Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-Q

(Mark One)

 
Form 10-Q
(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

2020

or

o

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

For the transition period from                to                

Commission file number 1-12793


StarTek, Inc.

(Exact name of registrant as specified in its charter)

Delaware

84-1370538

Delaware84-1370538

(State or other jurisdiction of

(I.R.S. employer

incorporation or organization)

Identification No.)

8200 E. Maplewood Ave.

6200 South Syracuse Way, Suite 100485

Greenwood Village, Colorado

80111

(Address of principal executive offices)

(Zip code)

(303) 262-4500

(Registrant’s telephone number, including area code)


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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

SRT

New York Stock Exchange, Inc.


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x  Noo

☐ 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yesx  No  o

☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filero

 ☐

Accelerated filerx

 ☒

Non-accelerated filero

  ☐

Smaller reporting companyx

  ☒

Emerging growth companyo

  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

☐ 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yeso  Nox


☒ 

As of  April 26, 2019,June 1, 2020, there were 37,663,23938,591,021  shares of Common Stock outstanding.



1

Table of Contents



STARTEK, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

FORM 10-Q

PART I - FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Page

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2020 and 2019 and 2018 (Unaudited)

Condensed Consolidated Balance Sheets as of March 31, 20192020 (Unaudited) and December 31, 20182019 (Audited)

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 and 2018 (Unaudited)

Condensed Consolidated Statement of Stockholders' equityEquity for the Three Months Ended March 31, 2020 and 2019 (Unaudited)

7

Note 1 Overview and Basis of Preparation

58

 Note 2 Summary of Accounting PoliciesNotes to Condensed Consolidated Financial Statements (Unaudited)9
 
Note 3 Goodwill and Intangible Assets
612
ITEM 2.Note 4 Revenue13
 Note 5 Net Loss Per Share15
Note 6 Impairment and Restructuring/Exit cost15
Note 7 Derivative Instruments16
Note 8 Fair Value Measurements16
Note 9 Debt18
Note 10 Share-Based Compensation19
Note 11 Accumulated Other Comprehensive Loss19
Note 12 Segment and Geographical Information20
Note 13 Leases20
Note 14 Subsequent Event21

ITEM 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

26

ITEM 4.

Controls and Procedures

26

PART II - OTHER INFORMATION

ITEM 1.

Legal proceeding

ITEM 1A.

Risk Factors

27

ITEM 2.Unregistered sales of equity securities and use of proceeds 

ITEM 3.

Defaults upon senior securities
ITEM 4.Controls and Procedures
Mine safety disclosure 

ITEM 5. 

Other Information

PART II - OTHER INFORMATION

27

ITEM 6.

Exhibits

28

ITEM 1A.

SIGNATURES

Risk Factors

ITEM 5.Other Information

2

ITEM 6.ExhibitsSIGNATURES



Explanatory Para for Delay in filing of 10Q

As previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on May 5, 2020, in accordance with the SEC’s March 4, 2020 Order under Section 36 (Release No. 34-88318) of the Securities Exchange Act of 1934 (“Exchange Act”) granting exemptions from specified provisions of the Exchange Act and certain rules thereunder, as superseded by a subsequent order (Release No. 34-88465) issued on March 25, 2020 (collectively, the “Order”), the Company relied on the relief provided by the Order to briefly delay the filing of its Form 10-Q due to circumstances related to the coronavirus (COVID-19). Specifically, the Company disclosed that the Company’s operations had experienced disruptions due to the circumstances surrounding the COVID-19 pandemic including, but not limited to, suggested and mandated social distancing and stay home orders. These mandates and the resulting office closures had limited access to the Company’s facilities by the Company’s financial reporting and accounting staff as well as other advisors involved in the preparation of the Form 10-Q and impacted the Company’s ability to fulfill required preparation and review processes and procedures with respect to the Form 10-Q. The Company disclosed it expected to file the Form 10-Q by June 25, 2020, within 45 days after the original filing deadline of the Form 10-Q.

NOTE ABOUT FORWARD-LOOKING STATEMENTS


This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including the following:


certain statements, including possible or assumed future results of operations, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;
any statements regarding the prospects for our business or any of our services;
any statements preceded by, followed by or that include the words “may,” “will,” “should,” “seeks,” “believes,” “expects,” “anticipates,” “intends,” “continue,” “estimate,” “plans,” “future,” “targets,” “predicts,” “budgeted,” “projections,” “outlooks,” “attempts,” “is scheduled,” or similar expressions; and
other statements regarding matters that are not historical facts.

certain statements, including possible or assumed future results of operations, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;

any statements regarding the prospects for our business or any of our services;

any statements preceded by, followed by or that include the words “may,” “will,” “should,” “seeks,” “believes,” “expects,” “anticipates,” “intends,” “continue,” “estimate,” “plans,” “future,” “targets,” “predicts,” “budgeted,” “projections,” “outlooks,” “attempts,” “is scheduled,” or similar expressions; and

other statements regarding matters that are not historical facts.

Our business and results of operations are subject to risks and uncertainties, many of which are beyond our ability to control or predict. Because of these risks and uncertainties, actual results may differ materially from those expressed or implied by forward-looking statements, and investors are cautioned not to place undue reliance on such statements, which speak only as of the date thereof. Important factors that could cause actual results to differ materially from our expectations and may adversely affect our business and results of operations, include, but are not limited to, those items described herein or set forth in the Form 10-KT10-K for the fiscal year ended December 31, 20182019 filed with the Securities and Exchange Commission ("SEC") on March 14, 2019,12, 2020 and this Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.2020. Unless otherwise noted in this report, any description of "us," "we," or "our," refers to StarTek, Inc. ("Startek") and its subsidiaries.



CHANGE IN FILING STATUS


In accordance with the SEC's expanded definition of Smaller Reporting Companies effective September 10, 2018, Startek now qualifies for Smaller Reporting Company status. As such, it has decided to take advantage of the relief provided from Part 1, Item 3.



PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

 

STARTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTSSTATEMENT OF COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share amounts)

(Unaudited)

  

Three Months Ended March 31,

 
  

2020

  

2019

 

Revenue

  161,177   161,142 

Warrant contra revenue

  (278)  - 

Net Revenue

  160,899   161,142 

Cost of services

  (140,841)  (133,928)

Gross profit

  20,058   27,214 

Selling, general and administrative expenses

  (17,255)  (24,079)

Impairment losses and restructuring/exit cost

  (24,322)  (1,129)
Acquisition related cost  -   35 

Operating (Loss) / Income

  (21,519)  2,042 

Share of (loss) / profit of equity accounted investees

  (8)  342 

Interest expense, net

  (3,506)  (4,465)

Exchange gain / (loss), net

  1,928   (691)

Loss before income taxes

  (23,105)  (2,772)

Income tax expense

  2,876   385 

Net loss

  (25,981)  (3,157)

Net income attributable to non-controlling interests

  576   189 

Net loss attributable to Startek shareholders

  (26,557)  (3,346)
         

Other comprehensive income (loss), net of tax:

        

Foreign currency translation adjustments

  (4,392)  567 

Change in fair value of derivative instruments

  (672)  (65)

Pension amortization

  396   176 

Comprehensive loss

  (30,649)  (2,479)

Comprehensive income attributable to non-controlling interests

  739   276 

Comprehensive loss attributable to Startek shareholders

  (31,388)  (2,755)
         

Net loss per common share - basic and diluted

  (0.69)  (0.09)

Weighted average common shares outstanding - basic and diluted

  38,528   37,522 
(Unaudited)
 Three Months Ended March 31,
 2019 2018
Revenue$161,142

$115,095
Cost of services133,928

93,938
Gross profit27,214

21,157
Selling, general and administrative expenses24,079

14,405
Restructuring and other merger related cost1,093

6,257
Operating income2,042

495
Share of profit of affiliates342
 64
Interest expense, net(4,465) (4,129)
Exchange losses, net(691) (1,278)
Loss before income taxes(2,772)
(4,848)
Income tax expense385

332
Net loss$(3,157)
$(5,180)
Net income attributable to non-controlling interests189
 972
Net loss attributable to Startek shareholders(3,346) (6,152)
    
Other comprehensive income (loss), net of tax:   
Foreign currency translation adjustments567
 (961)
Change in fair value of derivative instruments(65) 
Pension amortization176
 (297)
Comprehensive loss$(2,479) $(6,438)
Comprehensive income attributable to non-controlling interests276
 833
Comprehensive loss attributable to Startek shareholders(2,755) (7,271)
    
    
Net loss per common share - basic and diluted$(0.09)
$(0.30)
Weighted average common shares outstanding - basic and diluted37,522

20,600

See Notes to Consolidated Financial Statements.





STARTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

SHEET

(In thousands, except share data)

(Unaudited)

  

March 31,

  

December 31,

 
  

2020

  

2019

 

ASSETS

        

Current assets:

        

Cash and cash equivalents

  27,795   20,464 

Restricted cash

  11,862   12,162 

Trade accounts receivable, net

  100,152   108,479 

Unbilled Revenue

  40,586   41,449 

Prepaid and other current assets

  19,516   12,008 

Total current assets

  199,911   194,562 

Property, plant and equipment, net

  34,133   37,507 

Operating lease Right-of-use assets

  79,370   73,692 

Intangible assets, net

  108,225   110,807 

Goodwill

  196,633   219,341 

Investment in associates

  477   553 

Deferred tax assets, net

  3,009   5,251 

Prepaid expenses and other non-current assets

  15,568   16,370 

Total assets

  637,326   658,083 

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

Current liabilities:

        

Trade accounts payable

  20,004   25,449 

Accrued expenses and other current liabilities

  89,600   82,598 

Short term debt

  32,387   26,491 

Current maturity of long term debt

  18,666   17,601 

Current maturity of operating lease liabilities

  20,761   19,677 

Current maturity of finance lease obligations

  750   632 

Total current liabilities

  182,168   172,448 

Long term debt

  123,387   130,144 

Operating lease liabilities

  59,404   54,341 

Other non-current liabilities

  12,881   11,140 

Deferred tax liabilities, net

  17,739   18,226 

Total liabilities

  395,579   386,299 

Commitments and contingencies

      

Stockholders’ equity:

        

Common stock, 60,000,000 non-convertible shares, $0.01 par value, authorized; 38,541,724 and 38,525,636 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

  385   385 

Additional paid-in capital

  277,852   276,827 

Accumulated other comprehensive loss

  (10,853)  (6,022)

Accumulated deficit

  (73,115)  (46,145)

Equity attributable to Startek shareholders

  194,269   225,045 

Non-controlling interest

  47,478   46,739 

Total stockholders’ equity

  241,747   271,784 

Total liabilities and stockholders’ equity

  637,326   658,083 
(Unaudited)
 As of March 31, As of December 31,
 2019 2018
ASSETS 
  
Current assets: 
  
Cash and cash equivalents$14,595
 $16,617
Restricted cash11,093
 7,952
Trade accounts receivable, net102,548
 107,836
Unbilled Revenue50,499
 42,135
Prepaid and other current assets17,454
 18,850
Total current assets$196,189
 $193,390
Property, plant and equipment, net41,638
 42,242
Right-of-use assets76,983
 
Intangible assets, net118,726
 121,336
Goodwill226,505
 225,450
Investment in affiliates2,440
 2,097
Deferred tax assets, net4,075
 5,048
Prepaid expenses and other non-current assets17,562
 15,076
Total assets$684,118
 $604,639
LIABILITIES AND STOCKHOLDERS’ EQUITY 
  
Current liabilities: 
  
Accounts payable$26,757
 $26,886
Accrued expenses and other current liabilities82,796
 84,881
Short term debt26,522
 21,975
Current maturity of long term debt12,600
 9,800
Current maturity of operating lease liabilities23,204
 
Current maturity of capital lease liabilities1,394
 1,816
Total current liabilities$173,273
 $145,358
Long term debt149,582
 152,100
Operating lease liabilities55,016
 
Other non-current liabilities14,286
 11,907
Deferred tax liabilities, net17,127
 18,901
Total liabilities$409,284
 $328,266
Commitments and contingencies
 
Stockholders’ equity: 
  
Common stock, 60,000,000 non-convertible shares, $0.01 par value, authorized; 37,561,744 and 37,446,323 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively$375
 $374
Additional paid-in capital268,256
 267,317
Accumulated other comprehensive loss(4,955) (5,547)
Accumulated deficit(34,473) (31,127)
Equity attributable to Startek shareholders$229,203
 $231,017
Non-controlling interest45,631
 45,356
Total stockholders’ equity$274,834
 $276,373
Total liabilities and stockholders’ equity$684,118
 $604,639

See Notes to Consolidated Financial Statements.




STARTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWS

(In thousands)

(Unaudited)

  

Three Months Ended March 31,

 
  

2020

  

2019

 

Operating Activities

        

Net loss

 $(25,981) $(3,157)

Adjustments to reconcile net loss to net cash provided by operating activities:

        

Depreciation and amortization

  7,093   7,304 
    Impairment of goodwill  22,708   - 

Profit on sale of property, plant and equipment

  -   (251)

Provision for doubtful accounts

  154   630 

Warrant contra revenue

  278   - 

Share-based compensation expense

  291   425 

Deferred income taxes

  1,879   (659)

Share of (loss) / Profit of equity accounted investee

  8   (342)

Changes in operating assets and liabilities:

        

Trade accounts receivable

  4,503   4,384 

Prepaid expenses and other assets

  (7,658)  (8,789)

Trade accounts payable

  (4,722)  (79)

Income taxes, net

  (672)  (948)

Accrued expenses and other current liabilities

  12,287   1,105 

Net cash (used in) / generated from operating activities

 $10,168  $(377)
         

Investing Activities

        

Purchases of property, plant and equipment

  (2,884)  (3,495)

Net cash used in generated investing activities

 $(2,884) $(3,495)
         

Financing Activities

        

Proceeds from the issuance of common stock

  43   515 

Payments on long term debt

  (4,200)  (1,400)

Proceeds from (payments on) other debt, net

  4,956   6,102 

Net cash generated generated from financing activities

 $799  $5,217 

Net increase in cash and cash equivalents

  8,083   1,345 

Effect of exchange rate changes on cash and cash equivalents and restricted cash

  (1,052)  (226)

Cash and cash equivalents and restricted cash at beginning of period

  32,626   24,569 

Cash and cash equivalents and restricted cash at end of period

 $39,657  $25,688 
         

Components of cash and cash equivalents and restricted cash

        

Balances with banks

  27,795   14,595 

Restricted cash

  11,862   11,093 

Total cash and cash equivalents and restricted cash

 $39,657  $25,688 
(Unaudited)
 Three Months Ended March 31,
 2019 2018
Operating Activities 
  
Net loss$(3,157) $(5,180)
Adjustments to reconcile net loss to net cash provided by operating activities: 
  
Depreciation and amortization7,304
 6,025
Profit on sale of property, plant and equipment(251) 
Provision for doubtful accounts630
 374
Share-based compensation expense425
 
Deferred income taxes(659) (918)
Share of profit of affiliates(342) (64)
Changes in operating assets and liabilities: 
  
Trade accounts receivable4,384
 4,992
Prepaid expenses and other assets(8,789) 8,801
Accounts payable(79) 1,486
Income taxes, net(948) (1,735)
Accrued and other liabilities1,105
 (10,023)
Net cash (used in) provided by operating activities$(377) $3,758
    
Investing Activities 
  
Purchases of property, plant and equipment(3,495) (2,919)
Distributions received from affiliates
 22
Net cash used in investing activities$(3,495) $(2,897)
    
Financing Activities 
  
Proceeds from the issuance of common stock515
 
Payments on long term debt(1,400) 
Proceeds from other debts, net6,102
 488
Net cash provided by financing activities$5,217
 $488
Net (decrease) increase in cash and cash equivalents1,345
 1,349
Effect of exchange rate changes on cash and cash equivalents and restricted cash(226) (31)
Cash and cash equivalents and restricted cash at beginning of period24,569
 21,601
Cash and cash equivalents and restricted cash at end of period$25,688
 $22,919
    
Components of cash and cash equivalents and restricted cash   
Balances with banks14,595
 17,693
Restricted cash11,093
 5,226
Total cash and cash equivalents and restricted cash$25,688
 $22,919

See Notes to Consolidated Financial Statements.



STARTEK, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands, except share data)

(Unaudited)

  

Common Stock

  

Additional paid-in

  

Accumulated

  

Foreign currency

  Change in fair value of  

Unrecognised

  

Equity attributable to Startek

  

Non-controlling

  

Total stockholders'

 
  

Shares

  

Amount

  

capital

  

deficit

  

translation

  

derivative instruments

  

pension cost

  

shareholders

  

interest

  

equity

 

Three months ended

                                        

Balance at December 31, 2019

  38,525,636  $385  $276,827  $(46,145) $(4,568) $475  $(1,929) $225,045  $46,739  $271,784 
Transition period adjustment pursuant to ASU 2019-08  -   -   413   (413)  -   -   -   -   -   - 

Issuance of common stock

  16,088   -   43   -   -   -   -   43   -   43 

Share-based compensation expenses

  -   -   291   -   -   -   -   291   -   291 

Warrant expenses

  -   -   278   -   -   -   -   278   -   278 

Net income (loss)

  -   -   -   (26,557)  -   -   -   (26,557)  576   (25,981)

Other comprehensive loss for the period

  -   -   -   -   (4,392)  (672)  233   (4,831)  163   (4,668)

Balance at March 31, 2020

  38,541,724  $385  $277,852  $(73,115) $(8,960) $(197) $(1,696) $194,269  $47,478  $241,747 
                                         

Balance at December 31, 2018

  37,446,323  $374  $267,317  $(31,127) $(3,989) $(15) $(1,543) $231,017  $45,356  $276,373 

Issuance of common stock

  115,421   1   514   -   -   -   -   515   -   515 

Share-based compensation expenses

  -   -   425   -   -   -   -   425   -   425 

Warrant expenses

  -   -   -   -   -   -   -   -   -   - 

Net income (loss)

  -   -   -   (3,346)  -   -   -   (3,346)  189   (3,157)

Other comprehensive loss for the period

  -   -   -   -   567   (65)  90   592   86   678 

Balance at March 31, 2019

  37,561,744  $375  $268,256  $(34,473) $(3,422) $(80) $(1,453) $229,203  $45,631  $274,834 
(Unaudited)

  Common Stock Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Equity attributable to Startek shareholders Non-controlling interest Total stockholders' equity
  Shares Amount      
Balance, December 31, 2018 37,446,323
 $374
 $267,317
 $(5,547) $(31,127) $231,017
 $45,356
 $276,373
Common stock issued 115,421
 1
 514
 
 
 515
 
 515
Share-based compensation 
 
 425
 
 
 425
 
 425
Changes to other comprehensive loss 
 
 
 592
 
 592
 86
 678
Net (loss) income 
 
 
 
 (3,346) (3,346) 189
 (3,157)
Balance, March 31, 2019 37,561,744
 $375
 $268,256
 $(4,955) $(34,473) $229,203
 $45,631
 $274,834




STARTEK, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH

March 31, 2019

2020

(In thousands, except share and per share data)

(Unaudited)

(Unaudited)

1. OVERVIEW AND BASIS OF PREPARATION


Unless otherwise noted in this report, any description of "us," "we," or "our," refers to StarTek, Inc. and its subsidiaries (the "Company"). Financial information in this report is presented in U.S. dollars.


Business


Startek is a global business process outsourcing company operating in thirteen countriesthat provides omnichannel customer interactions, technology and employing over 45,000 employees worldwide, serving over 250 clientsback-office support solutions for some of the world’s most iconic brands in a variety of industries.


On July 20, 2018, Company completedvertical markets. Operating under the acquisitionStartek and Aegis brand, we help these large global companies connect emotionally with their customers, solve issues, and improve net promoter scores and other customer-facing performance metrics. Through consulting and analytics services, technology-led innovation, and engagement solutions powered by the science of alldialogue, we deliver personalized experiences at the point of conversation between our clients and their customers across every interaction channel and phase of the issued and outstanding shares of capital stock of CSP Alpha Midco Pte Ltd, a Singapore private limited company (“Aegis”), from CSP Alpha Holdings Parent Pte Ltd, a Singapore private limited company (the “Aegis Stockholder”), in exchangecustomer journey.

Startek has proven results for the issuancemultiple services we provide, including sales, order management and provisioning, customer care, technical support, receivables management, and retention programs. We manage programs using a variety of 20,600,000 sharesmulti-channel customer interactions, including voice, chat, email, social media and back-office support. Startek has facilities in United States, India, Malaysia, Philippines, Australia, South Africa, Canada, Honduras, Jamaica, Kingdom of common stock of the Company, par value $.01 per share (the “Common Stock”). Concurrently, the Aegis Stockholder purchased 166,667 newly issued shares of Common Stock at a price of $12 per share for a total cash payment of $2,000. As a result of the consummation of such transactions (the “Aegis Transactions”), the Aegis Stockholder became the holder of 20,766,667 shares of Common Stock, representing approximately 55% of the outstanding Common Stock. For accounting purposes, the Aegis Transactions are treated as a reverse acquisitionSaudi Arabia, Argentina, Peru and Aegis is considered the accounting acquirer. Accordingly, Aegis’ historical financial statements replace the Company’s historical financial statements following the completion of the Aegis Transactions, and the results of operations of both companies will be included in the Company’s financial statements for all periods following the completion of the Aegis Transactions.


In addition, on July 20, 2018, in connection with the consummation of the Aegis Transactions, the Company and the Aegis Stockholder entered into a Stockholders Agreement, pursuant to which the Company and the Aegis Stockholder agreed to, among other things: (i) certain rights, duties and obligations of the Aegis Stockholder and the Company as a result of the transactions contemplated by the Transaction Agreement and (ii) certain aspects of the management, operation and governance of the Company after consummation of the Aegis Transactions.

