

Board Advisory

We approach our board advisory practice with the same rigor, discipline and processes as we apply to our executive search services. This includes utilizing an overarching search strategy, research, regular status reviews, mid-search audit and a methodology where candidates are identified from a formal search process. We are generally paid a flat fee for our board advisory services.

Our board advisory practice is designed to help boards evaluate the strength and diversity of their board as well as their overall effectiveness. Many boards are facing growing regulatory and shareholder pressure to increase their diversity, independence and expertise. Our in-depth assessments help to focus directors on these key priorities and to make them aware of issues that can impact effectiveness. Since establishing this practice in May 2009, we have conducted 15 board assessments.

Our Industry-Focused Practice Areas

Our organizational structure is designed to provide high quality executive search services to our clients worldwide. Our team of executive search consultants is organized by industry practice group in various geographic locations. We believe that industry specialization enables us to better understand our clients’ cultures, operations, business strategies and industries and the respective markets for senior executive candidates. All of our executive search consultants perform searches for specific “C-level” and other senior executives.

We operate our executive search business in six broad industry practice groups: financial services, professional services, life sciences, technology/media/telecom, consumer/retail and industrial. Executive search consultants in our industry practice groups bring an in-depth understanding of the market conditions and strategic and management issues faced by clients within their specific industry. Additionally, our executive search consultants have established networks of sources which often provide one-call access to the most sought after talent. The relative sizes of these industry practice groups, as measured by the percentage of 2012 net revenue and the number of executive search consultants as of December 31, 2012, are as follows:

Industry Practice Group	Percentage of 2012 Net Revenue		Number of Executive Search Consultants
Financial services	31.0	%	41
Professional services	14.0	%	16
Life sciences	17.0	%	15
Technology/media/telecom	13.0	%	15
Consumer/Retail	16.0	%	8
Industrial	9.0	%	8

Within each broad industry practice group there are a number of industry subsectors. For example, within the financial services practice group our business is diversified among a number of industry subsectors, including asset and wealth management, capital markets, financial technology, hedge funds, investment banking, private equity, commercial banking and insurance. Executive search consultants from each of these industry practice groups are located across our various offices. We believe this operational structure provides our clients with superior services.

Executive search consultants often focus in one or more subsectors to provide clients with even deeper market intelligence and candidate knowledge specific to their industry. We have integrated domestic and international teams that focus on the following subsectors:

• Association & Not-for-Profit

• Cleantech & Alternative Energy

• Commercial Banking

• Conservation

• Federal Consulting, Government Relations & Public Policy

• Financial Technology

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• Global Security/Risk Management

• Inclusion

• Insurance

• Legal, Compliance, Regulatory & Governance

• Legal Services

• Real Estate

• Semiconductor

Our Executive Search Consultants and Other Employees

As of December 31, 2012, we had 453 full-time employees consisting of 103 executive search consultants, 110 associates, 63 researchers and 177 administrative and support staff, including the 85 individuals employed in our offices in Latin America. We believe the high caliber, extensive experience and motivation of our professionals are critical factors to our success. We utilize a combination of base salary, revenue and volume bonuses, discretionary bonuses and equity compensation to compensate our employees. The average age of our executive search consultants is forty-eight years.

Our associates and researchers support the efforts of our executive search consultants with candidate sourcing and identification by making initial contact with candidates and performing other search-related functions. We train our associates and researchers, as well as new executive search consultants, in the use of our proprietary retained executive search process and communication systems. Additionally, we periodically hold training and development programs for our associates and researchers. As a result of our strong development culture, we have made a significant number of internal promotions. Over the past five years, we have promoted twenty-one associates to executive search consultant. Promotion to executive search consultant is based on a variety of factors, including demonstrated superior execution and business development skills, the ability to identify solutions to complex issues, personal and professional ethics, a thorough understanding of the market and the ability to develop and build effective teams.

We believe we have been able to attract and retain some of the most productive executive search consultants with previous search backgrounds and strong specialty expertise. We consider relations with our employees to be good.

Clients

We have a diverse group of clients located throughout the world in a variety of industries. In 2012, no client accounted for more than 5% of our revenue. In 2011, one client accounted for 5% of our revenue. From January 1, 2005, through December 31, 2012, we have performed 7,167 searches for over 2,000 clients, including some of the leading Fortune 1000, FTSE 100, DAX and CAC 40 companies as well as private equity and venture capital firms and their portfolio companies.

Historically, we have been successful in both adding to our client base and generating repeat business from existing clients. We believe that our dedication to successfully completing our retained searches in a timely and structured manner has enabled us to develop a strong and loyal client base. This has resulted in highly recurring revenue from our existing clients. For example, over the past three years, approximately 78% of our engagements came from clients who had previously used our services. In 2012, we had 235 clients that retained us to perform more than one search for them.

Seasonality

Revenue and operating income have historically varied by quarter and are hard to predict from quarter to quarter. In addition, the volatility in the global economy impacts our quarterly revenue and operating income. On average, the variance between the highest and lowest amount of quarterly net revenue, as expressed as a percentage of annual net revenue, is approximately 5 percentage points.

Marketing

Our executive search consultants market our executive search services through targeted client calling, industry networking and various referral sources. These efforts are assisted by our proprietary databases which provide our executive search consultants with real-time information as to contacts made by their colleagues with particular referral sources, candidates and clients. In addition, we benefit from a significant number of referrals generated by our reputation for high quality service and successfully completing assignments, as well as repeat business resulting from our ongoing client relationships.

We publicize and build our brand awareness through interviews with the major business and trade publications and have periodically utilized television advertisements on syndicated media outlets such as CNBC. We regularly sponsor speeches and host presentations before industry and management groups. We regularly participate in relevant conferences and forums and leading roundtable discussions on topics of interest. For example, we host an annual Board of Directors Human Capital Institute to help enhance the quality of board governance and the human resource function. In addition, we periodically distribute publications to existing and potential clients highlighting emerging trends and noteworthy engagements.

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Executive search firms frequently are required to refrain from recruiting employees of a client for a specified period of time, typically extending for one year from the initiation of the search assignment. We carefully manage these off-limits conditions by attempting to limit the scope of any such agreement.

Research and Information Management

Our research efforts are maximized through a research department principally based in our office in Cleveland, Ohio. We use our proprietary database and other available technology to conduct research focused on identifying targeted candidates based on client-specific requirements.

Research is largely based on our robust, growing, proprietary candidate database. Our database consists of over 1.1 million unique candidate profiles. The database connects pre-screened candidates to client information offering a concise opportunity for first round due diligence.

A significant value-added benefit of our database is driven by our dynamic client interface, ClientNet^®, which enables clients to access candidate-specific details throughout their search process. ClientNet^® captures candidate-specific data over time thus ensuring continuous search momentum and providing an efficient process for our clients.

Competition

The executive search industry is highly competitive and fragmented. Our most direct competition comes from the larger executive search firms that compete on a global scale, including Egon Zehnder International, Heidrick & Struggles International (NASDAQ: HSII), Korn/Ferry International (NYSE: KFY), Russell Reynolds Associates, Inc. and Spencer Stuart. We primarily compete with these competitors based upon our relationships with the key decision-makers, as well as our reputation for offering a unique value proposition to our clients. In large part, the genesis of our differentiation is an intense focus on making timely, successful placements that match the needs of our clients. To ensure that we are meeting our clients' expectations, we carefully track our placement rate, average days to placement and stick rate. Furthermore, our size and culture enable us to quickly adapt to current market conditions and demands.

ITEM 1A. RISK FACTORS.

In addition to the other information in this Form 10-K, the following risk factors should be considered in evaluating our business because such factors may have a significant impact on our business, financial condition, operating results, cash flows and results of operations. As a result of the risk set forth below and elsewhere in this Form 10-K, and the risk discussed in our other Securities and Exchange Commission filings, actual results could differ materially from those projected in any forward-looking statements.

Risks Related to Our Business

Our inability to attract and retain qualified executive search consultants would adversely affect our business, financial condition and results of operations.

Our success depends upon our ability to attract and retain executive search consultants who possess the skills and experience necessary to fulfill our clients’ needs. In addition, our ability to grow the Company is dependent on increasing our overall number of qualified executive search consultants. Our ability to hire and retain qualified executive search consultants could be impaired by any diminution of our reputation, decrease in compensation levels relative to our competitors, modifications of our compensation philosophy or competitor hiring programs. If we cannot attract, hire and retain qualified executive search consultants, our business, financial condition and results of operations would be adversely affected.

A significant or prolonged economic downturn would have a material adverse effect on our results of operations.

Our results of operations are affected by the level of business activity of our clients, which in turn is affected by general economic conditions and the level of economic activity in the industries and markets that they serve. On an aggregate basis, our clients may be less likely to hire as many senior executives during economic downturns and periods of economic uncertainty. To the extent our clients delay or reduce hiring senior executives due to an economic downturn or economic uncertainty, our results of operations will be adversely affected. A continued economic downturn or period of economic uncertainty and a decline in the level of business activity of our clients would have a material adverse effect on our business, financial condition and results of operations.

Global economic developments and conditions in the geographic regions and industries from which we derive a significant portion of our revenue could negatively affect our business, financial condition and results of operations.

Demand for our services is affected by global economic conditions and the general level of economic activity in the geographic regions and industries in which we operate. The concentration of our business in certain geographic regions and/or industries exacerbates this risk. For example, 31% of our net revenue in 2012 was derived from providing our services to the financial services industry. When conditions in the global economy, including the credit markets, deteriorate, or economic activity slows, companies may hire fewer permanent employees and some companies, as a cost-saving measure, may choose to rely on their own human resources departments rather than third-party search firms to find talent. Certain of the geographic regions and industries in which we operate have recently deteriorated significantly and may remain depressed for the foreseeable future. If the national or global economy or credit market conditions in general deteriorate, or the demand for our services in a significant industry decreases, our cash flows, business, financial condition and results of operations would be adversely affected.

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We depend substantially on a limited number of key personnel who would be difficult to replace. If we lose the services of these individuals, our business would be adversely affected.

Our continued growth and success depend in large part on the managerial and leadership skills of our senior management team, particularly Brian M. Sullivan, our chief executive officer, and David C. Nocifora, our chief operating and chief financial officer. We rely on our senior management team to market our business, manage our globally dispersed business operations and hire and retain qualified executive search consultants. The success of our growth efforts depends on significant management attention to integration and coordination. The loss of the services of either member of our senior management team would have a material adverse effect on our business, financial condition and results of operations. We have no reason to believe that we will lose the services of either of these individuals in the foreseeable future; however, we currently have no effective replacement for either of these individuals due to their experience, reputation in the industry and significant role in our operations.

If we are unable to prevent our executive search consultants from taking our clients or our executive search consultants with them to a competitor, our business, financial condition and results of operations could suffer.

Our success depends upon our ability to develop and maintain strong, long-term relationships with our clients. Although we work on building these relationships between our firm and our clients, in many cases, one or two executive search consultants have primary responsibility for a client relationship. Additionally, a limited number of executive search consultants have primary responsibility for a disproportionate share of our business. In 2012, for example, our top three executive search consultants had primary responsibility for generating business equal to approximately 12% of our net revenues, and our top ten executive search consultants had primary responsibility for generating business equal to approximately 28% of our net revenues.

Since we do not generally enter into non-competition agreements with our executive search consultants, our executive search consultants are not contractually prohibited from leaving or joining one of our competitors and some of our clients could choose to use the services of that competitor instead of us. We may also lose clients if the departing executive search consultant has widespread name recognition or a reputation as a specialist in executing searches in a specific industry or management function. Although our employment contracts prohibit former executive search consultants from soliciting any of our employees for a period of one year, we may lose additional executive search consultants if they choose to join the departing executive search consultant at another executive search firm. If we fail to limit departing executive search consultants from moving business or recruiting our executive search consultants to a competitor, our business, financial condition and results of operations could be adversely affected.

If we are unable to maintain our professional reputation and brand name our business would be adversely affected.

We depend on our overall professional reputation and brand name recognition to secure new engagements and hire qualified executive search consultants. In 2007, we changed our brand from Christian & Timbers to CTPartners. While we believe we have established our brand in the market, a number of our competitors have more established and better name recognition than us. Our success also depends on the individual reputations of our executive search consultants. We obtain many of our new engagements from existing clients or from referrals by those clients. A client who is dissatisfied with our work can adversely affect our ability to secure new engagements. If our reputation is negatively affected, including poor performance or our brand awareness does not continue to increase, we may experience difficulties in competing successfully for both new engagements and qualified executive search consultants. Failure to maintain our professional reputation and brand name could have a material adverse effect on our business, financial condition and results of operations.

Because existing clients may restrict us from recruiting their employees we may be unable, or be perceived by prospective clients as being unable, to fill existing or prospective executive search assignments, and prospective clients may not engage us, impeding our growth.

Clients frequently require us to refrain from recruiting certain of their employees when conducting executive searches on behalf of other clients. These restrictions generally remain in effect for no more than one year following the commencement of an engagement. However, the specific duration and scope of the off-limits arrangements depend on the length of the client relationship, the frequency with which the client engages us to perform searches and the potential for future business with the client. If a prospective client believes that we are overly restricted by these off-limits arrangements from recruiting the employees of our existing clients, these prospective clients may not engage us to perform their executive searches, and as a result, our business, financial condition and results of operations could be adversely affected.

We face aggressive competition and if we are unable to compete effectively, it would have a material adverse effect on our business, financial condition and results of operations.

The global executive search industry is extremely competitive and highly fragmented. We compete with other large global executive search firms and smaller specialty firms. Some of our competitors possess greater financial and other resources, greater name recognition and longer operating histories than we do in particular markets or practice areas. Additionally, specialty firms can focus on regional or functional markets or on particular industries. To the extent our competitors are better capitalized and have access to greater financial and other resources, these competitors may be better positioned to attract executive search consultants, expand their business and weather any economic downturns. There are limited barriers to entry into the search industry and new search firms continue to enter the market. Many executive search firms that have a smaller client base may be subject to fewer off-limits arrangements. In addition, our clients or prospective clients may decide to perform executive searches using in-house personnel. Finally, competitors sometimes reduce their fees in order to attract clients and increase market share. Because we typically do not discount our fees, we may experience some loss of net revenue. We may not be able to continue to compete effectively with existing or potential competitors. Our inability to meet these competitive challenges would have a material adverse affect on our business, financial condition and results of operations.

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We rely heavily on information management systems and any interruptions or loss of key client data could adversely affect our business.

Our success depends upon our ability to store, retrieve, process and manage substantial amounts of information. To achieve our goals, we must continue to improve, upgrade and invest in our information management systems. We may be unable to license, design and implement, in a cost-effective and timely manner, improved information systems that allow us to compete effectively. In addition, business process re-engineering efforts may result in a change in software platforms and programs. In addition to the cost of licensing, designing and implementing new information systems, such efforts may present transitional problems. Finally, although our data center is maintained at a third-party location, if we experience any interruptions or loss in our information processing capabilities or loss of key client data, our business, financial condition and results of operations could be adversely affected.

We face the risk of liability in the services we perform and significant uninsured liabilities could have a material adverse affect on our business, financial condition and results of operations.

We are exposed to potential claims with respect to the executive search process. A client could assert a claim for violations of off-limits arrangements, breaches of confidentiality agreements or professional malpractice. In addition, candidates and client employees could assert claims against us. Possible claims include failure to maintain the confidentiality of the candidate’s employment search or for discrimination or other violations of employment laws or professional malpractice. In various countries, we are subject to data protection laws impacting the processing of candidate information. We maintain professional liability insurance in amounts and coverage that we believe are adequate, however, we cannot guarantee that our insurance will cover all claims or that coverage will always be available or sufficient. Significant uninsured liabilities could have a material adverse effect on our business, financial condition and results of operations.

Our inability to successfully integrate executive search consultants may have an adverse effect on our business.

Much of our net revenue growth since 2004 is due to adding additional executive search consultants in different geographic locations. We expect to continue to grow by, among other things, selectively adding executive search consultants. We may not, however, be able to identify appropriate executive search consultants, consummate such additions on satisfactory terms or integrate the acquired practices effectively and profitably into our existing operations. Our future success will depend in part on our ability to complete the integration of executive search consultants successfully into our operations. Failure to successfully integrate recently hired executive search

consultants and complementary practices may adversely affect our profitability by creating operating inefficiencies that could increase operating expenses as a percentage of net revenues and reduce operating income. Further, the clients of recently hired executive search consultants may choose not to move their business to us.

We may not be able to manage effectively our expanding operations, which may impede our growth and/or negatively impact our performance.

Since 2004, we have experienced a period of rapid growth. This places a significant strain on our managerial and operational resources. Our number of employees grew from 88 as of December 31, 2004, to 453 as of December 31, 2012, mainly as a result of opening new non-U.S. locations, adding executive search consultants and staff supporting such executive search consultants, and acquisitions. To accommodate our future expected growth, we may need to implement new or upgraded operating and financial systems, procedures and controls throughout many different locations. These efforts may not be successful. Additionally, opening new office locations may strain our financial and management resources. Our failure to expand and integrate these systems, procedures and office locations efficiently could cause our expenses to increase disproportionately and our net revenues to decline or grow more slowly than expected, which could have a material adverse effect on our business, financial condition and results of operations.

Our multinational operations may be adversely affected by economic, social, political and legal risks.

We generate substantial net revenue outside the United States. We offer our services through fourteen locations outside the U.S. We are exposed to the risk of changes in economic, social, political and legal conditions inherent in international operations, which could have a significant impact on our business, financial condition and results of operations. In particular, we conduct business in countries where the legal systems, local laws and trade practices are unsettled and evolving. Commercial laws in these countries are sometimes vague, arbitrary and inconsistently applied. If we fail to comply with local laws, our business, financial condition and results of operations could suffer. In addition, the global nature of our operations poses challenges to our management as well as our financial and accounting systems. Failure to meet these challenges could have a material adverse effect on our business, financial condition and results of operations.

A significant currency fluctuation between the U.S. dollar and other currencies could adversely impact our operating income.

With operations in the Americas, Europe, the Middle East and Asia Pacific, we conduct business using various currencies. In 2012, 39.6% of our fee revenue was generated outside of North America. As we typically transact business in the local currency, our profitability may be impacted by the translation of foreign currency financial statements into U.S. dollars. Significant long-term fluctuations in relative currency values, in particular an increase in the value of the U.S. dollar against foreign currencies, could have a material adverse effect on our profitability and our business, financial condition and results of operations.

The failure to timely align our cost structure with net revenue could have a material adverse affect on our business, financial condition and results of operations.

We must ensure that our costs and workforce continue to be in proportion to demand for our services. In particular, local laws in some of the countries we operate in make it more difficult and time consuming to appropriately adjust staffing levels. Failure to timely align our

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cost structure and headcount with net revenue could have a material adverse effect on our business, financial condition and results of operations.

Our inability to access credit, or if we are only able to do so at significantly higher costs, could limit our ability to grow and harm our business, financial condition and results of operations.

In the current economic environment, banks may strictly enforce the terms of our credit agreement. Although we are currently in compliance with the financial covenants of our revolving credit facility, a further deterioration of economic conditions may negatively impact our business resulting in our failure to comply with these covenants in the future, which could limit our ability to borrow funds under our revolving credit facility. We may not be able to secure alternative financing or may only be able to do so at significantly higher costs, and this could harm our business, financial condition and results of operations.

Risks Related to Ownership of Our Common Stock

The market price of our common stock may be highly volatile or may decline regardless of our operating performance.

Although our common stock is traded on the NYSE MKT exchange, it may remain illiquid, or “thinly traded,” which can increase volatility in the share price and make it difficult for investors to buy or sell shares in the public market without materially affecting the quoted share price. Further, investors seeking to buy or sell a certain quantity of our shares in the public market may be unable to do so within one or more trading days. If limited trading in our stock continues, it may be difficult for holders to sell their shares in the market at any given time at prevailing prices.

Broad market and industry factors also may adversely affect the market price of our common stock, regardless of our actual operating performance. Factors that could cause wide fluctuations in our stock price may include, among other things:

• general economic conditions;

• actual or anticipated variations in our financial condition and operating results;

• overall conditions or trends in our industry;

• addition or loss of significant clients;

• changes in the market valuations of companies perceived by investors to be comparable to us;

• announcements by us or our competitors of significant acquisitions, strategic partnerships or divestitures;

• announcements of lawsuits filed against us;

• additions or departures of key personnel;

• changes in the estimates of our operating results or changes in recommendations by any securities or industry analysts that elect to follow our common stock; and

• sales of our common stock by us or our stockholders, including sales by our directors and officers.

In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of our common stock. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. We may be the target of this type of litigation in the future. Securities litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources, whether or not we are successful in such litigation.

Our principal stockholders may exert substantial influence over us and may exercise their control in a manner adverse to your interests.

Our senior management and executive search consultants own an aggregate of 4,007,243 shares, or 57% of our outstanding common stock. More specifically, six members of our senior management and executive search consultants own, collectively, 3,015,824 shares, or 43%, of our outstanding common stock. Because a limited number of persons may exert substantial influence over us, transactions could be difficult or impossible to complete without the support of those persons. It is possible that these persons will exercise control over us in a manner adverse to your interests.

Future sales of our common stock may cause our stock price to decline.

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the market price of our common stock could decline. These sales might also make it more difficult for us to sell additional equity securities at a time and price that we deem appropriate. As of December 31, 2012, we had6,983,561 shares of common stock outstanding.

Our directors, executive officers and substantially all of our affiliates as defined in Rule 144 of the Securities Act, have agreed with the underwriters of our initial public offering, subject to certain exceptions, not to sell any shares of our common stock or securities convertible into, or exercisable, or exchangeable for, shares of our common stock, without the prior written consent of William Blair & Company, L.L.C., except as follows:

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• commencing December 7, 2011, each such person may sell up to one-third of the shares of common stock held by such person as of December 7, 2010;

• commencing December 7, 2012, each such person may sell up to two-thirds of the shares of common stock held by such person as of December 7, 2010; and

• commencing December 7, 2013, each such person may sell one hundred percent of the shares of common stock held by such person as of December 7, 2010.

As of the date here of, 3,170,268 shares have become available for sale without registration under the Securities Act subject to the volume or other limitations under Rule 144. After the expiration of the remaining lock-up periods, up to 1,618,824 of additional restricted securities may be sold into the public market in the future without registration under the Securities Act to the extent permitted under Rule 144. These shares will be available for sale on December 7, 2013, subject to volume or other limits under Rule 144.

Furthermore, 1,000,000 shares were available for grant under our 2010 Equity Incentive Plan and, if issued or granted, will become eligible for sale in the public market once permitted by provisions of the various vesting agreements, lock-up agreements and Rule 144, as applicable. To date, 235,858 shares were granted under the plan leaving 764,142 shares available.

If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our common stock, or if our operating results do not meet their expectations, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these reports or analysts. If any of the analysts who cover our company downgrades our stock, or if our operating results do not meet the analysts’ expectations, our stock price could decline. Moreover, if any of these analysts ceases coverage of our company or fails to publish regular reports on our business, we could lose visibility in the financial markets, which in turn could cause our stock price and trading volume to decline.

We currently do not intend to pay dividends on our common stock and, as a result, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.

We currently do not expect to declare or pay dividends on our common stock in the foreseeable future. Instead, we anticipate that all of our earnings in the foreseeable future will be used in the operation and growth of our business. Any determination to pay dividends in the future will be at the discretion of our board of directors. In addition, our ability to pay dividends on our common stock is currently limited by the covenants of our credit facility and may be further restricted by the terms of any future debt or preferred securities. Accordingly, your only opportunity to achieve a return on your investment in our company may be if the market price of our common stock appreciates and you sell your shares at a profit. The market price for our common stock may never exceed, and may fall below, the price that you pay for our common stock.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our certificate of incorporation and bylaws may delay or prevent an acquisition of us or a change in our management. These provisions include:

• a board of directors whose members can only be dismissed for cause;

• the right of the board of directors to elect a director to fill a vacancy created by the expansion of the board of directors;

• the ability of the board of directors to alter our bylaws without obtaining stockholder approval;

• the prohibition on actions by written consent of our stockholders;

• the limitation on who may call a special meeting of stockholders;

• the establishment of advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon at stockholder meetings;

• the ability of our board of directors to issue preferred stock without stockholder approval, which would increase the number of outstanding shares and could thwart a takeover attempt; and

• the requirement of at least 75% of the outstanding common stock to amend any of the foregoing provisions.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us. Although we believe these provisions collectively provide for an opportunity to obtain greater value for stockholders by requiring potential acquirers to negotiate with our board of directors, they would apply even if an offer rejected by our board were considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management.

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ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

Offices

Our principal executive offices are located in New York, New York, and our corporate, administrative and research functions are located in our office in Cleveland, Ohio. Our operations are based in the following locations:

U.S. Locations	Non-U.S. Locations
Boston, MA	Dubai, United Arab Emirates	Bogota, Colombia
Chicago, IL	Geneva, Switzerland	Caracas, Venezuela
Cleveland, OH	Hong Kong	Lima, Peru
Columbia, MD	London, United Kingdom	Mexico City, Mexico
Dallas, TX	Paris, France	Panama City, Panama
New York, NY	Shanghai, China	Santiago, Chile
Redwood Shores, CA	Singapore	Sao Paulo, Brazil
Washington, DC	Frankfurt, Germany

All of our offices are leased. We do not own any real property.

ITEM 3. LEGAL PROCEEDINGS.

From time to time we are involved in litigation incidental to our business. We are currently not party to any litigation, the adverse resolution of which, in management’s opinion, would be likely to have an adverse effect on our business, financial condition or results of operations.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

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

Market

The Company’s initial public offering was effective December 7, 2010, and trading commenced on December 8, 2010 on the NYSE MKT stock market. The closing price on March 21, 2013, was $3.85. The trading symbol is CTP.

Prices

The table below sets forth the high and low sales prices during each calendar quarter since December 8, 2010.

2012	High		Low
Fourth Quarter	$	4.75	$	3.82
Third Quarter	5.56		3.32
Second Quarter	6.93		4.01
First Quarter	7.10		4.80
2011
Fourth Quarter	$	5.80	$	4.52
Third Quarter	12.20		3.75
Second Quarter	14.35		11.81
First Quarter	16.15		13.95

As of March 15, 2013, there were 84 stockholders of record of the common stock.

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Issuer Purchases of Equity Securities

The following table provides information related to our purchase of common shares for the year ended December 31, 2012.

Period	Total 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 Publicly Announced Plans or Programs
January 1, 2012 - January 31, 2012	$0	$0	$0	$	1,000,000
February 1, 2012 - February 29, 2012	5,500	6.72	5,500	963,013
March 1, 2012 - March 31, 2012	5,500	6.54	5,500	926,892
April 1, 2012 - April 30, 2012	2,000	6.30	2,000	914,625
May 1, 2012 - May 31, 2012	4,151	6.16	4,151	889,051
June 1, 2012 - June 30, 2012	4,802	5.40	4,802	863,142
July 1, 2012 - July 31, 2012	10,900	5.40	10,900	803,594
August 1, 2012 - August 31, 2012	202,400	3.96	202,400	1,831
September 1, 2012 - September 30, 2012	—	—	—	1,831
October 1, 2012 - October 31, 2012	4,767	5.36	—	1,831
November 1, 2012 - November 30, 2012	—	—	—	1,831
December 1, 2012 - December 31, 2012	—	—	—	1,831
Total	240,020	5.73	235,253	0

Equity Compensation Plan Information

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining  available for future issuance under  equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)	(c)
Equity compensation plans approved by security holders	102,500	0	661,642
Equity compensation plans not approved by security holders	0	N/A	0
Total	102,500	N/A	661,642

Use of Proceeds from Registered Securities

The offer and sale of the shares in our initial public offering were registered under the Securities Act of 1933, as amended, pursuant to a registration statement on Form S-1 (File No. 333-169224), which was declared effective by the Securities and Exchange Commission on December 7, 2010.