On December 13, 2018, the Company, and Aegis Stockholder, entered into a Securities Purchase Agreement, pursuant to which Aegis Stockholder purchased, and the Company issued and sold, 368,098 shares of Common Stock, par value $0.01 per share, at a purchase price of $6.52 per share, or a total purchase price of $2,400, taking its holding approximately 56% of outstanding common stock. The Company used the proceeds for general corporate purposes.

Please see Note 3, "Business Acquisitions," for further information.

Sri Lanka.

Basis of preparation


The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"US-GAAP") for interim financial information and instructions to Form 10-Q10-Q and Article 10 of Regulation S-X.S-X. Accordingly, they do not include all information and footnotes required by GAAPUS-GAAP for complete financial statements.


These financial statements reflect all adjustments (consisting only of normal recurring entries, except as noted) which, in the opinion of management, are necessary for fair presentation. The results of operations for interim periods are not necessarily indicative of full year results.


The consolidated balance sheet as of December 31, 2018, included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-KT for the nine months period ended December 31, 2018.




2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The consolidated financial statements reflect the financial results of all subsidiaries that are more than 50% owned and over which the Company exerts control. When the Company does not have majority ownership in an entity but exerts significant influence over that entity, the Company accounts for the entity under the equity method of accounting. All intercompany balances are eliminated on consolidation. Where our ownership of a subsidiary was less than 100%, the non-controlling interest is reported in our Condensed Consolidated Balance Sheets. The non-controlling interest in our consolidated net income is reported as "Net income (loss) attributable to non-controlling interests" in our Condensed Consolidated Statements of Comprehensive Income (Loss)(loss). These unaudited Condensed Consolidated Financial Statements

The consolidated balance sheet as of December 31, 2019, included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by US-GAAP. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the audited Consolidated Financial Statementsconsolidated financial statements and Notes thereto containedaccompanying notes included in our Annual Report on Form 10-KT10-K for the nine months periodyear ended December 31, 2018 filed with the SEC on March 14, 2019.2019.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Significant items subject to such estimates and assumptions include the useful lives of property, plant and equipment, intangibles, impairment of goodwill, purchase price allocations, provision for doubtful receivables, valuation allowances for deferred tax assets the valuation of derivative financial instruments, measurements of stock-based compensation, assets and obligations related to employee benefits, lease termination liabilities, restructuring costs, and income tax uncertainties and other contingencies.costs. Management believes that the estimates used in the preparation of the condensed consolidated financial statements are reasonable.reasonable, and management has made assumptions about the possible effects of the novel coronavirus (“COVID-19”) pandemic on critical and significant accounting estimates. Although these estimates are based upon management’s best knowledge of current events and actions, actual results could differ from these estimates. Any changes in estimates are adjusted prospectively in the Company’s condensed consolidated financial statements.


Revenue


On April 1, 2018, the Company adopted Accounting Standards Codification 606, Revenue from Contracts with Customers, (Topic 606)606) using the modified retrospective method. Topic 606 utilizes a five-stepfive-step process, for revenue recognition that focuses on transfer of control, rather than transfer of risks and rewards. It also provided additional guidance on accounting for contract acquisition and fulfillment costs. Refer Note 54 on "Revenue from Contracts with Customers" for further information.


Consistent with the modified retrospective method of adoption, the Company has not adjusted prior period amounts which continue to be reported in accordance with the Company’s historic revenue accounting policy and principles.

Leases


On January 1, 2019, the Company adopted Accounting Standards Codification 842, Leases, (Topic 842)842)withthe transition approach. However, the Company has accounted the lease for the comparable periods as per the Accounting Standards Codification 840.


We determine if an arrangement is a lease at inception. Operating leases are included in right-of-use (“ROU”) assets, current maturity of operating lease liabilities, and operating lease liabilities in our consolidated balance sheets. Finance leases are included in property plant and equipment, other current liabilities,long-term debt, accrued expenses and other long-termcurrent liabilities in our consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the balance lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the date of initial application on determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term.


The Company elected the practical expedient permitted under the transition guidance under Topic 842, which among other matters, allowed the Company (i) not to apply the recognition requirements to short-term leases (leases with a lease term of 12 months or less), (ii) not to reassess whether any expired or existing contracts are or contain leases, (iii) not to reassess the lease classification for any expired or existing leases, and (iv) not to reassess initial direct costs for any existing leases

We have lease agreements with lease and non-lease components, which are generally accounted for separately.

For the quarter ended March 31, 2020, the COVID-19 pandemic has not triggered changes to the terms of any of the Company’s leases. While the Company does not currently expect any large-scale contraction in demand which could result in a reduction in the use of its physical infrastructure, changes in the Company’s business or client demand as a result of the COVID-19 pandemic could alter the Company’s plans for or use of its physical infrastructure in the long term.

9



Business Combinations


The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805, Business Combinations, by recognizing identifiable tangible and intangible assets acquired, liabilities assumed, and non-controlling interests in the acquired business at their fair values. The excess of the cost of the acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed is recorded as goodwill. Acquisition related costs are expensed as incurred.


Goodwill and Intangible Assets


Goodwill was recorded atrepresents the cost of acquired businesses in excess of the fair value at acquisition dateof identifiable tangible and intangible net assets purchased. Goodwill is not amortized but is reviewedtested for impairment at least annually or more frequently if impairment indicators arise. Our goodwill is allocated by reporting uniton an annual basis on December 31, based on a number of factors, including operating results, business plans and is evaluated for impairment by first performing afuture cash flows. The Company performs an assessment of qualitative assessmentfactors to determine whether the existence of events or circumstances leads to a quantitative goodwill test is necessary. Ifdetermination that it is determined, based on qualitative factors,more likely than not that the fair value of thea reporting unit is "moreless than its carrying amount. Based on the assessment of events or circumstances, the Company performs a quantitative assessment of goodwill impairment if it determines that it is more likely than not"not that the fair value of a reporting unit is less than its carrying amount. If, based on the quantitative impairment analysis, the carrying value of a reporting unit exceeds the fair value of reporting units, an impairment loss is recognized in an amount or if significant changes relatedequal to the excess. In addition, the Company performs a quantitative assessment of goodwill impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit have occurred that could materially impact fair value, a quantitative goodwill impairment test would be required. The Company can elect to forgo the qualitative assessmentbelow its carrying amount. Refer Note 3 for information and perform the quantitative test.


related disclosures.


Intangible assets acquired in a business combination were recorded at fair value at acquisition date using generally accepted valuation methods appropriate for the type of intangible asset. Intangible assets with definite lives are amortized over the estimated useful lives and are reviewed for impairment at least annually, or more frequently if indicators of impairment arise.


Foreign Currency Matters

The Company has operations in Argentina and its functional currency has historically been the Argentine Peso. The Company monitors inflation rates in countries in which it operates as required by US GAAP. Under ASC 830-10-45-12,830-10-45-12, an economy must be classified as highly inflationary when the cumulative three-yearthree-year rate exceeds 100%.


In May 2018, a discussion document prepared by  Considering the Center for Audit Quality SEC Regulations Committee and its International Practices Task Force describes inflation data forof Argentina, through April 2018. Considering this data and more recent data for May 2018, all of the three-year cumulative inflation rates commonly used to evaluate Argentina’s inflation currently exceed 100%.

Therefore, the Company has considered Argentina to be highly inflationary beginning on July 1, 2018. In accordance with ASC 830, the functional currency of the Argentina business has been changed to USD, which requires remeasurement of the local books to USD. Exchange gains and losses is recorded through net income as opposed to through other comprehensive income as had been done historically. Translation adjustments from prior periods will not be removed from equity.

Stock-Based Compensation


We recognize expense related to all share-based payments to employees, including grants of employee stock options, based on the

grant-date fair values amortized straight-line over the period during which the employees are required to provide services in exchange for the equity instruments. We include an estimate of forfeitures when calculating compensation expense. We use the Black-Scholes method for valuing stock-based awards. See Note 11,10, “Share-Based Compensation” for further information.

Common Stock Warrant Accounting


We account for common stock warrants as equity instruments, based on the specific terms of our warrant agreement. For more

information refer to Note 11,10, "Share-Based Compensation."


Recent Accounting Pronouncements


In December 2019, FASB issued ASU 2019-12 which modifies ASC 740 to simplify accounting for income taxes. ASU 2019-12 amends the requirements related to the accounting for “hybrid” tax regimes. FASB amended ASC 740-10-15-4(a) to state that an entity should include the amount of tax based on income in the tax provision and should record any incremental amount recorded as a tax not based on income. This amendment effectively reverses the order in which an entity determines the type of tax under current U.S. GAAP. The Company does not have a hybrid tax regime currently.

FASB also removed the previous guidance that prohibit recognition of a DTA for a step up in tax basis “except to the extent that the newly deductible goodwill amount exceeds the remaining balance of book goodwill.” Instead, the amended guidance contains a model under which an entity can consider a list of factors in determining whether the step-up in tax basis is related to the business combination that caused the initial recognition of goodwill or to a separate transaction. The Company does not have a step up in tax basis for goodwill.

ASU 2019-12 also modified intra-period tax allocation exception to incremental approach. As per the modification, an entity should determine the tax effect of income from continuing operations without considering the tax effect of items that are not included in continuing operations, such as discontinued operations or other comprehensive income. The Company does not believe this to have material impact on their consolidated financial statements.

The ASU also makes one minor improvements to the Codification topics. Tax benefit of tax-deductible dividends on allocated and unallocated employee stock ownership plan shares shall be recognized in the income statement. FASB decided to change the phrase “recognized in the income statement” to “recognized in income taxes allocated to continuing operations” to clarify where income tax benefits related to tax-deductible dividends should be presented in the income statement. This improvement is not expected to have material impact on the Company.

The above amendments are effective for fiscal years beginning after December 15, 2020.

In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-14, 2018-14,Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20)715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”2018-14”). The amendment makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and/or other post retirement benefit plans. The new guidance eliminates requirements for certain disclosures that are no longer considered cost beneficial and requires new ones that the FASB considers pertinent. ASU No. 2018-142018-14 is effective for fiscal years ending after December 15, 2020. The Company is evaluating the impact of the adoption of ASU No. 2018-14 on its financial statement disclosures.



2020.

In June 2016, FASB issued ASU 2016-13, 2016-13,Financial Instruments - Credit Losses (Topic 326) ("326) ("ASU 2016-13"2016-13"),Measurement of Credit Losses on Financial Instruments. The standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren't measured at fair value through net income. The standard will replace today's "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost. For available-for-saleavailable for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. This ASU is effective for annual periods beginning after December 15, 2019, 2022, and interim periods therein. Early adoption is permittedtherein for annual periods beginning after December 15, 2018, and interim periods therein.smaller reporting companies. We do not expect the adoption of ASU 2016-132016-13 will have a material impact on our consolidated financial statements.


In August 2018, March 2020, the FASB issued ASU No. 2018-13, “Disclosure Framework— Changes2020-03, “Codification Improvements to Financial Instruments.” This ASU represents changes to clarify or improve the Codification. The amendments make the Codification easier to understand and apply by eliminating inconsistencies and providing clarifications in relation to financial instruments. This guidance was effective immediately upon issuance. The additional elements of the ASU did not have a material impact on the Company's consolidated results of operations, cash flows, financial position and or disclosures.