After deducting underwriting discounts and commissions and offering related expenses, our net proceeds from the initial public offering were approximately $24.4 million.

During the twelve-month period ending December 31, 2012, we:

• Used approximately $1 million to repurchase shares pursuant to our 2012 share repurchase program; and

• Used approximately $5.7 million for the cash payment related to the acquisitions of our Latin America licensee and Cheverny CEO Search S.A.

There has been no material change in the planned use of the net proceeds from that described in the prospectus included in our registration statement.

ITEM 6. SELECTED FINANCIAL DATA.

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Not required for smaller reporting companies.

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations as well as other sections of this annual report on Form 10-K contain forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. The forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry in which we operate and management’s beliefs and assumptions. Forward-looking statements may be identified by the use of words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “projects,” “forecasts,” and similar expressions. Forward-looking statements are not guarantees of future performance and involve certain known and unknown risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from what is expressed, forecasted or implied in the forward-looking statements. Factors that may affect the outcome of the forward-looking statements include, among other things, our expectations regarding our revenues, expenses and operations and our ability to sustain profitability; our ability to recruit and retain qualified executive search consultants to staff our operations appropriately; our ability to expand our customer base and relationships, especially given the off-limit arrangements we are required to enter into with certain of our clients; further declines in the global economy and our ability to execute successfully through business cycles; our anticipated cash needs; our anticipated growth strategies and sources of new revenues; unanticipated trends and challenges in our business and the markets in which we operate; social or political instability in markets where we operate; the impact of foreign currency exchange rate fluctuations; price competition; the ability to forecast, on a quarterly basis, variable compensation accruals that ultimately are determined based on the achievement of annual results; the mix of profit and loss by country; and our ability to estimate accurately for purposes of preparing our consolidated financial statements. For more information on the factors that could affect the outcome of forward-looking statements, see Risk Factors in Item 1A of this Form 10-K. We caution the reader that the list of factors may not be exhaustive. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Management’s Discussion and Analysis of Financial Condition and Results of operations has been prepared for the twelve-month periods ending December 31, 2012, and 2011.

Overview

Business Overview

We are a leading performance-driven executive search firm serving clients across the globe. Committed to a philosophy of partnering with our clients, we offer a proven record in C-Suite, senior executive, and board searches, as well as expertise serving private equity and venture capital firms. Our organizational structure is designed to provide high quality, industry-focused executive search services to our clients worldwide. Our executive search consultants are dedicated to specific industry verticals and are leading experts in their given sectors. We believe that industry specialization enables us to better understand our clients' cultures, operations, business strategies and industries. Our six largest industry practice groups are financial services, professional services, life sciences, technology/media/telecom (“TMT”), consumer/retail and industrial.

Components of Our Statement of Operations

Net Revenue. Our executive search services are provided on a retained basis. Net revenue is comprised of the following three components:

• Fee Revenue. The vast majority of our revenue for retained executive search and board advisory services is received as retainer fees (which we refer to as “fee revenue”). Our retainer fee is typically equal to 33% of the first year total cash compensation for the position being filled. Generally, our retainer fee is paid in three installments commencing in the month of our engagement by the client. At the time of placement, the total fee is trued up to an amount equal to 33% of the difference between the actual total cash compensation paid and the estimate. In the event that a client hires a candidate for a position other than the position identified in the original search assignment, we typically are paid 30% of the first year’s total cash compensation for the position filled.

• Indirect Expenses Billed to Clients. For each engagement, we are paid a flat fee, up to $9,000, to cover certain costs associated with the search process. These costs include research and research tools; other outside services; and the development and maintenance of our proprietary database and communication systems.

• License Revenue. During 2011, for services rendered by our then associated offices in Latin America, we were paid a license fee equal to a percentage of the gross fees billed to clients. The license fee is 3% for the first year of affiliation and 6% thereafter. As more fully described herein, the Company completed the purchase of its Latin American licensee effective January 2, 2012.

In addition to the components of our net revenue, we also track certain performance metrics that drive revenue. In the executive search industry, revenue in any given period is driven by:

• the number of search assignments;

• the number of executive search consultants;

• executive search consultant productivity, measured by average annualized net revenue per executive search consultant; and

• average revenue per executive search.

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Since we were paid license fees by our then associated offices in Latin America in 2011, and we did not employ the executive search consultants in those offices, we excluded our associated offices in Latin America in tracking the revenue drivers listed above. Our 2012 results include Latin America operations.

Reimbursements and Reimbursed Expenses. We are generally reimbursed by our clients for the direct expenses associated with our search activity on their behalf. These direct expenses include travel, other out-of-pocket expenses and third-party costs, and we report such reimbursements as a separate component of total revenue. In addition, we record such direct expenses as a separate component of operating expenses when incurred.

Compensation and Benefits Expenses. At the consultant level, we utilize a combination of base salary, revenue and volume bonuses and equity compensation to compensate our employees. Each executive search consultant is paid a tiered bonus based upon the amount of collected revenue that is credited to such consultant. The higher the revenue credited, the higher the percentage of such revenue that is paid to the executive search consultant as a bonus and thus accrued by us as an expense. As a result of this tiered bonus system, the mix of individual consultants’ performance levels can significantly affect the total amount of compensation expense we record. We pay a volume bonus to our executive search consultants based upon the total amount of collected revenue originated by an executive search consultant.

We periodically grant equity compensation to our executive officers and executive search consultants in order to:

• align our employees’ interest with those of our stockholders;

• facilitate ownership of our common stock by our executive officers and executive search consultants; and,

• attract and retain talent.

General and Administrative Expenses. General and administrative expenses are comprised primarily of rent, depreciation, business development, professional fees, communications and IT, networking costs and insurance. Incremental increases in revenue do not necessarily result in proportional increases in general and administrative expenses.

2012 Overview

On January 2, 2012, we acquired our Latin America licensee for an aggregate purchase price of $10.2 million, which consisted of an initial cash payment of $5.25 million and a non-interest bearing seller note for $5.25 million which has been discounted by the Company in the amount of $263,303. As further described in Note 2 to the Consolidated Financial Statements, $7.2 million of contingent consideration was accounted for as post-combination compensation.

On October 10, 2012, we completed an acquisition of Cheverny CEO Search, S.A., a Paris, France based search firm focused on executive recruiting, for an aggregate purchase price of $1.6 million, consisting of initial cash payment of $0.5 million, and a non-interest bearing seller note for $1.0 million, which was recorded at fair value. Similarly, the acquisition resulted in an additional $1.0 million of post-combination compensation.

The Company intends to amend certain provisions of the purchase agreements to eliminate all employment contingencies. Completion of these amendments by the end of the first quarter of 2013 would result in a charge in the first quarter of 2013 of approximately $1.9 million to write off the remaining deferred post-combination compensation assets.

During the third quarter of 2012, we initiated a plan to reorganize operations in our Canadian and EMEA locations, incurring a reorganization charge of approximately $1.0 million. The reorganization of our operations will reduce costs and improve productivity, while positioning us well to take advantage of strengthening economic conditions. We expect that the reorganization will result in annualized cost savings of approximately $1.1 million.

Excluding Latin America, net revenue for the year ended December 31, 2012, decreased $6.1 million while operating loss improved by $2.8 million, compared to the year ended December 31, 2011. For the year ended December 31, 2012, Latin America operations contributed $13.4 million in revenue and $3.0 million in operating loss, which includes post-combination compensation charge of $6.1 million attributable to Latin America acquisition. Management's discussion and analysis includes the searches engaged to be performed by our Latin America offices and the resulting net revenues, expenses and cash flows for periods beginning January 2, 2012.

Operating loss for the year ended December 31, 2012 was $5.1 million, compared to an operating loss of $4.6 million for the year ended December 31, 2011. Excluding certain non-recurring charges of $7.3 million, as defined in the reconciliation of Non-GAAP measures, operating income improved by $6.8 million, to $2.2 million at December 31, 2012. The increase primarily reflects an increase in net revenues of $7.3 million offset by a $0.5 million increase in general and administrative expenses.

For the year ended December 31, 2012, we were engaged to perform 1,352 searches including 313 by our Latin America offices. For the year ended December 31, 2011, we were engaged to perform 1,100 searches. Our then Latin American licensee was engaged to perform 331 searches during the twelve-month period ended December 31, 2011. During the twelve months ended December 31, 2012, we placed candidates in 462 U.S. searches and in 571 non-U.S. searches, including 200 by our Latin America offices. For the twelve-month period ended December 31, 2011, we placed candidates in 483 U.S. searches and in 391 non-U.S. searches. Our then Latin American licensee placed 270 candidates during the twelve-month period ended December 31, 2011.

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Relevant data is set forth below (this data excludes the operations of our associated offices in Latin America for 2011):

Performance Metrics	Year Ended December 31, 2012		Year Ended December 31, 2011		Increase/  Decrease			Percentage  Increase/  Decrease
Number of new search assignments	1,352		1,100		252			22.9	%
Number of executive search consultants (as of period end)	103		94		9			9.6	%
Productivity, as measured by average annualized net revenue per executive search consultant	$	1,246,400	$	1,288,100	$	(41,700	)	(3.2	)%
Average revenue per executive search	$	91,900	$	105,000	$	(13,100	)	(12.5	)%

The decrease in average revenue per executive search is attributable to the inclusion of Latin America for the year ended December 31, 2012. Excluding Latin America, productivity and average revenue per executive search would have been $1,319,500 and $108,100 respectively for the twelve months ended December 31, 2012.

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Adjusted Performance Measure, Excluding Certain Non-Recurring Charges

Data presented below is a non-GAAP measure, and excludes certain non-recurring charges. Management utilizes this information to measure performance, and believes it more appropriately reflects the results of ongoing operations.

	Reconciliation of Non-GAAP Measures to Net Income for the Year Ended (Unaudited)
	December 31, 2012								December 31, 2011
	Results of  Operations			Effect of Adjustment			Adjusted  Results of  Operations  (1)		Results of  Operations			Effect of Adjustment		Adjusted  Results of  Operations  (1)
Revenue
Net revenue	$	128,381,579		$	0		$	128,381,579	$	121,085,898		$	0	$	121,085,898
Reimbursable expenses	4,533,667			0			4,533,667		5,033,024			0		5,033,024
Total Revenue	132,915,246			0			132,915,246		126,118,922			0		126,118,922
Operating Expenses
Compensation and benefits	105,732,358			7,457,833			98,274,525		98,224,549			0		98,224,549
General and administrative	27,502,792			(146,514		)	27,649,306		27,130,437			0		27,130,437
Reimbursable expenses	4,784,739			0			4,784,739		5,406,685			0		5,406,685
Total Operating Expenses	138,019,889			7,311,319			130,708,570		130,761,671			0		130,761,671
Operating income (loss)	(5,104,643		)	(7,311,319		)	2,206,676		(4,642,749		)	0		(4,642,749		)
Net income (loss)	$	(3,583,823	)	(4,744,032		)	1,160,209		(3,234,562		)	0		$	(3,234,562	)
Basic income (loss) per common share	$	(0.51	)	$	(0.67	)	$	0.16	$	(0.45	)	$	0.00	$	(0.45	)
Diluted income (loss) per common share	(0.51		)	(0.67		)	0.16		(0.45		)	0.00		(0.45		)

(1) Adjusted result is a non-GAAP financial measure that exclude reorganization charges of $964,000 (or $575,615, net of tax effect) and post-combination compensation charges of $6,347,000 ($4,168,000 net of tax effect), for the year ended December 31, 2012. No reorganization costs or post-combination compensation were incurred during the year ended December 31, 2011.

Use of non-GAAP measures: The tables above contain selected financial information calculated other than in accordance with U.S. Generally Acceptable Accounting Principles (“GAAP”). We define adjusted results of operations as follows:

• Adjusted operating income is defined as operating income adjusted to exclude reorganization charges, net, and post-combination compensation charges.

• Adjusted net income is defined as net income adjusted to exclude reorganization and post-combination compensation charges, net of tax effect.

• Adjusted basic and diluted earnings per share are calculated by adjusting the numerator by the amount of the reorganization and post-combination compensation charges, net of tax effect.

15

Results of Operations

The following table summarizes, for the periods indicated, our results of operations as a percentage of net revenue:

	Twelve Month Period Ending December 31,
	2012		2011
Revenue:
Net revenue	100.0	%	100.0	%
Reimbursable expenses	3.5	%	4.2	%
Total revenue	103.5	%	104.2	%
Operating Expenses:
Compensation and benefits	82.4	%	81.1	%
General and administrative	21.4	%	22.4	%
Reimbursable expenses	3.7	%	4.5	%
Total operating expenses	107.5	%	108.0	%
Operating loss	(4.0	)%	(3.8	)%
Net interest expense	(0.1	)%	—	%
Loss before income taxes	(4.1	)%	(3.8	)%
Income tax benefit	1.3	%	1.1	%
Net loss	(2.8	)%	(2.7	)%

Twelve Month Period Ended December 31, 2012 Compared to Twelve Month Period Ended December 31, 2011

Net Revenue. Net revenue increased $7.3 million, or 6.0%, to $128.4 million in 2012 from $121.1 million in 2011. The increase in net revenue was the result of the inclusion of our Latin America operations which contributed $13.4 million in net revenue for the year ended December 31, 2012, offset by a reduction of $6.1 million in net revenue for all other locations, driven primarily by softer conditions in the North American professional services and TMT markets, and in the EMEA professional services market.

Compensation and Benefits Expenses. Compensation and employee benefits expense increased $7.5 million, or 7.6%, to $105.7 million in 2012 from $98.2 million in 2011. As a percentage of net revenue, compensation and benefits increased to 82.4% in 2012 from 81.1% in 2011. Excluding the reorganization and post-combination compensation charges of $7.5 million, compensation and benefits expense decreased to 76.5% of net revenue in 2012, compared to 81.1% in 2011.

The $7.5 million increase in compensation and benefits expense is principally due to accounting for a portion of contingent purchase consideration as post acquisition compensation. The remainder of the difference is comprised of an increase of $8.1 million due to the addition of our Latin America operation offset by a $6.9 million decrease from all other locations. The $8.1 million increase from Latin America was comprised of $5.1 million in consultant compensation and benefits expense, which was the direct result of the $13.4 million in net revenues generated by our 16 Latin America search consultants, and $3.0 million in non-consultant compensation and benefits expense due to the addition of 69 support staff from the Latin America acquisition.

The $6.9 million decrease in compensation and benefits from all other locations consisted of (i) a $4.2 million decrease in talent acquisition costs, (ii) a $2.4 million decrease in consultant bonuses as a direct result of lower revenues in the non-Latin American locations, (iii) a $1.0 million decrease in consultant salaries due to an overall decrease of 5 executive consultants year over year, (iv) a decrease in discretionary bonuses of $0.5 million, offset by (v) $1.1 million related to our reorganization and, (vi) an increase of $0.5 million in compensation and benefits due to the addition of 7 additional support staff.

General and Administrative Expenses. General and administrative expenses increased $0.4 million, or 1.4%, to $27.5 million in 2012 from $27.1 million in 2011. The increase is comprised of an addition of $2.5 million of general and administrative costs for Latin America, offset by (i) $0.8 million decrease in foreign currency translation expense, (ii) $0.5 million reduction in professional fees, (iii) $0.2 million decrease in global network infrastructure cost, (iv) decrease of $0.2 million in corporate travel, and (v) $0.2 million credit relating to reorganization charge, as more fully described in Note 14 to the consolidated financial statements.

Operating Loss. Operating loss was $5.1 million for the year ended 2012, a decrease of $0.5 million compared to an operating loss of $4.6 million in 2011. Excluding certain non-recurring charges, adjusted operating income improved by $6.8 million, to an operating income of $2.2 million in 2012. The improvement primarily reflects an increase in net revenue of $7.3 million, offset by an increase in general administrative costs of $0.5 million.

Net Interest Expense. Net interest expense increased $161,814 to $159,664 in 2012 from $2,150 of net interest income in 2011. The increase in net interest expense reflects the seller-financed notes issued in current year acquisitions.

16

Loss Before Taxes and Income Tax Benefit. In 2012 we recorded a loss before income taxes of $5.3 million and an income tax benefit of $1.7 million, compared to a loss before income taxes of $4.6 million and an income tax benefit of $1.4 million in 2011. The increase in income tax benefit is primarily due to a $0.6 million increase in loss before income taxes. The Company's effective tax rate was 31.9% for the year ended December 31, 2012.

Liquidity and Capital Resources

General. Our primary sources of liquidity are cash, cash flows from operations and borrowing availability under our revolving credit facility. We continually evaluate our liquidity requirements, capital needs and availability of capital resources based on our operating needs. We believe that our existing cash balances together with the funds expected to be generated from operations and funds available under our committed revolving credit facility will be sufficient to finance our operations for the foreseeable future.

The following table summarizes our cash flow for the periods shown:

	Year Ended December 31,
	2012			2011
Net cash provided by (used in) operating activities	$	(513,850	)	$	1,667,248
Net cash (used in) investing activities	(3,834,330		)	(2,556,325		)
Net cash provided (used in) by financing activities	(1,179,059		)	(1,178,143		)
Net increase (decrease) in cash	$	(5,527,239	)	$	(2,067,220	)

Cash. Cash at December 31, 2012 was $15.9 million, as compared to $21.8 million at December 31, 2011. The decrease in cash principally reflects an increase in cash used in investing activities due to payment of $5.2 million for the Latin America acquisition.

Cash Flow from Operating Activities. In 2012, cash used by operating activities was $0.5 million principally reflecting $1.6 million of cash provided by operating activities in Latin America offset by a $2.2 million payment of contingent purchase price in Latin America acquisition, which was accounted for as post-combination compensation expense.

On a consolidated basis, cash used by operating activities included (i) a net loss of $3.6 million, (ii) recurring operating expenses of $3.1 million, which were $1.2 million less than in 2011 principally due to a $1.4 million decrease in share-based compensation and $0.9 million related to reorganization, (iii) a $6.3 million amortization of post-combination compensation expense, offset by a $2.2 million cash payment (iv) a $2.2 million increase in accrued business taxes principally due to a $1.5 million increase in VAT and other taxes from our Latin America operations, (v) a $0.9 million increase in accrued compensation due principally to the $1.2 million increase from our Latin America operations, (vi) a $0.7 million increase in accounts payable and accrued expenses principally due to the $1.1 million increase from our Latin America operations, offset by (vii) a $3.3 million decrease in accounts receivable, (viii) a $1.7 million decrease in prepaids and other receivables, and (viii) a $3.0 million decrease in deferred and accrued income taxes.

Cash from Investing Activities. In 2012, cash used in investing activities was $3.8 million compared to $2.6 million in 2011. The $3.8 million used in 2012 was comprised of $3.6 million used for the initial cash payment of purchase consideration related to our Latin America and Cheverny CEO Search, S.A. acquisitions, and $300,000 used to purchase leasehold improvements and equipment. In 2011, cash used in investing activities was $2.6 million mainly used to purchase leasehold improvements and equipment.

Financing Activities. In 2012, cash used for financing activities of $1.2 million consisted of $1.0 million used to repurchase shares of our common stock and $200,000 to pay down loans to former shareholders. In 2011, cash used for financing activities was also $1.2 million and consisted of $1.0 million used to repurchase shares of our common stock and $200,000 to pay down loans to former shareholders.

Under our credit facility, we may borrow U.S. dollars at LIBOR plus 3.25%. Our credit facility expires on April 30, 2013 and we are anticipating a renewal of the facility to April 30, 2015. The borrowings outstanding under our credit facility were $0 and $0 at December 31, 2012, and December 31, 2011, respectively. As of December 31, 2012, and 2011, we had $10 million available to borrow. The Company is required to maintain specified leverage and fixed charge coverage ratios as well as maintain a minimum net worth as defined in the Credit Agreement. During 2012 and 2011, the Company was in compliance with the covenants under the existing line of credit and no events of default existed.

We believe that our future cash flows from operating activities will be sufficient to operate our business in 2013 as we anticipate an estimated savings of $1.1 million in operating costs due to the reorganization of our Canadian and EMEA operations. We also believe that our cash flows from operating activities, coupled with the borrowing capacity of our credit facility, will allow us to continue to grow our firm.

Off-Balance Sheet Arrangements. We do not have off-balance sheet arrangements, special purpose entities, trading activities or non-exchange traded contracts.

Application of Critical Accounting Policies and Estimates

General. Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared using accounting principles generally accepted in the United States of America (GAAP). Our significant accounting policies are discussed in Note 1, Summary of Significant Accounting Policies, in the notes to our consolidated

17

financial statements. The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual amounts may differ from these estimates under different assumptions or conditions. If actual amounts are ultimately different from previous estimates, the revisions are included in our results of operations for the period in which the actual amounts become known.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. Management believes the following critical accounting policies reflect the Company’s more significant estimates and assumptions used in the preparation of our consolidated financial statements:

Revenue Recognition. Substantially all of our revenue is derived from fees for professional services related to executive search services. Revenue before reimbursements of direct expenses (“net revenue”) consists of: retainer fees; indirect expenses billed to clients; supplemental fees (fees contractually due to the Company if the actual compensation of the placed candidate exceeds the estimated compensation on which the retainer fee was based or the client hires other candidates presented by the Company for positions not related to the original search assignment); and license revenue. Since retainer fees and indirect expenses are generally not contingent upon placement of a candidate, our assumptions primarily relate to establishing the period over which our services are performed. The period over which we recognize revenue may not directly correspond to the length of a search because revenue recognition is aligned with our assumptions regarding the provision of services during the engagement. These assumptions determine the timing of revenue recognition and profitability for the reported period. If these assumptions do not accurately reflect the period over which revenue is earned, revenue and profit could differ. We annually review our assumptions with regard to the establishment of the period over which our services are performed to ensure that our revenue recognition policy is in accordance with generally accepted accounting principles. Retainer fees and indirect expenses from executive search engagements are recognized over the expected period of performance in proportion to the estimated personnel time incurred to fulfill our obligations under the engagements. Any supplemental fees are recognized upon the occurrence of the event triggering the payment of a supplemental fee.

Accounts Receivable and Allowances for Doubtful Accounts. Accounts receivable from our clients are recorded at the invoiced amounts and do not bear interest. Our invoices generally require payment upon receipt, and accounts greater than ninety days past due are considered delinquent. We determine an allowance for a delinquent account based upon an analysis of several factors, including the aging of the account, historical write-off experience and an analysis of the specific account. Actual collections of accounts receivable could differ from our estimates due to macro-economic conditions, changes in the executive search industry or a specific client’s financial condition.

Income Taxes. Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred liabilities are recognized for tax temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Share-Based Compensation. As of the Effective Date, the Company accounts for share-based compensation based on the fair value of the award at the grant date and recognizes compensation expense over requisite service or terms of the employment agreement.

Recently Adopted Financial Accounting Standards

On January 1, 2012, we adopted the Financial Accounting Standards Board Accounting Standard Update No. 2011-05, Presentation of Comprehensive Income, to increase the prominence of other comprehensive income within the financial statements. The guidance requires entities to present the components of net income and other comprehensive income either in a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. The option to only present other comprehensive income within the statement of stockholders' equity has been eliminated. We have presented the components of net income and other comprehensive income in two separate, but consecutive, statements of net income and other comprehensive income.

On January 1, 2012, the Financial Accounting Standards Board Accounting Standards Update No. 2011-08, Testing Goodwill for Impairment, became effective. This standard gives an entity the option of performing a qualitative assessment to determine whether it is necessary to perform step 1 of the annual goodwill impairment test. An entity is required to perform step 1, only if it concludes that it is more likely than not that a reporting unit's fair value is less than its carrying amount. An entity may choose to perform the qualitative assessment on none, some, or all of its reporting units or an entity may bypass the qualitative assessment for any reporting unit in any period and proceed directly to step 1 of the impairment test. We perform our impairment test during the fourth quarter of each year.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable for smaller reporting companies.

18

ITEM 8. FINANCIAL STATEMENTS.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

CTPartners Executive Search Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of CTPartners Executive Search Inc. and Subsidiaries (the Company) as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for the years then ended. These financial are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CTPartners Executive Search Inc. and Subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

/s/ McGladrey LLP

Cleveland, Ohio

March 29, 2013

19

CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31, 2012			December 31, 2011
Assets
Current Assets
Cash	$	15,947,102		$	21,830,120
Accounts receivable, net	23,100,348			19,612,236
Other receivables	90,524			559,526
Prepaid expenses	2,948,694			2,394,872
Deferred income taxes	1,931,988			1,769,936
Income taxes receivable	0			1,592,562
Other	3,684,677			712,519
Total current assets	47,703,333			48,471,771
Non-current assets
Leasehold Improvements and Equipment, net	3,472,645			4,332,865
Goodwill	214,967			0
Intangibles, net	3,195,480			0
Other Assets	1,867,334			2,056,931
Deferred Income Taxes	4,020,800			678,554
	$	60,474,559		$	55,540,121
Liabilities and Stockholders’ Equity
Current Liabilities
Current portion of long-term debt	$	3,186,349		$	155,340
Accounts payable	1,761,706			993,558
Accrued compensation	24,400,563			23,660,070
Accrued business taxes	1,464,538			741,141
Income taxes payable	232,967			0
Accrued expenses	3,762,231			3,032,950
Total current liabilities	34,808,354			28,583,059
Long-Term Liabilities
Long-term debt, less current maturities	3,488,439			470,109
Deferred rent, less current maturities	1,366,506			1,649,070
Total long-term liabilities	4,854,945			2,119,179
Stockholders’ Equity
Preferred stock: 1,000,000 shares authorized, no shares issued and outstanding	0			0
Common stock: $0.001 par value, 15,000,000 shares authorized, 7,409,247 shares issued. 6,983,561 and 7,110,360 shares outstanding at December 31, 2012 and 2011, respectively	7,410			7,287
Additional paid-in capital	36,846,114			35,737,584
Accumulated deficit	(12,610,113		)	(9,026,290		)
Accumulated other comprehensive (loss), net of tax	(1,356,786		)	(881,997		)
Treasury stock at cost 425,686 and 176,271 shares at December 31, 2012 and 2011 respectively.	(2,075,365		)	(998,701		)
	20,811,260			24,837,883
	$	60,474,559		$	55,540,121

See Notes to Consolidated Financial Statements.