In March 2020, the FASB issued ASU No.2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides temporary optional expedients and exceptions to the Disclosure Requirements for Fair Value Measurement.”guidance in US GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”). Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. The ASU modifies the disclosure requirements with respect to fair value measurements. The ASUguidance is effective for the Company beginning January 1, 2020, including interim periods in fiscal year 2020. Early adoption is permitted. upon issuance and generally can be applied through 31December 2022. The Company is still in the process of assessing the impact of this ASU on its consolidated resultsASU.

11


3. BUSINESS ACQUISITIONS

Aegis Transactions

On July 20, 2018, the Company completed the acquisition of all of the issued and outstanding shares of capital stock of Aegis from the Aegis Stockholder in exchange for the issuance of 20,600,000 shares of the Common Stock in the Aegis Transactions. Concurrently, the Aegis Stockholder purchased 166,667 newly issued shares of the Common Stock at a price of $12 per share for a total cash payment of $2,000. As a result of the consummation of the Aegis Transactions, the Aegis Stockholder now holds 20,766,667 shares of the Common Stock, which is equivalent to approximately 55% of the total outstanding Common Stock.

In accordance with ASC 805, Business Combinations, the transaction was accounted for as a reverse acquisition. As such, Aegis is considered to be the accounting acquirer. Therefore, Aegis’ historical financial statements replace the Company’s historical financial statements following the completion of the Aegis Transactions, and the results of operations of both companies will be included in the Company’s financial statements for all periods subsequent to July 20, 2018.

The estimated fair value of the purchase consideration is calculated based on the Company's stock price as it is considered to be more reliably determinable than the fair value of Aegis' private stock. Consideration is calculated based on the Company's closing stock price of $6.81 on July 20, 2018.

The following table presents the purchase price and the estimated fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date. These estimates are preliminary, pending final evaluation of certain assets, and therefore are subject to revisions that may result in adjustments to the values presented below:


 Amount
Stock consideration (number of shares outstanding immediately prior the closing date)16,226,392
Closing share price on July 20, 2018$6.81
Total allocable purchase price$110,502
  
 Amount
Cash and cash equivalents$1,496
Other current assets46,094
Property, plant and equipment, net15,930
Identifiable intangible assets28,960
Goodwill64,337
Other non-current assets3,204
Current liabilities(22,540)
Non-current liabilities(26,979)
Preliminary purchase price$110,502

The goodwill recognized was attributable primarily to the acquired workforce, increased utilization of our global delivery platform and other synergistic benefits. Goodwill from this acquisition is not expected to be deductible for tax purposes.

4.3. GOODWILL AND INTANGIBLE ASSETS

Goodwill


As of March 31, 2019,2020, the carrying value of goodwill relating to business acquisitions is $226,505.$196,633. The carrying value of goodwill is allocated to reporting units is as follows:


Reporting Units Amount
Aegis 162,168
StarTek 64,337
Ending balance, March 31, 2019 $226,505

Reporting Units

Amount

Americas64,315
India15,180
Malaysia47,543
Saudi Arabia54,840
South Africa1,578
Argentina4,991
Australia8,186
Ending balance, March 31, 2020$196,633

We perform a goodwill impairment analysis at least annually (in the fourth quarter of each year) unless indicators of impairment exist in interim periods. The Goodwill was allocated to new reporting units using a relative fair value allocation approach. We performed a quantitative assessment to determine if the fair value of each of our reporting units with goodwill exceeded its carrying value.

The assumptions used in the analysis are based on the Company’s internal budget. The Company projected revenue, operating margins and cash flows for a period of five years and applied a perpetual long-term growth rate thereafter.using discounted cash flows (DCF) method. These assumptions are reviewed annually as part of management’s budgeting and strategic planning cycles. These estimates may differ from actual results. The values assigned to each of the key assumptions reflect the management’s past experience as their assessment of future trends and are consistent with external/internal sources of information.


During the first quarter of 2020, the Company reviewed the carrying value of goodwill due to the events and circumstances surrounding the COVID-19 pandemic. As a result of the recent global economic disruption and uncertainty due to the novel coronavirus ("COVID-19") pandemic, the Company concluded a triggering event had occurred as of March 31, 2019,2020, and accordingly, performed interim impairment testing on the goodwill balances of its reporting units. As quoted market prices are not available for these reporting units, the calculations of their estimated fair values were based on a discounted cash flow model (income approach). 

This approach relied on numerous assumptions and judgments that were subject to various risks and uncertainties. The Company has used internal and external information, including recently signed client engagements for which service delivery has not yet begun and projections adjusted to meet economic forecasts, for the qualitative assessment, we concludedpurpose of computation and developing assumptions. It also includes the Company's estimates of future revenue and terminal growth rates, margin assumptions and discount rates to estimate future cash flows. The calculations explicitly addressed factors such as timing, with due consideration given to forecasting risk. While assumptions utilized are subject to a high degree of judgment and complexity, the Company has made every effort to estimate future cash flows as accurately as possible, given the high degree of economic uncertainty that exists as of March 31,2020.

The results of these interim impairment tests indicated that the estimated fair value of the India, South Africa and Australia reporting unit was less than its carrying value. Consequently, a goodwill impairment charge of $15,820, $4,332 and $2,556 was recorded for the India, South Africa and Australia reporting unit respectively. If the pandemic's economic impact is more severe, or if the economic recovery takes longer to materialize or does not impaired.


materialize as strongly as anticipated, this could result in further goodwill impairment charges.

The following table presents the changes in goodwill during the period:

  Amount
Opening balance, December 31, 2018 $225,450
Measurement period adjustments 1,055
Ending balance, March 31, 2019 $226,505



  

Amount

 

Opening balance, December 31, 2019

 $219,341 

Impairment

  (22,708)

Ending balance, March 31, 2020

 $196,633 

Intangible Assets


The following table presents our intangible assets as of March 31, 2019:

  Gross Intangibles Accumulated Amortization Net Intangibles Weighted Average Amortization Period (years)
Customer relationships $65,050
 $6,367
 $58,683
 6.5
Brand 49,500
 4,971
 44,529
 7.2
Trademarks 14,410
 670
 13,740
 7.6
Other intangibles 2,100
 326
 1,774
 4.9
  $131,060
 $12,334
 $118,726
 

2020

  Gross Intangibles  Accumulated Amortization  

Net Intangibles

  Weighted Average Amortization Period (years) 

Customer relationships

 $66,220  $12,078  $54,142   6.5 

Brand

  49,500   8,647   40,853   7.1 

Trademarks

  13,210   1,495   11,715   7.5 

Other intangibles

  2,130   615   1,515   4.9 
  $131,060  $22,835  $108,225  $- 

As a result of the indicator of impairment identified, the Company performed an interim impairment assessment of its intangible assets as of March 31, 2020. Based on the results of our analyses, the estimated fair values of the trade names exceeded the carrying values.

Expected future amortization of intangible assets as of March 31, 20192020 is as follows:

Years Ending December 31,

 

Amount

 

Remainder of 2020

 $7,762 

2021

  10,350 

2022

  10,350 

2023

  10,306 

2024

  10,252 

Thereafter

  59,205 

Years Ending December 31, Amount
Remainder of 2019 $7,816
2020 10,277
2021 10,277
2022 10,277
2023 10,236
Thereafter 69,843

5.4.  REVENUE

The company follows a five-stepfive-step process in accordance with ASC 606, for revenue recognition that focuses on transfer of control, rather than transfer of risks and rewards.


Contracts with Customers

All of the Company's revenues are derived from written contracts with our customers. Generally speaking, our contracts document our customers' intent to utilize our services and the relevant terms and conditions under which our services will be provided. Our contracts generally do not contain minimum purchase requirements nor do they include termination penalties. Our customers may generally cancel our contract, without cause, upon written notice (generally ninety days). While our contracts do have stated terms, because of the facts stated above, they are accounted for on a month-to-month basis.


Our contracts give us the right to bill for services rendered during the period, which for the majority of our customers is a calendar month, with a few customers specifying a fiscal month. Our payment terms vary by client and generally range from due upon receipt to 60-9060-90 days.


Performance Obligations

We have identified one main performance obligation for which we invoice our customers, which is to stand ready to provide care services for our customers’ clients. A stand-ready obligation is a promise that a customer will have access to services as and when the customer decides to use them. Ours is considered a stand-ready obligation because the delivery of the underlying service (that is, receiving customer contact and performing the associated care services) is outside of our control or the control of our customer.


Our stand-ready obligation involves outsourcing of the entire customer care life cycle, including:


The identification, operation, management and maintenance of facilities, IT equipment, and IT and telecommunications infrastructure
Management of the entire human resources function, including recruiting, hiring, training, supervising, evaluating, coaching, retaining, compensating, providing employee benefits programs, and disciplinary activities



The identification, operation, management and maintenance of facilities, IT equipment, and IT and telecommunications infrastructure

Management of the entire human resources function, including recruiting, hiring, training, supervising, evaluating, coaching, retaining, compensating, providing employee benefits programs, and disciplinary activities

These activities are all considered an integral part of the production activities required in the service of standing ready to accept calls as and when they are directed to us by our clients.

13

Revenue Recognition Methods


Because our customers receive and consume the benefit of our services as they are performed and we have the contractual right to invoice for services performed to date, we have concluded that our performance obligation is satisfied over time. Accordingly, we recognize revenue for our services in the month they are performed. This is consistent with our prior revenue recognition model.


We are generally entitled to invoice for our services on a monthly basis. We invoice according to the hourly and/or per transaction rates stated in each contract for the various activities we perform. Some contracts include opportunities to earn bonuses or include parameters under which we will incur penalties related to performance in any given month. Bonus or penalty amounts are based on the current month’s performance. Formulas are included in the contracts for calculation of any bonus or penalty. There is no other performance in future periods that will impact the bonus or penalty calculation in the current period. We estimate the amount of the bonus or penalty using the “most likely amount” method and we apply this method consistently. The bonus or penalty calculated is generally approved by the client prior to billing (and revenue being recognized).


Practical expedients and exemptions


Because the Company’s contracts are essentially month-to-month, we have elected the following practical expedients:


ASC 606-10-50-14

ASC 606-10-50-14 exempts companies from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less

ASC 340-40-25-4 allows companies to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less.

ASC 606-10-32-2A allows an entity to make an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer (for example, sales, use, value added, and some excise taxes)

ASC 606-10-55-18 allows an entity that has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date (for example, a service contract in which an entity bills a fixed amount for each hour of service provided), the entity may recognize revenue in the amount to which the entity has a right to invoice.

The Company has evaluated the impact of COVID-19 on the Company’s net revenues for the three months ended March 31, 2020, including as a result of constraints on the Company’s ability to render services, whether due to full or partial shutdowns of the transaction price allocatedCompany’s facilities or significant travel restrictions, penalties relating to remainingbreaches of service level agreements and contract terminations or contract performance obligations ifdelays initiated by clients. Based on this evaluation, the performance obligation is partCompany has concluded that, during the three months ended March 31, 2020, the impact of a contract that has an original expected duration of one year or less

ASC 340-40-25-4 allows companiesCOVID-19 was not material to the Company’s net revenues. Due to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization periodnature of the asset thatpandemic, the entity otherwise would have recognized is one year or less.
ASC 606-10-32-2A allows an entityCompany continues to make an accounting policy electionmonitor developments to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer (for example, sales, use, value added, and some excise taxes)
ASC 606-10-55-18 allows an entity that has a rightidentify significant uncertainties relating to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date (for example, a service contract in which an entity bills a fixed amount for each hour of service provided), the entity may recognize revenue in the amount to which the entity has a right to invoice.

future periods.

Disaggregated Revenue


Revenues by our clients' industry vertical for the three months ended March 31, 2019 2020 and 2018,2019, respectively:

  

Three Months Ended March 31,

 

Vertical:

 

2020

  

2019

 

Telecom

  55,697   65,824 

E-commerce & Consumer

  25,958   24,344 

Financial & Business Services

  13,439   13,320 

Media & Cable

  23,194   21,757 

Travel & Hospitality

  15,803   16,514 

Healthcare & Education

  13,448   10,529 

Technology, IT & Related Services

  5,050   2,437 

All other segments

  8,588   6,417 

Gross Revenue

  161,177   161,142 

Less: Warrant Contra Revenue

  (278)  - 

Net Revenue

 $160,899  $161,142 

  Three Months Ended March 31,
Vertical: 20192018
Telecom 65,824
66,323
E-commerce & Consumer 24,344
8,113
Financial & Business Services 13,320
15,264
Media & Cable 21,757
3,317
Travel & Hospitality 16,514
13,641
Healthcare & Education 10,529
2,630
Energy, Power & utility 2,485
3,016
All other segments 6,369
2,791
Total $161,142
$115,095



6.5. NET LOSS PER SHARE

Basic net loss per common share is computed based on our weighted average number of common shares outstanding. Diluted earnings per share is computed based on our weighted average number of common shares outstanding plus the effect of dilutive stock options, non-vested restricted stock, and deferred stock units, using the treasury stock method. 


When a net loss is reported, potentially issuable common shares are excluded from the computation of diluted earnings per share as their effect would be anti-dilutive.


In connection with the Aegis Transactions, the

The Company always maintained Startek's 2008 Equity Incentive Plan (see Note 11,10, "Share-based compensation and employee benefit plans" for more information). For the three months ended March 31, 2019,2020, the following shares were not included in the computation of diluted earnings per share because we reported a net loss and the effect would have been anti-dilutive (in thousands):

  

Three Months Ended March 31,

 
  

2020

  

2019

 

Anti-dilutive securities:

        

Stock options

  2,316   2,782 

Three Months Ended March 31, 2019Three Months Ended March 31, 2018
Anti-dilutive securities:
Stock options2,782


7. RESTRUCTURING AND OTHER MERGER RELATED6. IMPAIRMENT LOSSES & RESTRUCTURING/EXIT COST

Impairment Loss

During the first quarter of 2020, the Company reviewed the carrying value of goodwill due to the events and circumstances surrounding the COVID-19 pandemic. As a result of the recent global economic disruption and uncertainty due to the novel coronavirus ("COVID-19") pandemic, the Company concluded a triggering event had occurred as of March 31, 2020, and accordingly, performed interim impairment testing on the goodwill balances of its reporting units.

During first Quarter of 2020, a goodwill impairment charge of $15,820, $4,332 and $2,556 was recorded for the India, South Africa and Australia reporting unit respectively.

Restructuring/Exit Cost

The table below summarizes the balance of accrued restructuring, other acquisition related cost and other merger relatedinvoluntary termination cost, which is included in other accrued liabilities in our consolidated balance sheets, and the changes during the three months ended March 31, 2019: 

 Employee relatedFacilities relatedTotal
Balance as of December 31, 2018$760
$2,356
$3,116
Accruals/(reversals)1,362
(269)1,093
Payments(735)(614)(1,349)
Balance as of March 31, 2019$1,387
$1,473
$2,860

2020

  

Employee related

  

Facilities related

  

Total

 

Balance as of December 31, 2019

 $1,326  $514  $1,840 

Accruals/(reversals)

  1,583   31   1,614 

Payments

  (1,168)  (178)  (1,346)

Balance as of March 31, 2020

 $1,741  $367  $2,108 

Employee related


In 2018, in conjunction with the closing of the Aegis Transactions,2020, under a company-wide restructuring plan, we eliminated a number of positions which were considered redundant under a company-wide restructuring plan.coupled with change in key management personnel , We recognized provision for employee related costs across a number of geographies and we expect to pay the remaining costs of $446$1,721 by the end of third quarter 2019.


2020.

In March 2019, the Company has closed one of its sites in Argentina. Upon closure, the Company eliminated a number of positions which were considered redundant and recognized provision for employee related costs and we expect to pay the remaining costs of $941$20 by the end of fourthsecond quarter 2019.


2020.

Facilities related


In 2018, in conjunction with the closing of the Aegis Transactions, we terminated various leases in the United States and the Philippines.Philippines due to closedown of the facilities. We recognized provision for the remaining costs associated with the leases. We expect to pay the remaining costs of $832$359 by the end of the first quarter of 2021.


Upon closure of site in Argentina, the Company recognized provision for facility related costs and we expect to pay the remaining costs of $162$8 by the end of the fourthsecond quarter of 2019.2020.

15


The Company has ceased operations in the United Kingdom on January 12, 2018. Upon closure, the Company recognized provision for the remaining costs associated with the leaseTable of $1,868 as of March 31, 2018. We expect to pay the remaining costs of $479 by the end of the second quarter 2019.Contents




8.7.  DERIVATIVE INSTRUMENTS

Cash flow hedges


Our locations in Canada and the Philippines primarily serve US-based clients. The revenues from these clients is billed and collected in US Dollars, but the expenses related to these revenues are paid in Canadian Dollars and Philippine Pesos. We enter into derivative contracts, in the form of forward contracts and range forward contracts (a transaction where both a call option is purchased and a put option is sold) to mitigate this foreign currency exchange risk. The contracts cover periods commensurate with expected exposure, generally three to twelve months.  We have elected to designate our derivatives as cash flow hedges in order to associate the results of the hedges with forecasted expenses.


Unrealized gains and losses are recorded in accumulated other comprehensive income (“AOCI”) and will be re-classified

From January 1, 2020 to

operations as the forecasted expenses are incurred, typically within one year. During the three months ended March 31, 2019
2020, we entered into Philippine peso and 2018, our cash flow hedges were highly effectiveCanadian-dollar non-deliverable forward and hedge ineffectiveness was not material.

range forward contracts for a notional amount of 1,387,999,998 Philippine pesos and 3,028,575 in Canadian Dollars.

The following table shows the notional amount of our foreign exchange cash flow hedging instruments as of March 31, 2019:

 Local Currency Notional Amount U.S. Dollar Notional Amount
Canadian Dollar1,600
 $1,254
Philippine Peso2,736,000
 51,642
 
 $52,896

2020:

  

For the Three Months Ended March 31, 2020

  

For the Three Months Ended March 31, 2020

  

Year Ended December 31,2019

  

Year Ended December 31,2019

 
  

Local Currency Notional Amount

  

U.S. Dollar Notional Amount

  

Local Currency Notional Amount

  

U.S. Dollar Notional Amount

 

Philippine Peso

  1,597,000   30,650   769,000   14,361 

Canadian Dollar

  3,300   2,437   1,400   1,047 
      $33,087      $15,408 

The Canadian dollar and Philippine peso foreign exchange contracts are to be delivered periodically through March 2021 at a purchase price of approximately $2,437 and $30,650 respectively, and as such we expect unrealized gains and losses recorded in accumulated other comprehensive income will be reclassified to operations as the forecasted inter-company expenses are incurred, typically within twelve months.

Derivative assets and liabilities associated with our hedging activities are measured at gross fair value as described in Note 9,8, "Fair Value Measurements," and are included in prepaid expense and other current assets and accrued expenses and other current liabilities in our condensed consolidated balance sheets, respectively.


  

Gain (Loss) Recognized in AOCI, net of tax

  

Gain (Loss) Recognized in AOCI, net of tax

  

Gain/ (Loss) Reclassified from AOCI into Income

  

Gain/ (Loss) Reclassified from AOCI into Income

 
  

Three months ended March 31, 2020

  

Three months ended March 31, 2019

  

Three months ended March 31, 2020

  

Three months ended March 31, 2019

 
                 

Cash flow hedges:

                

Foreign exchange contracts

  (860)  65   188   - 

Non-designated hedges


We have also entered into foreign currency range forward contracts and interest swap contract as required by our lenders. These hedges are not designated hedges under ASC 815,Derivatives and Hedging. These contracts generally do not exceed 3 years in duration.


Unrealized gains and losses and changes in fair value of these derivatives are recognized as incurred in Exchange gains (losses), net in the Consolidated Statements of Comprehensive Income (Loss). The following table presents these amounts for the three months ended March 31, 2019:2020 and 2019:

Derivatives not designated under ASC 815

 

For the Three Months Ended March 31, 2020

  

For the Three Months Ended March 31, 2019

 

Foreign currency forward contracts

 $1,771  $26 

Interest rate swap

 $(340) $228 

Derivatives not designated under ASC 815For the Three Months Ended March 31, 2019
Foreign currency forward contracts$26
Interest rate swap$228

9.8.  FAIR VALUE MEASUREMENTS

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy requires that the Company maximize the use of observable inputs and minimize the use of unobservable inputs. The levels of the fair value hierarchy are described below:

Level 1 - Quoted prices for identical instruments traded in active markets.

Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 - Unobservable inputs that cannot be supported by market activity and that are significant to the fair value of the asset, liability, or equity such as the use of certain pricing models, discounted cash flow models and similar techniques



that use significant assumptions. These unobservable inputs reflect our own estimates of assumptions that market participants would use in pricing the asset or liability.liability:

16

Derivative Instruments

The values of our derivative instruments are derived from pricing models using inputs based upon market information, including contractual terms, market prices and yield curves. The inputs to the valuation pricing models are observable in the market, and as such the derivatives are classified as Level 2 in the fair value hierarchy.


The following tables set forth our assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy. These balances are included in Other current assets and Other current liabilities, respectively, on our balance sheet.