20

CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

	Year Ended December 31, 2012			Year Ended December 31, 2011
Revenue
Net revenue	$	128,381,579		$	121,085,898
Reimbursable expenses	4,533,667			5,033,024
Total revenue	132,915,246			126,118,922
Operating expenses
Compensation and benefits	105,732,358			98,224,549
General and administrative	27,502,792			27,130,437
Reimbursable expenses	4,784,739			5,406,685
Total Operating Expenses	138,019,889			130,761,671
Operating loss	(5,104,643		)	(4,642,749		)
Interest (expense) income, net	(159,664		)	2,150
Loss before income taxes	(5,264,307		)	(4,640,599		)
Income tax benefit	1,680,484			1,406,037
Net loss	$	(3,583,823	)	$	(3,234,562	)
Basic and diluted loss per common share	$	(0.51	)	$	(0.45	)
Basic and diluted weighted average common shares	7,087,769			7,189,247

See Notes to Consolidated Financial Statements.

21

CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

	Year Ended December 31, 2012			Year Ended December 31, 2011
Net loss	$	(3,583,823	)	$	(3,234,562	)
Other Comprehensive Income (Loss), net of tax
Foreign currency translation adjustments	(373,438		)	(50,662		)
Termination of pension plan	—			492,761
Other	(101,351		)	36,736
Other Comprehensive Income (Loss)	(474,789		)	478,835
Comprehensive Loss	$	(4,058,612	)	$	(2,755,727	)

See Notes to Consolidated Financial Statements.

22

CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

	Common Stock				Additional Paid-in		Accumulated			Accumulated Other Comprehensive			Treasury			Total Stockholders’
	Shares		Amount		Capital		Deficit			Income (Loss)			Stock			Equity
Balance, December 31, 2010	7,176,920		$	7,177	$	33,622,796	$	(5,791,728	)	$	(1,360,832	)	—			$	26,477,413
Net loss	—		—		—		(3,234,562		)	—						(3,234,562		)
Foreign currency translation adjustments	—		—		—		—			(50,662		)	—			(50,662		)
Defined benefit pension plan	—		—		—		—			492,761			—			492,761
Other	—		—		—		—			36,736			—			36,736
Share-based compensation	109,711		110		2,114,788		—			—			—			2,114,898
Treasury Stock	(176,271	)	—				—			—			(998,701		)	(998,701		)
Balance, December 31, 2011	7,110,360		7,287		35,737,584		(9,026,290		)	(881,997		)	(998,701		)	24,837,883
Net loss	—		—		—		(3,583,823		)	—			—			(3,583,823		)
Foreign currency translation adjustments	—		—		—		—			(373,438		)	—			(373,438		)
Other	—		—		—		—			(101,351		)	—			(101,351		)
Share-based compensation	122,616		123		733,530		—			—			—			733,653
Employee stock purchase program	—		—		375,000		—			—			—			375,000
Treasury Stock	(249,415	)	—		—		—			—			(1,076,664		)	(1,076,664		)
Balance, December 31, 2012	6,983,561		$	7,410	$	36,846,114	$	(12,610,113	)	$	(1,356,786	)	$	(2,075,365	)	$	20,811,260

See Notes to Consolidated Financial Statements.

23

CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2012			2011
Cash Flows From Operating Activities
Net loss	$	(3,583,823	)	$	(3,234,562	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities
Depreciation and amortization	1,313,068			1,398,012
Reorganization charges	882,080			—
Share-based compensation	733,531			2,114,898
Amortization of discount on seller notes	183,022			—
Amortization of post-combination compensation	6,347,139			—
Deferred income taxes	(3,504,298		)	(818,684		)
Other comprehensive income change for pension plan termination	—			492,761
Changes in operating assets and liabilities, net of effect of acquired businesses:
Accounts receivable, net	(3,264,127		)	1,570,699
Prepaid expenses	(596,176		)	193,101
Income taxes receivable	1,592,562			(1,592,562		)
Other assets and receivables	(3,307,839		)	(832,690		)
Accounts payable	745,375			(578,124		)
Accrued compensation	907,485			5,647,926
Accrued business taxes	692,479			(684,698		)
Income taxes payable	232,967			(1,172,649		)
Accrued expenses	281,457			(888,691		)
Deferred rent	(168,752		)	52,511
Net cash (used in) provided by operating activities	(513,850		)	1,667,248
Cash Flows From Investing Activities
Acquisition of businesses	(3,564,043		)	0
Purchase of leasehold improvements and equipment	(270,287		)	(2,556,325		)
Net cash used in investing activities	(3,834,330		)	(2,556,325		)
Cash Flows From Financing Activities
Principal payments on long-term debt	(155,340		)	(179,442		)
Repurchase of common stock	(1,023,719		)	(998,701		)
Net cash used in financing activities	(1,179,059		)	(1,178,143		)
Net decrease in cash	(5,527,239		)	(2,067,220		)
Effect of foreign currency on cash	(355,779		)	(133,203		)
Cash:
Beginning	21,830,120			24,030,543
Ending	$	15,947,102		$	21,830,120
Supplemental Disclosures of Cash Flow Information
Cash paid (refunded) during the year for
Interest	$	21,185		$	38,782
Income taxes	$	(444,577	)	$	2,524,790
Supplemental Disclosures of Non-Cash Financing Information
Employee discount stock purchase award in lieu of cash compensation	$	375,000		$	—
Treasury stock acquired in lieu of shareholder receivable	$	(52,945	)	$	—

24

Supplemental Disclosure of Non-Cash Investing Activities
Acquisition of business - Latin America
Total identifiable assets acquired	$	2,831,596		$	—
Goodwill	214,967			—
Deferred post-combination compensation	7,190,134			—
Aggregate purchase price per purchase agreement	$	10,236,697		$	—
Cash paid for post-combination compensation arrangement	(2,203,437		)	—
Less: Seller note	(4,986,697		)	—
Cash Paid for Acquisition of a Business	$	3,046,563		$	—
Acquisition of business - CEO Cheverny
Total identifiable assets acquired	$	775,554		$	—
Deferred post-combination compensation	1,034,960			—
Gain on bargain purchase of a business	(258,074		)	—
Aggregate purchase price per purchase agreement	$	1,552,440		$	—
Less: Seller note	(1,034,960		)	—
Cash Paid for Acquisition of a Business	$	517,480		$	—

See Notes to Consolidated Financial Statements.

25

CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation and Significant Accounting Policies

Description of Business — CTPartners Executive Search Inc. (formerly known as CTPartners Executive Search LLC), along with its subsidiaries (collectively, CTPartners or the Company), is a retained executive search firm with global executive search capabilities. The Company operates in North America, Europe and the Middle East (EMEA), Asia Pacific and Latin America.

As further described in Note 2, effective January 2, 2012, the Company purchased its Latin American licensee.

The Company is subject to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"), and the relevant provisions of the Securities Acts of 1933, as amended, and the Securities Exchange Act of 1934, as amended. The Company's common stock trades on the NYSE MKT exchange under the symbol "CTP".

Principles of Consolidation — The consolidated financial statements of the Company are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). The consolidated financial statements include the accounts of CTPartners Executive Search Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Concentration of Risk — The Company maintains balances at financial institutions which may, at times, exceed amounts federally insured in the U.S. and foreign countries. No losses have been incurred on such deposits.

Revenue Recognition — Substantially all revenue is derived from fees for professional services related to executive search services. Revenue before reimbursements of direct expenses (“net revenue”) consists of: retainer fees; indirect expenses billed to clients; supplemental fees (fees contractually due to the Company if the actual compensation of the placed candidate exceeds the estimated compensation on which the retainer fee was based or the client hires other candidates presented by the Company for positions not related to the original search assignment); and license revenue. Retainer fees and indirect expenses from executive search engagements are recognized when earned and realizable, typically over the expected average period of performance in proportion to the estimated effort incurred to fulfill our obligations under the engagements. Any supplemental fees, resulting from actual compensation of the placed candidate exceeding the estimated compensation, are recognized upon the occurrence of the event triggering the payment of a supplemental fee.

Reimbursements — The Company incurs out-of-pocket expenses that are generally reimbursed by its clients, which are accounted for as revenue in its consolidated statements of operations.

Accounts Receivable — The Company extends unsecured credit to customers under normal trade agreements, which generally require payments upon receipt. Accounts greater than ninety days past due are considered delinquent. Accounts receivable are written off when deemed uncollectable.

The allowance for doubtful accounts is based upon management’s review of delinquent accounts and an assessment of the Company’s historical evidence of collections. The Company also provides a reserve for billing adjustments based upon historical experience.

Leasehold Improvements and Equipment — Depreciation is provided using the straight-line method over the useful life of equipment, or in the case of leasehold improvements, the shorter of the life of the improvement or the length of the lease as follows:

Leasehold improvements	3-10 years
Office furniture, fixtures and equipment	5-7 years
Computer equipment and software	3-5 years

Leasehold improvements and equipment are carried at cost less allowances for depreciation and amortization. Ordinary maintenance and repairs are charged against earnings when incurred. Additions and major repairs are capitalized if they extend the useful life of the related asset.

Deferred Rent — The Company recognizes rent expense on a straight-line basis over the term of the lease. Deferred rent is recognized for the excess of rental expense over rental payments. The portion of deferred rent which will not be recognized into the consolidated statement of operations within one year is included as a long-term liability on the consolidated balance sheets at December 31, 2012, and 2011.

Share-Based Compensation — The Company has an equity incentive plan under which the Board of Directors may grant restricted stock or stock options to employees and consultants. Share based compensation cost is measured on the grant date fair value of the award, and recognized in the financial statements over the requisite service period.

Income Taxes — The Company’s subsidiaries are subject to entity-level income taxes in their respective foreign jurisdictions.

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Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Management evaluated the Company’s tax positions and concluded that the Company had taken no uncertain tax positions that require adjustment to the consolidated financial statements. With few exceptions, the Company is no longer subject to tax examinations by the U.S. federal, state or local tax authorities for years prior to 2009. When and if applicable, potential interest and penalty costs are accrued as incurred, with expenses recognized in general and administrative expenses in the consolidated statement of operations. For non-US locations, the Company is no longer subject to audit examinations prior to 2009, except for the United Kingdom which extends to 2005. When and if applicable, potential interest and penalty costs are accrued as incurred, with expenses recognized in general and administrative expenses in the consolidated statements of operations.

Foreign Currency Translation — The Company generally designates the local currency for all its foreign subsidiaries as the functional currency, except for Venezuela, as discussed below. Accordingly, assets and liabilities of these subsidiaries are translated at the exchange rate in effect at each period/ year-end. The results of operations are translated at the average monthly rate of exchange. Translation adjustments arising from the use of differing exchange rates from period to period are recorded as part of accumulated other comprehensive income (loss). Gains and losses from transactions denominated in non-functional currency are included in operating results for the period. For 2012 and 2011, net foreign currency gains (losses) included in net loss were :

	Year Ended December 31, 2012		Year Ended December 31, 2011
Net foreign currency gain/(loss)	$	467,628	$	(401,008	)

Venezuela

As further described in Note 2, effective January 2, 2012, the Company purchased its Latin American licensee, including operations in Venezuela. The economy in Venezuela has had significant inflation in the last several years. At the time of the acquisition, the Venezuelan economy was designated as highly inflationary, and is accounted for pursuant to accounting guidance for highly inflationary economies. Therefore, the U.S. dollar is designated to be the functional currency of our Venezuelan operations, and any gain or loss resulting from foreign currency translation is reflected in the general and administrative expenses in Company's results of operations.

The Venezuelan Central Bank is the only institution through which foreign currency-denominated transactions can be brokered. Under the system known as the Foreign Currency Securities Transactions System (SITME), entities domiciled in Venezuela can buy U.S. dollar-denominated securities only through banks authorized by Venezuelan Central Bank to import goods, services, or capital inputs. SITME imposes volume restrictions on an entity's trading activity, limiting such activity to a maximum amount equivalent of $50,000 per day, not exceeding $350,000 in a calendar month. This limitation is non-cumulative. Given the limited availability of alternative exchange mechanisms in Venezuela, the Company uses the published SITME rate to re-measure transactions denominated in Bolivars. As of December 31, 2012, the exchange rate was 5.30 Bolivares per U.S. dollar. During the twelve months ending December 31, 2012, the Company's Venezuelan operations generated 2.1% of consolidated net revenue. In February of 2013, the Venezuelan government eliminated the SITME rate and devalued its currency to 6.3 Bolivars per U.S. dollar. We anticipate that the effect on the Company's consolidated financial statements will not be material.

Accumulated Other Comprehensive Loss — The Company’s accumulated other comprehensive (loss), net of tax, is comprised of, and related to, the following:

	December 31, 2012			December 31, 2011
Foreign currency translation adjustments	(1,170,114		)	(796,677		)
Other	(186,672		)	(85,320		)
	$	(1,356,786	)	$	(881,997	)

Financial Instruments — Cash is stated at cost, which approximates fair market value. The carrying value for account receivables, accounts payable, and other accrued liabilities reasonably approximates fair market value due to the nature of the financial instruments and the short term nature of the item. The Company recorded two notes payable to seller in the process of acquiring our Latin America licensee and expanding our French operations by acquiring Cheverny CEO Search, S.A. These notes were recorded at fair value at the time of acquisition.

Fair Value — The Company measures the fair values in accordance with accounting guidance that defines fair value, provides guidance for measuring fair value and requires certain disclosures. The guidance also discusses valuation techniques, such as the market approach

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(comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

• Level 1: Observable inputs such as quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

• Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

• Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

The inputs used in the fair value measurement should be from the highest level available. In instances where the measurement is based on inputs from different levels of the fair value hierarchy, the fair value measurement will fall within the lowest level input that is significant to the fair value measurement in its entirety.

Goodwill - As a result of the acquisition of its Latin America licensee, the Company recorded initial goodwill of $214,967. Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed, if any. The goodwill impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, goodwill of the reporting unit would be considered impaired. To measure the amount of the impairment loss, the implied fair value of a reporting unit's goodwill is compared to the carrying amount of that goodwill. If the carrying amount of a reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is indicated. The company conducted its annual goodwill impairment evaluation as of December 31, 2012. For this test, the fair value of the Company's relevant reporting unit is determined using a combination of valuation techniques, including a discounted cash flow methodology. The discounted cash flow approach is dependent on a number of factors, including estimates of future market growth and trends, forecasted revenue and costs, and the appropriate discount rates. The completion of the first step of the goodwill impairment indicated that the fair value of the reporting unit exceeded its carrying amount, therefore, as of December 31, 2012, there were no indicators of impairment with respect to the company's goodwill.

In October 2012, the Company acquired Cheverny CEO Search, S.A., a Luxembourg based search firm. Identifiable asset value exceeded fair value of the consideration paid, resulting in a bargain purchase of business. The Company recognized gain on bargain purchase of a business in the amount of $258,000 for the year ended December 31, 2012. The gain is recorded in the general and administrative expense in the Company's statement of operations. There was no goodwill as a result of acquisition.

Intangible Assets - Intangible assets primarily consist of customer relationships, developed technology and trademarks, and are recorded at their estimated fair value at the date of acquisition. Customer relationships and developed technology are amortized using the straight-line method over their estimated useful lives of 10 years. Trademarks are considered indefinite-lived intangible assets, and must be tested for impairment annually, or more frequently if the events or changes in circumstances indicate that the asset might be impaired. The Company determined that there are no indicators of impairment at December 31, 2012.

Recently Adopted Accounting Standards - On January 1, 2012, we adopted the Financial Accounting Standards Board Accounting Standard Update No. 2011-05, Presentation of Comprehensive Income, to increase the prominence of other comprehensive income within the financial statements. The guidance requires entities to present the components of net income and other comprehensive income either in a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. The option to only present other comprehensive income within the statement of stockholders' equity has been eliminated. We have presented the components of net loss and other comprehensive loss in two separate, but consecutive, statements of operations and other comprehensive loss.

Reclassifications — Certain items in the 2011 consolidated financial statements have been reclassified to conform to the 2012 presentation.

Note 2. Acquisitions

Latin America

Effective January 2, 2012, the Company completed its acquisition of stock of the direct and indirect subsidiaries of CTPartners Latin America Inc., its independently-owned licensee that had been operating under the name of CTPartners in Latin America for the past five years. The Company’s Latin America offices are in Brazil, Chile, Colombia, Mexico, Panama, Peru, and Venezuela. The Company believes the acquisition further strengthens its brand in Latin America by making the Company a more attractive platform for our local, regional and global clients looking to invest in the region, and for attracting and retaining talented employees. The results of the Company’s Latin America offices have been included in the consolidated financial statements since that date.

The assets acquired were recorded at fair value. The aggregate purchase price in the agreement was $10,236,697 which was paid in cash and the issuance of a non-interest bearing seller note for $5,250,000. The note has been discounted by the Company in the amount of $263,303 to reflect fair value of the note. This amount is due in equal installments of $2,625,000 each on January 2, 2013 and January 2, 2014 respectively. A portion of the total purchase price was contingent upon the continued employment of certain key employees. The purchase agreement provides that the selling shareholders are required to repay to the company up to the aggregate amount of $7,190,134 if their

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employment terminates prior to the 36-month anniversary of the closing of the transaction. Therefore, the contingent portion of the purchase price is accounted for as compensation for post-combination services, and recognized over three years using the graded-vesting method. After accounting for a portion of the purchase price as post-combination compensation, the fair value of the consideration allocation to the assets and liabilities acquired was $3,046,563. Post-combination compensation expense of $6,100,720 is included in the results of operations for the year ended December 31, 2012.

The Company also incurred acquisition related costs of $420,100, which were recorded as general and administrative expenses in the consolidated statements of operations during 2011 and 2012, as incurred.

The following table summarizes fair value of the consideration paid and assets acquired at the acquisition date:

Consideration:
Cash	$	5,250,000
Seller note payable	4,986,697
Post combination compensation	(7,190,134		)
	$	3,046,563
Recognized amounts of identifiable assets acquired:
Leasehold improvements and equipment	$	131,596
Intangible assets	2,700,000
Total identifiable net assets acquired	2,831,596
Goodwill	214,967
	$	3,046,563

Goodwill of $214,967 arising from the acquisition consists mainly of the synergies of an ongoing, retained executive search business which operates as a cooperative group in seven Latin American countries, a consistent brand message, and an experienced, assembled workforce. The goodwill relating to the Company’s Latin America reporting unit is fully deductible for United States federal income tax purposes.

The fair value of the identifiable intangible assets was measured based upon significant inputs that were not observable in the market, and therefore are classified as Level 3. The fair value was provided by an independent valuation firm; key assumptions included (a) management’s projections of future cash flows based upon past experience and future expectations and (b) a weighted-average discount rate of 18.9%.

The fair value assigned to identifiable intangible assets and their useful lives at the acquisition date is as follows:

	Amount		Useful Life
Customer relationships	$	2,480,000	10 years
Developed technology	220,000		10 years
	$	2,700,000

The weighted-average useful life of total amortizable intangible assets acquired is 10 years.

The total revenues and net loss attributable to the acquisition, since the acquisition date, included in the consolidated statements of operations for the twelve months ended December 31, 2012, are as follows:

	Twelve Months Ended December 31, 2012
Total Revenues	$	13,397,557
Net Loss	$	(2,163,729	)

The amounts of revenue and net income related to the acquisition that are included in the consolidated statements of operations and the pro forma financial information as if the acquisition had occurred on January 1, 2011, are presented in the following table. This pro forma information is presented for informational purposes only and is not necessarily indicative of what our actual results of operations would have been had the acquisitions occurred at such time.

Pro forma unaudited total revenues and net loss of the combined entity had the acquisition date been January 1, 2011, are as follows:

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	Year Ended December 31, 2012			Year Ended December 31, 2011
Total Revenues	$	132,915,246		$	137,709,636
Net Loss	$	(81,953	)	$	(6,080,432	)

The supplemental pro forma net loss information for the year ended December 31, 2011, has been adjusted to exclude certain non-recurring expenses of $1,840,000 relating to non-recurring management compensation, to include total acquisition-related costs of $420,100, and to include post-combination compensation expense of $4,006,584, net of tax. Pro forma net loss for the year ended December 31, 2012 excludes acquisition costs of $91,658, net of tax, post-combination compensation cost amortization of $4,006,584, net of tax, and includes post-combination compensation amortization of $572,369, net of tax.

Cheverny CEO Search, S.A.

On October 10, 2012, the Company completed an acquisition of Cheverny CEO Search, S.A., a Paris, France based search firm focused on executive recruiting. The first payment of $517,480 was made in cash on the acquisition date, and a non-interest bearing seller note was issued for $1,080,098. The note was recorded at fair value of $1,034,960, which includes a fair value adjustment of $45,138. The note is payable in two installments of $517,480 each on July 12, 2013 and July 12, 2014. A portion of the total purchase price was contingent upon the continued employment of the acquiree. Therefore, the contingent portion of the purchase price is accounted for as compensation for post-combination services, recognized over the requisite service period using the graded-vesting method. Post-combination compensation expense of $246,419 is included in the results of operations for the year ended December 31, 2012. Total costs of $45,550 relating to the Cheverny CEO Search acquisition were expensed during the twelve-month period ending December 31, 2012.

The table below summarizes fair value of the consideration paid and assets acquired at the acquisition date. The acquisition is not considered material to the Company, and, therefore, pro-forma information has not been presented.

Consideration:
Cash	$	517,480
Seller note payable	1,034,960
Deferred post-combination compensation	(1,034,960		)
	$	517,480
Recognized amounts of identifiable assets acquired:
Trademarks	$	372,586
Intangible assets	402,968
Total identifiable net assets acquired	775,554
Gain on bargain purchase of a business	(258,074		)
	$	517,480

The fair value of the identifiable intangible assets was measured based upon significant inputs that were not observable in the market, and therefore are classified as Level 3. The fair value was provided by an independent valuation firm; key assumptions included (a) management’s projections of future cash flows based upon past experience and future expectations and (b) a weighted-average discount rate of 16%.

The fair value assigned to identifiable intangible assets and their useful lives at the acquisition date is as follows:

	Amount		Useful Life
Customer relationships	$	402,968	10 years
Trademarks	372,586		Indefinite
	$	775,554

Note 3. Accounts Receivable

The Company extends unsecured credit to customers under normal trade agreements, which generally require payment upon invoice receipt. The allowance for doubtful accounts is based upon management's review of delinquent accounts and an assessment of the Company's

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historical evidence of collections. The Company also provides a reserve for billing adjustments based upon historical experience. The allowance for doubtful accounts and billing adjustments amounted to $1,376,088 and $1,143,840 at December 31, 2012, and December 31, 2011, respectively.

Note 4. Leasehold Improvements and Equipment

The components of the leasehold improvements and equipment at December 31 are as follows:

	2012			2011
Leasehold improvements	$	3,301,237		$	3,133,511
Office furniture, fixtures and equipment	2,733,263			2,627,058
Computer equipment and software	4,397,046			4,393,904
	10,431,546			10,154,473
Accumulated depreciation and amortization	(6,958,901		)	(5,821,608		)
	$	3,472,645		$	4,332,865

Depreciation and amortization expense relating to leasehold improvements and equipment for the year ended December 31, 2012 was $1,291,068, and for the year ended December 31, 2011 was $1,398,012.

Note 5. Intangibles

The following is a summary of amortizable intangible assets at December 31, 2012:

	Amortizable Lives	Gross Carrying Amount	Accumulated Amortization	Net Carrying Amount
Amortized Intangible assets
Customer relationships	10 years	$2,882,968	$258,074	$2,624,894
Developed technology	10 years	220,000	22,000	198,000
		$3,102,968	$280,074	$2,822,894
Unamortized Intangible Assets
Trademarks				372,586
Total Intangible Assets				3,195,480

Total amortization expense of intangible assets for the years ended December 31, 2012 and 2011 was $280,074 and $0, respectively. Estimated aggregate future amortization expense for the following five years and thereafter is as follows:

Years ending December 31,	Estimated Aggregate Future Amortization Expense
2013	310,297
2014	310,297
2015	310,297
2016	310,297
2017	310,297
Thereafter	1,271,409
	2,822,894

Note 6. Long-Term Debt

Line of Credit: The Company is a party to a credit and security agreement (the “Second Amended and Restated Credit and Security Agreement” or “Credit Agreement”) with a bank which includes a revolving credit facility. The Agreement, as amended, provides for the revolving credit facility to expire on April 30, 2013. Under the terms of the revolving credit facility, the Company may borrow an amount equal to the lesser of $10,000,000 or the “Borrowing Base” (the Company’s eligible accounts receivable as defined in the Credit Agreement), with interest calculated at 325 basis points above the LIBOR rate as defined in the revolving credit agreement (the adjusted LIBOR rate), which was 3.4590% at December 31, 2012. The Company had no borrowings on the revolving credit facility at December 31, 2012 and 2011. Additionally, the Company has issued letters of credit related to office lease agreements secured by the Credit Agreement in the amounts of

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$3,278,293 and $3,300,000 as of December 31, 2012 and 2011, respectively. Available borrowings under the revolving credit facility were $10,000,000 at December 31, 2012 and 2011.

The loans under the Credit Agreement are secured principally by accounts receivable and equipment. Additionally, the Company is required to maintain specified leverage and fixed charge coverage ratios as defined in the Credit Agreement. The Credit Agreement also requires the Company to maintain a minimum net worth based on a formula in the Credit Agreement.

Notes Payable

Long-term debt consists of the following at December 31:

	Year Ended December 31
	2012		2011
Notes payable — redemption of members’ units	$	470,109	$	625,449
Notes payable - seller financed acquisitions	6,204,679		—
	6,674,788		625,449
Less current portion of long-term debt	3,186,349		155,340
	$	3,488,439	$	470,109

The schedule for future payments to be made on long-term debt as of December 31, 2012, is as follows:

2013	$	3,186,349
2014	3,331,207
2015	157,232
	$	6,674,788

Notes Payable — Redemption of Members’ Units: Prior to the conversion from a limited liability company to a corporation, the Company periodically purchased member units from former members, with payment in the form of notes, payable over 5 years. The total due on these notes amounted to $470,109 and $625,449 at December 31, 2012, and 2011, respectively. The interest on the notes ranges from 2.66% to 5.00%. The carrying value of notes payable approximates its fair value.

Notes Payable — Seller Financed Acquisitions: During the year ended December 2012, the Company completed two acquisitions, as further described in Note 2. The aggregate purchase price was, in part, financed through seller notes. The note payable associated with the Latin America acquisition is a non-interest bearing note with a face value of $5,250,000. This amount is due in two equal installments of $2,625,000 each on January 2, 2013 and January 2, 2014, respectively. At acquisition, the note was recorded at fair value of $4,986,697.

The seller financed note payable associated with the Cheverny CEO Search, S.A. is a non-interest bearing note with a face value of $1,080,098. The note is payable in Euro's, in two installments which approximate $517,480 each on July 12, 2013 and July 12, 2014. At acquisition, the note was recorded at a fair value of $1,034,960.

Fair value of seller financed notes payable is estimated by discounting the associated cash flows using the interest rate available to the Company. The fair value of notes payable is classified as Level 3 in the fair value hierarchy. There have been no changes in interest rates available to the Company since the acquisitions completed during the reported period, therefore the carrying value of the notes approximates fair value at December 31, 2012.