  

As of March 31, 2020

 
  

Level 1

  

Level 2

  

Level 3

  

Total

 

Assets:

                

Foreign exchange contracts

 $  $3,458  $  $3,458 

Total fair value of assets measured on a recurring basis

 $  $3,458  $  $3,458 
                 

Liabilities:

                

Interest rate swap

 $  $758  $  $758 

Foreign exchange contracts

 $  $557  $  $557 

Total fair value of liabilities measured on a recurring basis

 $  $1,315  $  $1,315 

  

As of December 31, 2019

 
  

Level 1

  

Level 2

  

Level 3

  

Total

 

Assets:

                

Foreign exchange contracts

 $  $1,823  $  $1,823 

Total fair value of assets measured on a recurring basis

 $  $1,823  $  $1,823 
                 

Liabilities:

                

Interest rate swap

 $  $544  $  $544 

Foreign exchange contracts

 $  $22  $  $22 

Total fair value of liabilities measured on a recurring basis

 $  $566  $  $566 

17

 As of March 31, 2019
 Level 1 Level 2 Level 3 Total
Assets: 
  
  
  
Foreign exchange contracts$
 $1,311
 $
 $1,311
Total fair value of assets measured on a recurring basis$
 $1,311
 $
 $1,311
        
Liabilities: 
  
  
  
Interest rate swap$
 $259
 $
 $259
Foreign exchange contracts$
 $292
 $
 $292
Total fair value of liabilities measured on a recurring basis$
 $551
 $
 $551
 As of December 31, 2018
 Level 1 Level 2 Level 3 Total
Assets: 
  
  
  
Foreign exchange contracts$
 $1,388
 $
 $1,388
Total fair value of assets measured on a recurring basis$
 $1,388
 $
 $1,388
        
Liabilities: 
  
  
  
Interest rate swap$
 $31
 $
 $31
Foreign exchange contracts$
 $276
 $
 $276
Total fair value of liabilities measured on a recurring basis$
 $307
 $
 $307



10. DEBT

 

9. DEBT

The below table presents details of the Company's debt:

  March 31, 2019 December 31, 2018
Short term debt and current portion of long term debt    
Working capital facilities $26,522
 $21,975
Term loan 12,600
 9,800
Capital lease obligations 1,394
 1,816
Total $40,516
 $33,591
     
Long term debt    
Term loan, net of debt issuance costs $116,631
 $120,462
Equipment loan 1,551
 
Secured revolving credit facility 31,215
 31,152
Capital lease obligations 185
 486
Total $149,582
 $152,100

  

March 31, 2020

  

December 31, 2019

 

Short term debt and current portion of long term debt

        

Working capital facilities

 $29,004  $23,179 
Loan from related parties  3,383  $3,312 

Current maturity of long term debt

  17,850   16,800 
Equipment loan  816   801 

Current maturity of finance lease obligations

  750   632 

Total

 $51,803  $44,724 
         

Long term debt

        

Term loan, net of debt issuance costs

 $100,204  $105,075 

Equipment loan

  409   619 

Secured revolving credit facility

  21,935   23,097 

Finance lease obligations

  839   1,353 

Total

 $123,387  $130,144 

Working capital facilities


The Company has a number of working capital facilities in various countries in which it operates. These facilities provide for a combined borrowing capacity of approximately $33.6$30 million for a number of working capital products. These facilities bear interest at benchmark rate plus margins between 3.0% and 4.5% and are due on demand. These facilities are collateralized by various Company assets and have a total outstanding balance of $26.5$29 million as of March 31, 2019.


2020.

Loan from related parties

On August 26, 2019, the Company entered into a Loan Agreement with Tribus Capital Limited, as lender (“Tribus”), pursuant to which Tribus made a single-draw unsecured term loan to the Company in the aggregate amount of $1.5 million. The Company will pay interest on such loan at the rate of 8.5% per annum. As of March 31, 2020, total outstanding interest balance is $0.08 million. All principal and interest on the loan was paid on April 21, 2020.

On November 20, 2019, the Company entered into a Loan Agreement with Bluemoss Ergon Limited, as lender (“Bluemoss”), pursuant to which Bluemoss made a single-draw unsecured term loan to the Company in the aggregate amount of $1.75 million. The Company will pay interest on such loan at the rate of 8.5% per annum. As of March 31, 2020, total outstanding interest balance is $0.05 million. All principal and interest on the loan was paid on April 22, 2020. 

Term loan


On October 27, 2017, the Company entered into a Senior Term Agreement ("Term loan") to provide funding for the acquisition of ESM Holdings Limited and its subsidiaries in the amount of $140 million for a five year term. The Term loan was fully funded on November 22, 2017 and is to be repaid based on a quarterly repayment schedule beginning six months after the first utilization date.



Principal payments due on the term loan are as follows:

YearsAmount
20198,400
202016,800
202121,000
202288,200
 $134,400

Years

 

Amount

 

Remainder of 2020

  12,600 

2021

  21,000 

2022

  88,200 
Total $121,800 

The Term loan has a floating interest rate of USD LIBOR plus 4.5% annually for the first year and thereafter the margin will range between 3.75% and 4.5% subject to certain financial ratios.


In connection with the Term loan, the Company incurred issuance costs of $7.3 million which are net against the Term loan on the balance sheet. Unamortized debt issuance costs as of March 31, 20192020 amount to $5.2$3.7 million.


Secured revolving credit facility


The Company has a secured revolving credit facility which is effective through March 2022. Under this agreement, we may borrow the lesser of the borrowing base calculation and $50$40 million. As long as no default has occurred and with lender consent, we may increase the maximum availability to $70$60 million in $5 million increments, and we may request letters of credit in an aggregate amount equal to the lesser of the borrowing base calculation (minus outstanding advances) and $5 million.aggregate revolving credit commitments. The borrowing base is generally defined as 95%90% of our eligible accounts receivable less certain reserves.


As of March 31, 2019,2020, we had $31.22$21.93 million of outstanding borrowings and our remaining borrowing capacity was $8.82$13.40 million. Our borrowings bear interest at one-monthone-month LIBOR plus 1.50% to 1.75%, depending on current availability.


Non-recourse factoring

We have entered into factoring agreements with financial institutions to sell certain of our accounts receivable under non-recourse agreements. TheseUnder the arrangement, the Company sells the trade receivables on a non-recourse basis and accounts for the transactions as sales of receivables. The applicable receivables are accounted for as a reduction in accounts receivable becauseremoved from the agreements transfer effective control over and risk related toCompany's consolidated balance sheet when the receivables tocash proceeds are received by the buyers.Company. We do not service any factored accounts after the factoring has occurred. We utilize factoring arrangements as part of our financing for working capital. The aggregate gross amount factored under these agreements was $1.55$12.8 million for three months ended March 31, 2019.2020.

18

BMO Equipment Loan


On December 27, 2018, the Company executed an agreement to secure a loan against US and Canadian assets in the amount of $1.65$2.06 million at the interest of 7.568%7.57% per annum, to be repaid over 2.5 years. The loan was funded in January 2019.


Capital

Finance lease obligations


From time to time and when management believes it to be advantageous, we may enter into other arrangements to finance the purchase or construction of capital assets.


11.10. SHARE-BASED COMPENSATION

Amazon Warrant


On January 23, 2018, Startek entered into the Amazon Transaction Agreement, pursuant to which we agreed to issue to Amazon.com NV Investment Holdings LLC, a wholly owned subsidiary of Amazon (“NV Investment”), a warrant (the “Warrant”) to acquire up to 4,000,000 shares (the “Warrant Shares”) of our common stock, par value $0.01 per share (“Common Stock”), subject to certain vesting events. As a result of an anti-dilution adjustment that was triggered in 2019, total number of shares issuable to Amazon have been adjusted from 4,000,000 to 4,002,964. We entered into the Amazon Transaction Agreement in connection with commercial arrangements between us and any of our affiliates and Amazon and/or any of its affiliates pursuant to which we and any of our affiliates provide and will continue to provide commercial services to Amazon and/or any of its affiliates. The vesting of the Warrant shares, described below, is linked to payments made by Amazon or its affiliates (directly or indirectly through third parties) pursuant to the commercial arrangements.


The first tranche of 425,532 Warrant Shares vested upon the execution of the Amazon Transaction Agreement. The remainder of the Warrant Shares will vest in various tranches based on Amazon’s payment of up to $600 million to us or any of our affiliates in connection with the receipt by Amazon or any of its affiliates of commercial services from us or any of our affiliates. The exercise price for all Warrant Shares will bewas originally $9.96 per share.share but was adjusted to $9.95 per share as a result of an anti-dilution adjustment that was triggered in 2019. The Warrant Shares are exercisable through January 23, 2026. As

The second tranche of March212,766 Warrant Shares vested on May 31, 2019. The amount of contra revenue attributed to these Warrant Shares is $730.

The third tranche of 212,953 Warrant Shares vested on Feb 29,2020. The amount of contra revenue attributed to these Warrant Shares is $278 after adjusting the impact of $413 towards adoption of ASU 2019-08 on January 01, 2020 and $565 towards accrual till December 31, 2019, no additional Warrant Shares have vested.


respectively using initial grant-date fair value.

The contra-revenue and equity is estimated and recorded, using the Monte Carlo pricing model, when performance completion is probable, with adjustments in each reporting period until performance is complete in conformance with the requirements in ASC 606 and ASC 718.

The Warrant provides for net share settlement that, if elected by the holders, will reduce the number of shares issued upon exercise to reflect net settlement of the exercise price. The Warrant provides for certain adjustments that may be made to the exercise price and the number of shares of common stock issuable upon exercise due to customary anti-dilution provisions based on future events. Vested Warrant Shares are classified as equity instruments.


Because

In line with ASU 2019-08, the Warrant contains performance criteria (i.e. aggregate purchase levels)Company has measured share-based payments at grant-date fair value, which Amazon and/or any of its affiliates must achievewill be the basis for the Warrant Sharesamount to vest, as detailed above,be reduction in revenue. The Company has given the finaltransitional impact of $413 in Equity in respect of awards wherein measurement date for each tranchewas not established or were not settled as of the Warrant Sharesbeginning of financial year in which ASU is the date on which performance is completed. Prior to the final measurement date, when achievement of the performance criteria has been deemed probable, a reduction in revenue equal to the percentage of completion to date will be recognized. The fair value of the Warrant Shares will be adjusted at each reporting period until they are earned.




adopted (i.e. Jan 01, 2020).

Share-based compensation


Our share-based compensation arrangements include grants of stock options, restricted stock units and deferred stock units under the StarTek, Inc. 2008 Equity Incentive Plan and our Employee Stock Purchase Plan. The compensation expense that has been charged against income for the three months ended March 31, 20192020 was $425,$291, and is included in selling, general and administrative expense. As of March 31, 2019,2020, there was $1,730 of totalno unrecognized compensation expense related to nonvestednon-vested stock options, which is expected to be recognized over a weighted-average period of 2.29 years.options.


12.11.  ACCUMULATED OTHER COMPREHENSIVE LOSS

Accumulated other comprehensive loss consisted of the following items:

  Foreign Currency Translation Adjustment  Derivatives Accounted for as Cash Flow Hedges  Defined Benefit Plan  Equity attributable to Startek shareholders  Non-controlling interests  

Total

 

Balance at December 31, 2019

 $(4,568) $475  $(1,929)   $(6,022) $(1,597) $(7,619)

Foreign currency translation

  (4,392)  -   -    (4,392)  -   (4,392)

Reclassification to operations

  -   188   -    188   -   188 
Unrealized losses  -   (860)  -    (860)  -   (860)

Pension remeasurement

  -   -   233    233   163   396 

Balance at March 31, 2020

 $(8,960) $(197) $(1,696)   $(10,853) $(1,434) $(12,287)

  Foreign Currency Translation Adjustment  Derivatives Accounted for as Cash Flow Hedges Defined Benefit Plan Equity attributable to Startek shareholders Non-controlling interests Total
 Balance at December 31, 2018$(3,989) $(15) $(1,543) $(5,547) $(1,243) $(6,790)
 Foreign currency translation567
 
 
 567
 
 567
 Unrealized losses
 (65) 
 (65) 
 (65)
Pension remeasurement
 
 90
 90
 86
 176
 Balance at March 31, 2019$(3,422) $(80) $(1,453) $(4,955) $(1,157) $(6,112)

13.12.  SEGMENT AND GEOGRAPHICAL INFORMATION

The Company provides business process outsourcing services (“BPO”) to clients in a variety of industries and geographical locations. Our approach is focused on providing our clients with the best possible combination of services and delivery locations to meet our clients' needs in the best and most efficient manner. Our Chief Executive Officer (CEO) and President, who hashave been identified as the Chief Operating Decision Maker ("CODM"), reviews financial information mainly on a consolidatedgeographical basis.