Note 7. Commitments

The Company is obligated under lease arrangements for office space and office equipment expiring in various years through 2019. Future annual required payments as of December 31, 2012, are as follows:

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	Office Space		Equipment		Total
2013	$	8,627,469	$	46,603	$	8,674,072
2014	7,222,910		29,474		7,252,384
2015	6,529,795		12,625		6,542,420
2016	5,272,497		12,625		5,285,122
2017	3,784,373		8,123		3,792,496
Thereafter	2,301,782		—		2,301,782
	$	33,738,826	$	109,450	$	33,848,276

Rent expense is included in the general and administrative expenses in the accompanying consolidated statements of operations and is summarized as follows:

	Year ended December 31, 2012		Year ended December 31, 2011
Rent expense	$	9,898,737	$	9,263,195

Note 8. Share-Based Compensation

Shares Subject to Clawback Provisions - Prior to the conversion from a limited liability company to a corporation on December 1, 2010, the Company maintained a member unit purchase plan and a performance unit plan for the benefit of its officers and key employees. The plans were administered by a committee that had the discretionary authority to issue member units to eligible employees. The purpose of the member unit purchase plan was to encourage ownership in the Company by its senior executives and to reward performance as an enhancement to cash compensation. All member units were fully vested upon issuance, but in certain cases units were subject to clawback provisions, which placed the obligation on the unit holder to surrender a portion of the member units if their employment with the Company was terminated before a specified period, typically three years.

Upon conversion to a corporation in December 2010, the Company converted its member unit plan to a share-based plan with generally the same features as the member unit plan.

Total share-based compensation expense related to common stock subject to clawback was $0 for the year ending December 31, 2012 and $323,766 for the year ending December 31, 2011. As of December 31, 2012 and 2011, there was no unrecognized compensation expense related to shares subject to clawback provisions granted under the plan.

Restricted Shares - Upon effectiveness of conversion to a corporation, the Company adopted the 2010 Equity Incentive Plan. The purpose of the 2010 equity incentive plan is to promote the interests of the Company and our stockholders by (i) attracting, retaining and motivating employees, non-employee directors and independent contractors (including prospective employees), (ii) motivating such individuals to achieve long-term Company goals and to further align their interest with those of the Company’s stockholders by providing incentive compensation opportunities tied to the performance of the common stock of the Company and (iii) promoting increased ownership of our common stock by such individuals. Subject to adjustment for changes in capitalization, the maximum aggregate number of shares of our common stock that may be delivered pursuant to awards granted under the 2010 equity incentive plan is 1,000,000.

A summary of the Company’s common stock subject to vesting provisions as of December 31, 2012, is presented below:

	Common		Weighted- Average Grant-Date
Non-Vested Common Stock	Stock		Fair Value
Non-vested common stock at December 31, 2011	266,853		$	13.32
Granted	15,596		$	5.13
Vested	(122,616	)	$	12.98
Forfeited	(65,645	)	$	14.58
Non-vested common stock at December 31, 2012	94,188		$	11.52

Total share-based compensation expense related to vested shares was $640,205 for the year ending December 31, 2012, and $1,784,417 for the year ending December 31, 2011.

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As of December 31, 2012, there was $510,211 of unrecognized compensation expense related to shares subject to vesting provisions granted under the plan. This expense is expected to be recognized over a weighted-average period of 0.95 years.

Non-qualified Stock Options — In December 2011, the Company authorized and granted 102,500 stock options to various employees under its 2010 Equity Incentive Plan. All options have an exercise price that is equal to the fair value of the Company’s common stock on the grant date. Options are subject to ratable vesting over a three year period, and compensation expense is recognized on a straight-line basis over the vesting period.

A summary of the Company’s non-qualified stock option activity for the year ended December 31, 2012, is presented below:

	Number of Non- qualified Stock Options	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding on December 31, 2011	102,500	$	5.35	9.9	$	—
Granted	—	—		—	—
Exercised	—	—		—	—
Expired	—	—		—	—
Forfeited	—	—		—	—
Outstanding on December 31, 2012	102,500	$	5.35	8.9	$	—
Exercisable on December 31, 2012	34,167	$	—	—	$	—

The aggregate intrinsic value was $0 because the price of the Company’s common stock was $4.56 at December 31, 2012. The compensation expense related to the options was $80,580 for the year ended December 31, 2012, and $6,715 for the year ended December 31, 2011. As of December 31, 2012, there was $154,435 of unrecognized compensation expense related to unvested non-qualified stock options, which is expected to be recognized over a weighted average of 1.9 years. There are no unissued stock options as of December 31, 2012.

	Year Ended December 31, 2011
Weighted average grant date fair value of stock options granted	$	2.36
Total grant date fair value of stock options vested	—
Total intrinsic value of stock options exercised	—

The fair value of each option grant is estimated on the date of grant using the Black-Scholes valuation model with the following weighted average assumptions.

	Year Ended December 31,  2011
Expected life (in years)	6.00
Risk-free interest rate	1.12	%
Expected volatility	45.34	%
Expected dividend yield	—	%

The expected term of the option life is based on a simplified method calculated as the sum of the vesting term and original contract term divided by two. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero coupon issues with a remaining term equal to the expected option life. The expected volatility is based on the average volatility for similar publicly traded companies corresponding to the expected life of the option because the historical volatility of the Company’s common stock does not cover the period equal to the expected life of the options.

Employee Stock Purchase Program - The Company’s 2010 Equity Incentive Plan provides for the issuance of equity incentive awards, such as restricted stock and options, in order to retain qualified personnel. On March 21, 2012, the Compensation Committee of the Board of Directors approved the adoption of a stock purchase discount program that would allow selected employees, based on performance metrics defined by the Compensation Committee, to purchase up to $100,000 of the Company’s stock in lieu of cash bonuses, at a 15% discount to the NYSE MKT trading price of those shares. Shares are subject to ratable vesting over a three-year period, and compensation expense relating to the discount is recognized on a straight-line basis over the vesting period. As of December 31, 2012, no shares were vested or issued. During the year ended December 31, 2012, the Company granted 73,406 restricted shares at $5.11 per share, at a discount of 15%, or $0.90 per share. Compensation expense relating to the stock purchase discount program was $12,868 for the year ended December 31, 2012.

34

CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2012, there was $53,309 of unrecognized compensation expense related to shares subject to vesting provisions granted under the stock purchase discount program. This expense is expected to be recognized over a weighted-average period of 2.4 years.

Note 9. Share Repurchase Program

On January 19, 2012, the Company’s Board of Directors authorized a second share repurchase program (“2012 Share Repurchase Program”) to acquire up to $1 million of the Company’s outstanding shares of common stock in open-market, privately negotiated transactions, and block trades. The 2012 Share Repurchase Program extended the previous share repurchase program which was authorized in August 2011 (“2011 Share Repurchase Program”). The Company repurchased a cumulative amount of $998,701 under the 2011 Share Repurchase Program. As of December 31, 2012, 235,253 shares had been repurchased at a cost of $998,169, which is the cumulative amount used to repurchase shares under the 2012 Share Repurchase Program.

Note 10. Basic and Diluted Earnings Per Share

A reconciliation of the amounts used in the basic and diluted earnings per share computation is shown in the following table.

	Year Ended December 31
	2012			2011
Numerator
Net loss	$	(3,583,823	)	$	(3,234,562	)
Denominator
Basic weighted-average common shares	7,087,769			7,189,247
Effect of stock options and restricted stock (1)	—			—
Diluted weighted-average common shares	7,087,769			7,189,247
Basic loss per common share	$	(0.51	)	$	(0.45	)
Diluted loss per common share	$	(0.51	)	$	(0.45	)

(1) For the year ended December 31, 2012, 133,337 restricted shares and 102,500 stock options are excluded as they are anti-dilutive to the net loss per common share.

Note 11. Retirement Plans

The Company’s noncontributory defined benefit cash balance plan covering United States employees who met certain eligibility requirements was discontinued in December 2011 and all benefits due were distributed to plan participants. The Plan was discontinued subsequent to a favorable ruling by the Internal Revenue Service on the Company’s application for plan termination. Participants’ accrued benefits were based on account balances maintained for each individual which were credited with additions equal to a percentage of compensation as defined in the plan.

Participants’ balances were also credited with interest in accordance with the plan. The Company’s funding policy was to contribute to the plan the amount actuarially determined necessary to fund the benefit obligation. The Company contributed $0 for the year ended December 31, 2011. The Company recorded pension expense of $810,000 as a result of closing the plan and recognizing the expense from Accumulated Other Comprehensive Loss for the year ended December 31, 2011. No future benefit accruals were earned by participants.

Prior to the plan’s termination the Company (i) recognized the overfunded or underfunded status of the plan, measured as the difference between plan assets at fair value and the benefit obligation, as an asset or liability in its consolidated balance sheets; (ii) recognized changes in that funded status in the year in which the changes occurred through comprehensive income; (iii) recognized as a component of other comprehensive income the gains and losses and prior service costs or credits that arose during the period but were not recognized as components of net periodic benefit costs; and (iv) measured plan assets and obligations as of the date of the employer’s fiscal year end.

The Company used December 31 as its annual measurement date.

Up to its termination, the plan’s investment strategy was to invest in a diversified portfolio of equity and fixed-income securities, with the objective of providing long-term growth with conservative investments with characteristics of limited volatility. The long-term rate of expected return of 5% was based on the investment mix in the plan.

The fair value of the plan’s assets at December 31, 2011 was $0.

Selected actuarially determined information for the defined benefit plan as of December 31, 2011 is as follows:

35

CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	2011
Change in Benefit Obligation
Accumulated benefit obligation, beginning of year	$	3,964,222
Settlements	(57,465		)
Interest cost	98,090
Actuarial cost	—
Benefits paid	(4,004,847		)
Benefit obligation at end of year	$	—

	2011
Change in Plan Assets
Fair value of plan assets at beginning of year	$	3,995,205
Actual return on plan assets	9,642
Company contribution	—
Benefits paid	(4,004,847		)
Fair value of plan assets at end of year	$	—

The Company recognized no amounts in long-term liability or prepaid expenses due to underfunded or overfunded status as of December 31, 2012 and 2011. The Company did not make any contributions during 2011.

Components of Net Periodic Benefit Cost are as follows:

	Year ended December  31, 2011
Net Periodic Benefit Cost:
Service cost	$	—
Interest cost	98,090
Expected return on plan assets	(99,639		)
Amortization of prior service cost	—
Amortization of net loss	19,717
Net periodic benefit cost	$	18,168

Other changes in plan assets and benefit obligations recognized in other comprehensive (loss) are as follows:

	Year ended December  31, 2011
Net gain (loss)	$	(19,717	)
Prior service cost (credit)	—
Curtailments/settlements	(816,817		)
Amortization of prior service cost	—
Total recognized in other comprehensive income (loss)	$	(836,534	)
Total recognized in net periodic benefit cost and other comprehensive income (loss)	$	(875,831	)

In conjunction with the termination of the plan the Company reclassified $810,000 from accumulated other comprehensive income (loss) into net periodic benefit cost during fiscal year 2011.

The assumptions used in the actuarial present value of the projected benefit obligations and to determine net periodic benefit costs were as follows:

36

CTPARTNERS EXECUTIVE SEARCH INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	2011
Discount rate	5.00	%
Expected return on assets	5.00	%
Rate of compensation increases	—	%

The Company also sponsors a defined contribution plan (the “Profit Sharing Plan”) whereby U.S. employees meeting the Plan’s eligibility requirements may elect to defer a portion of their compensation into the Plan. The maximum allowable employee deferral is adjusted each year is subject to certain limitations. The Company has no obligation to make any contributions to the Plan. For the years ended December 31, 2011 and 2012, the Company did not make any voluntary contributions.

In addition, the Company also sponsors a qualified defined contribution discretionary profit sharing plan which covers U.S. employees meeting certain eligibility requirements. The Company made cash contributions to the plan of $150,452 and $289,500 for the years ended December 31, 2012 and 2011, respectively.

Most employees outside of the U.S. are covered by statutorily required retirement plans. In certain cases the Company makes voluntary, discretionary contributions to supplement the mandated minimum funding requirements. The Company complies with the funding requirements in all countries, and has no unfunded future liabilities.

Note 12. Income Taxes

The Company is subject to income taxes in all jurisdictions where it operates. Taxes incurred in non-US countries are typically at rates lower than the US statutory rate.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Company’s deferred income taxes consist of the following:

	December 31, 2012			December 31, 2011
Deferred tax assets:
Accounts payable and accrued expenses	$	2,475,775		$	2,479,955
Foreign tax credits	747,000			—
Share-based compensation	457,332			338,447
Goodwill	2,896,108			—
Accumulated other comprehensive income (loss)	790,209			512,463
Intangible assets	43,756			—
Other	74,867			—
Net operating loss carryforwards	6,519,360			5,070,798
Gross deferred tax assets	14,004,407			8,401,663
Deferred tax liabilities:
Accounts receivable (net)	437,459			420,362
Post-combination compensation	(704,234		)	—
Other current assets	(735,187		)	(610,323		)
Depreciation	(530,297		)	(692,414		)
Gross deferred tax liabilities	(1,532,259		)	(882,375		)
Less: Valuation allowance	(6,519,360		)	(5,070,798		)
Net deferred tax asset	$	5,952,788		$	2,448,490

The deferred tax amounts have been classified in the December 31, 2012 and 2011 consolidated balance sheets as follows:

	2012		2011
Current assets	$	1,931,988	$	1,769,936
Long-term assets	4,020,800		678,554
	$	5,952,788	$	2,448,490

37

The sources of income (loss) before income taxes are as follows:

	Year ended December 31, 2012			Year ended December 31, 2011
United States	$	3,236,641		$	3,428,256
Foreign	(8,500,948		)	(8,068,855		)
Loss before income taxes	$	(5,264,307	)	$	(4,640,599	)

The benefit from income taxes is as follows:

	Year ended December 31, 2012			Year ended December 31, 2011
Current
Federal	$	230,542		$	(210,485	)
State and local	136,018			(36,495		)
Foreign	900,000			—
Deferred
Federal	(2,139,543		)	(1,127,183		)
State and local	(60,501		)	(31,874		)
Foreign	(747,000		)	—
Total benefit for income taxes	$	(1,680,484	)	$	(1,406,037	)

A reconciliation of the benefit from income taxes for 2012 and 2011 to income taxes at the statutory U.S. federal income tax rate of 34.0% is as follows:

	Year ended December 31, 2012			Year ended December 31, 2011
Income tax benefit at the statutory U.S. federal rate	$	(1,790,238	)	$	(1,577,802	)
State tax provision, net of federal tax benefit	118,400			(114,855		)
Tax effect of permanent tax differences	(44,552		)	247,442
Increase in the valuation allowance	1,448,562			811,181
Effect of foreign currency on net operating loss carryforwards	(800,392		)	(136,622		)
Foreign tax rate differential	(643,128		)	(555,471		)
Other	30,864			(79,910		)
	$	(1,680,484	)	$	(1,406,037	)

At December 31, 2012, the Company has gross net operating loss carryforwards of approximately $29.5 million related to its foreign tax filings. Depending on the tax rules of the tax jurisdictions, the losses can be carried forward indefinitely or the carryforward periods are limited, as summarized below.

	At December 31, 2012		Expiration
United Kingdom	$	22,980,000	No expiration
France	4,880,000		No expiration
Hong Kong	1,180,000		No expiration
Singapore	400,000		No expiration
Colombia	35,000		2017
	$	29,475,000

38

The recognition of deferred tax assets is based on management’s belief that it is more likely than not that the tax benefits associated with temporary differences and tax credits, will be utilized. The Company assesses the recoverability of the deferred tax assets on an ongoing basis. In making this assessment, the Company considers all positive and negative evidence, and all potential sources of taxable income including scheduled reversals of deferred tax liabilities, tax-planning strategies, projected future taxable income and recent financial performance. The Company has recorded a full valuation allowance against the foreign net operating loss carryforwards because it has determined it is more likely than not that they will not be realized in the near term.

Note 13. Enterprise Geographic Concentrations

The Company operates in four principal geographic regions: North America, EMEA, Asia Pacific and Latin America. There is no comparative data for Latin America for 2011 as these operations were operating under a licensing agreement with the Company. Effective January 1, 2012, the Company separately reported its global operations support costs in its geographic disclosures in order to provide a more informative disclosure about each geographic region's financial position and operational results. The Company has separately reported its global operations support costs for the year ended December 31, 2011, to be comparative with the current period's disclosure. Also effective January 1, 2012, the Company has combined its European and Middle East geographic disclosures into a single EMEA (Europe, Middle East, and Africa) geographic region. The Company has also combined the European and Middle East geographic disclosures as of December 31, 2011, to be comparative with the current period's disclosure. The revenue, operating income (loss), depreciation and amortization, and capital expenditures, by region, for the year ended December 31, 2012, and 2011, are as follows:

	Year ended December 31, 2012			Year ended December 31, 2011
Revenue
North America	$	77,559,087		$	78,766,405
EMEA	28,438,623			32,047,769
Asia Pacific	8,986,312			10,271,724
Latin America	13,397,557			—
Net revenue before reimbursable expenses	128,381,579			121,085,898
Reimbursable expenses	4,533,667			5,033,024
Total	$	132,915,246		$	126,118,922
Operating income (loss)
North America	$	12,542,414		$	8,792,778
EMEA	(2,763,255		)	(1,350,315		)
Asia Pacific	658,590			(149,482		)
Latin America	(3,239,579		)	—
Global Operations Support	(12,302,813		)	(11,935,730		)
Total	$	(5,104,643	)	$	(4,642,749	)
Depreciation and amortization
North America	$	704,719		$	576,452
EMEA	287,884			355,126
Asia Pacific	158,789			168,683
Latin America	(150,750		)	—
Global Operations Support	312,426			297,751
Total	$	1,313,068		$	1,398,012
Capital expenditures
North America	$	(66,231	)	$	(1,399,396	)
EMEA	(12,172		)	(187,112		)
Asia Pacific	(5,346		)	(396,568		)
Latin America	(101,642		)	—
Global Operations Support	(84,896		)	(573,249		)
Total	$	(270,287	)	$	(2,556,325	)

39

Identifiable assets by geographic concentrations are as follows:

	December  31, 2012		December  31, 2011
Identifiable Assets
North America	$	20,343,592	$	37,973,703
EMEA	12,881,582		12,143,142
Asia Pacific	5,609,690		4,491,980
Latin America	17,416,612		—
Global Operations Support	812,636		931,296
Total	$	57,064,112	$	55,540,121
Goodwill and other intangible assets, net:
Latin America	$	2,892,967	$	—
EMEA	517,480		—
Total	$	3,410,447	$	—

Note 14. Reorganization

In the third quarter of 2012, the Company’s management initiated a plan to reorganize its operations resulting in certain organizational changes in its Canadian and EMEA locations. The plan consists of a workforce reorganization, and elimination of redundant or unneeded positions, which will allow the Company to combine business operations in certain geographic locations and serve our clients more efficiently. During the third quarter of 2012, the Company recognized $964,180 of reorganization related charges, included in compensation and benefits expense and general and administrative expenses.

The following table summarizes the major components of the reorganization charge: 

	Year Ended December 31, 2012
Severance and other employee related costs	$	1,110,694
Foreign currency translation	(146,514		)
Total	$	964,180

Reorganization charges by geographic location were as follows:

	Year Ended December 31, 2012
North America	$	207,184
EMEA	756,996
Total	$	964,180

Changes in reorganization reserves related to the restructuring plan described above for the year ended December 31, 2012, are as follows:

	Severance and other employee related costs
Balance at December 31, 2011	$	—
Reorganization charges	1,110,694
Cash payments	(451,264		)
Non-cash charges	(507,307		)
Balance at December 31, 2012	$	152,123

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

None.

40

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports filed pursuant to the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

The Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Management identified a material weakness, which is described below. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) were not effective as of the end of the Company’s 2012 fiscal year.

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Securities Exchange Act Rules 13a-15(f) or 15d-15(f)). The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

The Company’s management assessed the effectiveness of its internal control over financial reporting as of December 31, 2012. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Management identified a material weakness, which is described below. As a result of material weakness, the Company concluded that the Company's internal control over financial reporting was not effective.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.

The Company did not maintain an effective financial reporting process to prepare financial statements in accordance with U.S. GAAP. Specifically, the Company did not recognize consideration contingent on future employment of selling shareholders as a post-combination compensation expense in its acquisition on Latin America subsidiary, completed on January 2, 2012. This matter was discovered subsequent to December 31, 2012, and as a result, the Company restated it's previously issued interim financial statements for 2012.

The Company intends to remediate the material weakness in the internal control over financial reporting identified above by adding additional controls over acquisition accounting and the application of relevant accounting guidance.

This Annual Report on 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 rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

None.

ITEM 9B. OTHER INFORMATION.

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The information required by this Item will be included under the captions “Election of Directors,” “The Board of Directors and its Committees,” “Nominees for Directors,” “Code of Business Conduct and Ethics” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s Proxy Statement with respect to its 2013 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION.

41

The information required by this Item will be included under the captions “Executive Compensation” and “Director Compensation” in the Company’s Proxy Statement with respect to its 2013 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

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

The information required by this Item will be included under the caption “Beneficial Ownership of Our Common Stock” in the Company’s Proxy Statement with respect to its 2013 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

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

The information required by this Item will be included under the captions “Certain Relationships and Related Transactions” and “Director Independence” in the Company’s Proxy Statement with respect to its 2013 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

The information required by this Item will be included under the caption “Principal Accountant Fees and Services” in the Company’s Proxy Statement with respect to its 2013 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this report:

1. Consolidated Financial Statement:

Report of Independent Registered Public Accounting Firm.

Consolidated Balance Sheet s at December 31, 2012 and 2011.

Consolidated Statement of Operations for the years ended December 31, 2012 and 2011.

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2012 and 2011.

Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 2012 and 2011.

Consolidated Statements of Cash Flows for the years ended December 31, 2012 and 2011.

Notes to Consolidated Financial Statements.

2. None.

3. Exhibits: The Exhibits listed on the accompanying Index to Exhibits are filed with this report or are incorporated herein by reference to a prior filing in accordance with Rule 12b-32 under the Securities and Exchange Act of 1934 (asterisk denotes exhibits filed with this report).

42

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 29, 2013.

CTPARTNERS EXECUTIVE SEARCH INC.

/s/ David C. Nocifora

By: David C. Nocifora

Title: Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated on March 29, 2013.

Signature	Title
* /s/ Brian M. Sullivan Brian M. Sullivan	Chairman, Chief Executive Officer
(principal executive officer)
/s/ David C. Nocifora David C. Nocifora (principal financial officer)	Chief Operating Officer, Chief Financial Officer and Secretary
* /s/ L. Christopher Lund L. Christopher Lund (principal accounting officer)	Vice President — Finance
* /s/ Scott M. Birnbaum Scott M. Birnbaum	Director
* /s/ Michael C. Feiner Michael C. Feiner	Director
* /s/ Thomas R. Testwuide, Sr. Thomas R. Testwuide, Sr.	Director
* /s/ Betsy L. Morgan Betsy L. Morgan	Director

* David C. Nocifora, by signing his name hereto, does hereby sign this Form 10-K on behalf of each of the above named and designated directors of the Company pursuant to a Power of Attorney executed by such persons and filed with the Securities and Exchange Commission.

/s/ David C. Nocifora

David C. Nocifora

Attorney-in-Fact

43

Exhibit No.	Description of Document
2.1	Form of Plan of Conversion of CTPartners Executive Search LLC into CTPartners Executive Search Inc. (incorporated herein by reference to Exhibit 2.1 to Amendment No. 5 to CTPartners Executive Search LLC’s Registration Statement on Form S-1 filed with the Commission on December 2, 2010 (Registration No. 333-169224))
3.1	Form of Certificate of Incorporation of CTPartners Executive Search Inc. (incorporated herein by reference to Exhibit 3.1 to Amendment No. 2 to CTPartners Executive Search LLC’s Registration Statement on Form S-1 filed with the Commission on October 14, 2010 (Registration No. 333-169224))
3.2	Form of Bylaws of CTPartners Executive Search Inc. (incorporated herein by reference to Exhibit 3.2 to Amendment No. 2 to CTPartners Executive Search LLC’s Registration Statement on Form S-1 filed with the Commission on October 14, 2010 (Registration No. 333-169224))
4.1	Form of CTPartners Executive Search Inc.’s Common Stock Certificate (incorporated herein by reference to Exhibit 4.1 to Amendment No. 4 to CTPartners Executive Search LLC’s Registration Statement on Form S-1 filed with the Commission on November 24, 2010 (Registration No. 333-169224))
10.1	Form of Indemnification Agreement, by and between CTPartners Executive Search Inc. and each of its Directors and Executive Officers (incorporated herein by reference to Exhibit 10.1 to Amendment No. 2 to CTPartners Executive Search LLC’s Registration Statement on Form S-1 filed with the Commission on October 14, 2010 (Registration No. 333-169224))
10.2	Employment Agreement with Brian M. Sullivan dated September 1, 2010 (incorporated herein by reference to Exhibit 10.2 to Amendment No. 3 to CTPartners Executive Search LLC’s Registration Statement on Form S-1 filed with the Commission on November 17, 2010 (Registration No. 333-169224))
10.3	Employment Agreement with David C. Nocifora dated September 1, 2010 (incorporated herein by reference to Exhibit 10.3 to Amendment No. 3 to CTPartners Executive Search LLC’s Registration Statement on Form S-1 filed with the Commission on November 17, 2010 (Registration No. 333-169224))
10.4	Form of 2010 Equity Incentive Plan of CTPartners Executive Search Inc. to be in effect upon effectiveness of conversion (incorporated herein by reference to Exhibit 10.4 to Amendment No. 3 to CTPartners Executive Search LLC’s Registration Statement on Form S-1 filed with the Commission on November 17, 2010 (Registration No. 333-169224))
10.5	Amended and Restated Credit and Security Agreement by and between JPMorgan Chase Bank, NA and Christian & Timbers LLC dated October 17, 2006 (incorporated herein by reference to Exhibit 10.5 to Amendment No. 4 to CTPartners Executive Search LLC’s Registration Statement on Form S-1 filed with the Commission on November 24, 2010 (Registration No. 333-169224))
10.6	Revised Letter Agreement (Affiliation and License Agreement) between CTPartners Executive Search LLC and HS Andean Holding Corporation dated April 26, 2007 (incorporated herein by reference to Exhibit 10.6 to CTPartners Executive Search LLC’s Registration Statement on Form S-1 filed with the Commission on September 3, 2010 (Registration No. 333-169224))

44

Exhibit No.	Description of Document
10.7	Form of Convertible Promissory Note of CTPartners Executive Search LLC (incorporated herein by reference to Exhibit 10.7 to Amendment No. 2 to CTPartners Executive Search LLC’s Registration Statement on Form S-1 filed with the Commission on October 14, 2010 (Registration No. 333-169224))
10.8	Form of Note Prepayment and Conversion Agreement (incorporated herein by reference to Exhibit 10.8 to Amendment No. 2 to CTPartners Executive Search LLC’s Registration Statement on Form S-1 filed with the Commission on October 14, 2010 (Registration No. 333-169224))
*21	List of Subsidiaries
*23.1	Consent of Independent Registered Public Accounting Firm, McGladrey & Pullen, LLP
*24	Power of Attorney
*31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) / 15d-14(a)
*31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) / 15d-14(a)
*32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
*32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
**101	The following financial information from CTPartners Executive Search Inc. Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 formatted in Extensible Business Reporting Language (XBRL) and furnished electronically herewith: (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Cash Flows; and (iv) related Footnotes to the Condensed Consolidated Financial Statements, tagged as blocks of text.

* Filed herewith

** Pursuant to Rule 406T of Regulations S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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