Based

In the fourth quarter of 2019, we reorganized our operating business model. Our new operating business model is focused on geographies in which we operate. Our CODM reviews the performance and makes resource allocation geography wise, hence the geographical level represents the operating segments of Startek, Inc.

Prior period results have been revised for segment disclosure to conform to current period presentation. We report our evaluationresults of the factsoperations as follows in Six reportable segments:- 
a) Americas
b) Middle East
c) Malaysia 
d) India
and circumstances, the Company has concluded that it has a single operating and reportable segment (BPO), and two reporting units (Aegis and Startek).


The Group prepares its geographical information in conformity with the accounting policies adopted for preparing and presenting the consolidated financial statementsSri Lanka 
e) Argentina & Peru
f) Rest
of the Group as a whole.

Revenues by geography, based on the location of the Company's delivery centers, is presented below:
 For the Three Months Ended March 31,
 2019 2018
Revenue:   
India27,346
 32,934
Middle East31,118
 32,248
Malaysia17,079
 14,490
Argentina11,111
 16,344
United States29,744
 
Australia7,356
 9,809
Philippines12,809
 
Rest of World24,579
 9,270
Total$161,142
 $115,095



World

  

Three Months Ended

 
  

March 31,

 
  

2020

  

2019

 

Revenue:

        
    Americas  68,168   63,603 

India & Sri Lanka

  24,252   28,209 

Malaysia

  11,885   12,448 

Middle East

  34,517   31,118 

Argentina & Peru

  10,208   12,584 

Rest of World

  11,869   13,180 

Total

 $160,899  $161,142 
         
Operating income (loss):        

Americas

 $926  $865 

India & Sri Lanka

  (695)  1,130 
   Malaysia  1,635   1,444 
   Middle East  1,617   1,257 
   Argentina & Peru  16   (439)
   Rest of World  272   413 
Segment operating income  3,771   4,670 
Startek consolidation adjustments        
Goodwill impairment  22,708   - 

Intangible amortization

  2,582   2,628 
Total operating income $(21,519) $2,042 

Property, plant and equipment, net by geography based on the location of the assets is presented below:

 As on March 31, 2019 As on December 31, 2018
Property, plant and equipment, net:   
India12,442
 13,287
Middle East5,983
 6,507
Malaysia5,093
 5,058
Argentina1,277
 1,341
United States5,341
 5,349
Australia311
 345
Philippines2,376
 2,835
Rest of World8,815
 7,520
Total$41,638
 $42,242

14.  LEASES

  As on  As on 
  March 31, 2020  December 31, 2019 

Property, plant and equipment, net:

        

Americas

  13,282   14,156 

India & Sri Lanka

  9,689   10,772 

Malaysia

  4,018   4,375 

Middle East

  4,405   4,722 

Argentina & Peru

  1,653   1,701 

Rest of World

  1,086   1,781 

Total

 $34,133  $37,507 

 

13.  LEASES

We have operating and finance leases for service centers, corporate offices and certain equipment. Our leases have remaining lease terms of 1 year to 10 years, some of which include options to extend the leases for up to 3-5 years, and some of which include

options to terminate the leases within 1 year.

The components of lease expense were as follows:

  

Three months ended

  

Three months ended

 
  

March 31, 2020

  

March 31, 2019

 
         

Operating lease cost

 $7,259  $7,540 
         

Finance lease cost:

        

Amortization of right-of-use assets

  327   484 

Interest on lease liabilities

  43   28 

Total finance lease cost

  370   512 

20

 Three months ended March 31, 2019
  
Operating lease cost$7,540
  
Finance lease cost: 
Amortization of right-of-use assets484
Interest on lease liabilities28
Total finance lease cost$512

Supplemental cash flow information related to leases was as follows:

Three months ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases7,563
Operating cash flow from finance leases28
Financing cash flows from finance leases653
Right-of-use assets obtained in exchange for lease obligations:
Operating leases76,983
Finance lease



  

Three Months Ended

  

Three months ended

 
  

March 31, 2020

  

March 31, 2019

 
         

Cash paid for amounts included in the measurement of lease liabilities:

        

Operating cash flows from operating leases

  7,183   7,563 

Operating cash flow from finance leases

  43   28 

Financing cash flows from finance leases

  116   653 
         

Right-of-use assets obtained in exchange for lease obligations:

        

Operating leases

  13,558   76,983 

Finance lease

  -   - 

Supplemental balance sheet information related to leases was as follows:

 As of March 31, 2019
Operating Leases 
Operating lease right-of-use assets$76,983
Other current liabilities23,204
Operating lease liabilities55,016
Total operating lease liabilities$78,220
  
Finance Leases 
Property and equipment, at cost10,899
Accumulated depreciation(8,679)
Property and equipment, at net$2,220
Other current liabilities1,394
Other long-term liabilities184
Total finance lease liabilities$1,578
As of March 31, 2019
Weighted average remaining lease term
Operating leases5 years
Finance leases1 year
Weighted average discount rate
Operating leases7.48%
Finance leases4.38%

  

As of

  

As of

 
  

March 31, 2020

  

March 31, 2019

 

Operating Leases

        

Operating lease right-of-use assets

 $79,370  $73,692 

Operating Lease Liabilities-Current

  20,761   19,677 

Operating Lease Liabilities-Non-Current

  59,404   54,341 

Total operating lease liabilities

 $80,165  $74,018 
         

Finance Leases

        

Property and equipment, at cost

  5,166   4,391 

Accumulated depreciation

  (3,088)  (1,984)

Property and equipment, at net

 $2,078  $2,407 

Finance Lease Obligation-Current

  750   632 

Finance Lease Obligation-Non Current

  839   1,353 

Total finance lease liabilities

 $1,589  $1,985 

  

As of

  

As of

 
  

March 31, 2020

  

March 31, 2019

 

Weighted average remaining lease term

        

Operating leases

  4.58 yrs   4.66 yrs 

Finance leases

  1.67 yrs   1.92 yrs 
         

Weighted average discount rate

        
Operating leases  6.84%   7.27% 
Finance leases  6.01%   6.01% 

Maturities of lease liabilities were as follows:

  

Operating leases

  

Finance leases

 

Year ending December, 31

        

Remaining of 2020

 $25,312  $706 

2021

  15,978   575 

2022

  14,590   442 

2023

  11,740   - 

2024

  10,190   - 

Thereafter

  6,886   - 

Total lease payments

 $84,696  $1,723 

Less imputed interest

  (4,531)  (134)

Total

 $80,165  $1,589 

 Operating leasesFinance leases
Year ending December, 31  
Remaining of 2019$28,054
$1,295
202020,525
312
202113,316
14
202210,132

20236,636

Thereafter13,202

Total lease payments$91,865
$1,621
Less imputed interest(13,645)(43)
Total$78,220
$1,578

15.

14.  SUBSEQUENT EVENT

COVID-19

There are many uncertainties regarding COVID-19, and the Company is closely monitoring the effects of the pandemic on all aspects of its business, including how it will impact the Company, its customers, employees, contractors, suppliers, business partners and delivery models. The Company evaluated subsequent events through May 07, 2019,is unable to determine with any degree of accuracy the length and severity of the COVID-19 crisis and what impact it will have on its future financial position and operating results. The COVID-19 crisis is ongoing and dynamic in nature and, to date, the Company has experienced temporary closures in key operations centers, including in the U.S., India, Philippines, Malaysia, Saudi Arabia and South Africa. However, the Company expects that COVID-19 will negatively impact its operating results in future periods. Because the duration and extent of these financial statements were issued. There were no material subsequent events that required recognition or additional disclosurethe COVID-19 pandemic is highly uncertain, the Company will continue to assess the evolving impact of COVID-19 on its business.

Term Loan

Given the current COVID-19 situation, the Company had initiated discussions with the lender consortium seeking certain waivers from the quarterly covenant testing and a deferment of the principal repayments on the Senior Term Loan. While the Company has initiated the process of amending the Facility Agreement, it has received an in these financial statements.principle approval from the lender consortium with respect to such waivers subject to certain conditions.



ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the results of operations and financial condition should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes includedthat appear elsewhere in this report.Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2019 and with the information under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2019. All dollar amounts are presented in thousands other than per share data.


BUSINESS DESCRIPTION AND OVERVIEW

Startek is a global business process outsourcing company that provides omnichannel customer interactions, technology and back-office support solutions for some of the world’s most iconic brands in a variety of markets vertical.vertical markets. Operating under the Startek and Aegis brands,brand, we help these large global companies connect emotionally with their customers, solve issues, and improve net promoter scores and other customer-facing performance metrics. Through consulting and analytics services, technology-led innovation, and engagement solutions, powered by the science of dialogue, we deliver personalized experiences at the point of conversation between our clients and their customers across every interaction channel and phase of the customer journey.


Startek has proven results for the multiple services we provide, including sales, order management and provisioning, customer care, technical support, receivables management, and retention programs. We manage programs using a variety of multi-channel customer interactions, including voice, chat, email, social media and back-office support. Startek has facilities in India, United States, Malaysia, Philippines, Australia, South Africa, Canada, Honduras, Jamaica, Kingdom of Saudi Arabia, Argentina, Peru and Sri Lanka.


SIGNIFICANT DEVELOPMENTS

Change in Chief Executive Officer

On January 12, 2020, the Board of Directors appointed Aparup Sengupta to serve as the new Chief Executive Officer of the Company effective as of January 15, 2020. Mr. Sengupta succeeds Lance Rosenzweig, who resigned as the Chief Executive Officer and as a member of the Board of Directors of the Company, effective as January 15, 2020.

Coronavirus

On March 11, 2020, the World Health Organization characterized the novel coronavirus (“COVID-19”) a pandemic. The global nature, rapid spread and continually evolving response by governments throughout the world to combat the spread has had a negative impact on the global economy. Certain of our customer engagement centers have been impacted by local government actions restricting facility access or are operating at lower capacity utilization levels. In response to COVID-19, we have prioritized the safety and well-being of our employees, business continuity for our clients and supporting the efforts of governments around the world to contain the spread of the virus. In light of our commitment to help our clients as they navigate unprecedented business challenges while protecting the safety of our employees, we have taken numerous steps, and will continue to take further actions, to address the COVID-19 pandemic. We operateworked closely with our clients to support them as they implemented their contingency plans, helping them access our services and solutions remotely. In discussion with our clients and after obtaining appropriate clearances, we have gradually shifted many of our employees to a work-at-home model. However, in respect certain client projects work-from-home scenario may not be possible due to regulatory or other compliance requirements. Further, due to infrastructure and technology limitations, certain of our operations may not be operating at optimal levels.

At this time, we are unable to accurately predict what effects these conditions will have on our operations, including due to uncertainties relating to spread of the virus for a single operating segment providing business outsourcing solutionsprolonged period, the duration of the pandemic, the severity with which it will affect operations of our customers and customer demand and the length of the lockdowns and restrictions imposed by various governments or the evolution in the customer experience management space.


SIGNIFICANT DEVELOPMENTS
None

labor rules regarding continuation of pay that will apply across various governments. We continue to actively monitor the impacts of and responses to COVID-19 and the related risks, and plan to respond accordingly. The pandemic continues to rapidly evolve, and its ultimate impacts will depend on future developments that are uncertain and cannot be predicted with confidence and may materially adversely affect our business irrespective of our efforts to mitigate the impact. 

Considering  the uncertainties, the current results and financial condition discussed herein may not be indicative of future operating results and trends.

RESULTS OF OPERATIONS — THREE MONTHS ENDED MARCHthree months ended March 31, 2019 AND 2018


Pursuant to the completion of the Aegis acquisition on July 20, 2018, the Aegis Stockholder became the holder of 20,766,667 shares of Common Stock, representing approximately 55% of the outstanding Common Stock. For accounting purposes, the Aegis acquisition is treated as a reverse acquisition2020 and Aegis is considered the accounting acquirer. Accordingly, Aegis’ historical financial statements replace the Company’s historical financial statements following the completion of the Aegis Transactions, and the results of operations of both companies will be included in the Company’s financial statements for all periods following the completion of the Aegis Transactions. The historical financial information presented2019

Revenue

Our gross revenues for the periods and dates priorthree month period ended March 31, 2020 increased by 0.02% to July 20, 2018 is that of Aegis, and for periods subsequent$161,177 as compared to July 20, 2018 is that of the combined company.


As a result, the financials discussed below are not strictly comparable as the financials$161,142 for the three-month period ended March 31, 2018 represent legacy Aegis operations and the three-month period ended March 31, 2019 represents the combined operations of Aegis and Startek.

Revenue

2019. 

Our revenuesnet revenue for the quarter ended March 31, 2019 increased by 40.0% to $161,142 as compared to $115,0952020 and 2019:

  

For the Three Months Ended March 31, 2020

  

For the Three Months Ended March 31, 2019

 

Revenues

 $161,177  $161,142 
Warrant Contra Revenue  (278)  - 

Net Revenue

  160,899   161,142 

Our net revenues adjusted for warrant contra revenue for the three-month periodthree months ended March 31, 2018. The increase in revenues is largely due2020 was lower at $160,899 compared to $161,142 for the consolidation of Startek with Aegis.


The three-month periodthree months ended March 31, 2018 includes only Aegis while the current three-month period ended March 31, 2019 includes both Startek and Aegis. In order to promote a better understanding of the overall results of the combined business, we are providing below pro forma revenues for the three-month period ended March 31, 2018 combining the revenues for Aegis and Startek. The financial information presented below is presented for illustrative purposes only and does not purport to represent what the results of operations of operations would actually have been had the combination of Aegis and Startek occurred on January 1, 2018, or to project the combined results of operations for any future periods.



 For Three Months Ended March 31, 2019Pro Forma For Three Months Ended
March 31, 2018
Revenues$161,142
$184,209
Warrant Contra Revenue
(2,500)
Net Revenue161,142
181,709

Our net revenues for the three-month period ended March 31, 2019 was $161,142 compared to $181,709 for the three-month period ended March 31, 2018 on a pro forma basis.2019. The breakdown of our net revenues from various industry verticals for three-month periodthree months ended March 31, 2020 and March 31, 2019 and three-month periodis as follows:

  

For the Three Months Ended March 31, 2020

  

For the Three Months Ended March 31, 2019

 
       

Verticals:

        

Telecom

  35%  41%

E-commerce & Consumer

  16%  15%

Financial & Business Services

  8%  8%

Media & Cable

  15%  13%

Travel & Hospitality

  10%  10%

Healthcare & Education

  8%  7%

Technology, IT & Related Services

  3%  2%
Others  5%  4%

Our concentration to telecom vertical eased considerably in the past twelve months with the telecom vertical contributing to around 35% of our revenue for the three months ended March 31, 2018 on a pro forma basis2020 as compared to 41% for the comparable three months ended March 31, 2019.  Our strategy in telecom vertical is as follows:

 For Three Months Ended
March 31, 2019
Pro Forma For Three Months Ended March 31, 2018
Verticals:  
Telecom$65,824
$96,862
E-commerce & Consumer24,344
16,370
Financial & Business Services13,320
17,078
Media & Cable21,757
17,630
Travel & Hospitality16,514
14,015
Healthcare & Education10,529
8,489
Energy, Power & utility2,485
3,225
All other segments6,369
8,041
Total$161,142
$181,709

Excluding Warrant Contra Revenue, the $23,067 decrease in revenue was driven by lower telecom revenuesto increase offshore operations while we continue to change our mix towards more value-added service and in the Americas, Indiapremium segment of the market relative to the mass segment. 

The Company has successfully offset the decline in revenues from telecom vertical with increased revenues from all other verticals particularly in the Healthcare & Education and other countriese-commerce and consumer. We have increased business with both existing clients as well as due to foreign exchange impact mainly in Argentina and India.


We continued to experience lower volumes from ourwon new clients in the telecommunications industry, especially in certain Asian geographies including India. There has been an increasingly competitive environment in India where telecom companies are increasing their focus on improving profitability and reducing customer care expenditures. We continue to focus on providing value added services to these telecoms and shifting our business mix towards the premium market rather than the mass market.verticals.

23


We have been growing steadily in the e-commerce and consumer industry with our existing customers continue to increase their business with us. We continue to grow new business lines from our large clients in the media and cable industry vertical.

Our revenue growth in the current three-month period ended March 31, 2019 as compared to the three-month period ended March 31, 2018 was also impacted negatively by fluctuations in foreign exchange particularly thatTable of Argentine peso and Indian rupee relative to the US dollar.Contents

Cost of services


Overall, Cost of services as a percentage of revenue increased to 87.5% for the three-month period ended March 31, 2020 as compared to 83.1% for the three-month period ended March 31, 2019 as compared to 81.6% for the three-month period ended March 31, 2018.2019. Employee wages and benefit expense, rent expensecosts and depreciationDepreciation and amortization are the most significant costs for the Company, representing 75.3%75.5%, 5.8%5.7% and 4.1%4.0% of total Cost of services, respectively. The breakdown of Costcost of services is listed in the table below:




 Three Months Ended March 31,As percentage of Revenue
 2019201820192018
Wages and benefits$100,865
$71,230
62.6%61.9%
Rent expense7,798
4,399
4.8%3.8%
Depreciation and amortization5,430
5,521
3.4%4.8%
Other19,835
12,788
12.3%11.1%
Total$133,928
$93,938
83.1%81.6%

Wages and benefits

  

Three Months Ended March 31,

  

As % of Revenue

 
  

2020

  

2019

  

2020

  

2019

 

Employee Benefit Expenses

 $106,389  $100,865   66.1%  62.6%

Rent expense

  8,083   7,798   5.0%  4.8%

Depreciation and amortization

  5,621   5,430   3.5%  3.4%

Other

  20,748   19,835   12.9%  12.3%

Total

 $140,841  $133,928         

Employee Benefit expenses: Our business heavily relies on our employees to provide professional services to our clients. Thus, our most significant costs are payments made to agents, supervisors, and trainers who are directly involved in delivering services to the clients.


For the three-month period ended March 31, 2019, wages and benefits

Employee Benefit expenses as a percentage of revenues increased to 62.6%,66.1% for the current period as compared to 61.9%62.6% for the quarter ended March 31, 2018. While we saw anprevious period. The increase in employee costs, as a percentage of revenues, was largely attributable to higher costs relative to revenues, resulting principally from the requirement by certain governments to continue paying employees while operations are suspended due to COVID-19 in the current period. We also had higher training cost in the current period which was associated with greater new business wins.  On a year on year basis, the costs were also impacted negatively by increase in minimum wages, across several geographies, this was partly offset by our strategy to diversify outside of the telecommunications vertical into other industry verticals.


primarily in India.

Rent expense: Rent expense as a percentage of revenue increased to 4.8%5.0% for the three-month period ended March 31, 2019, compared to 3.8% for three-month period ended March 31, 2018. The increase was largely due to the combination of Startek with Aegis since the rent cost as a percentage of sales is higher for the legacy Startek business taking the consolidated rent costs as a percentage of sales higher. The increase is also attributable to lower revenues in the current period as compared to the previous period4.8% for the legacy Aegis business.


previous. The increase was mainly due to addition of centers in Philippines, Jamaica and Honduras which was partly offset by closure of some centers in Argentina and India.

Depreciation and amortization:Depreciation and amortization expense as a percentage of revenue for the three-monthcurrent period ended March 31, 2019 decreased to 3.4%was marginally higher at 3.5% as compared 4.8%3.4% for the three-month period ended March 31, 2018. The decrease was primarily driven by higher amortization of intangibles during the three-month period ended March 31, 2018.


previous period.

Other expense includes technology, utility, travel and outsourcing costs. As a percentage of revenue, these costs increased from 11.1%12.3% to 12.3%12.9%. The increase was largely due to the combination of Startek with Aegis since these costs ashigher communication, insurance, and rates & taxes expenses.

As a percentage of sales is higher for the legacy Startek business.


In aggregate,result, gross profit as a percentage of revenue for the three-monthcurrent period ended March 31, 2019 decreased to 16.9%12.5% as compared to 18.4%16.9% for the three-month period ended March 31, 2018.

previous period.

Selling, general and administrative expenses


Selling, general and administrative expenses (SG&A) as a percentage of revenue increaseddecreased from 12.5% in the three-month period ended March 31, 2018 to 14.9% in the three-monthprevious period ended March 31, 2019. The increase is largely driven by the Aegis Transaction and the related costs of employeesto 10.7% in the United States, which, as a percentage of sales for legacy Startek, is higher relative to legacy Aegis. As part of the Company-wide restructuring exercise, we have taken stepscurrent period. The Company has been implementing various measures to rationalize costs.


Restructuringcosts and other merger relatedleading to sequential decline in selling, general and administrative expenses. 

Impairment Losses and Restructuring/Exit Cost, Net

Impairment losses and restructuring costs,

Restructuring and other merger related costs net totaled $1,093$24,322 for the three-monthcurrent period ended March 31, 2019. Thisas compared to $1,129 for the previous period. The expense for the first quarter of 2020 primarily relates to goodwill impairment losses of $22,708 and restructuring expenses of $1,614. As a result of the restructuringrecent global economic disruption and uncertainty due to the novel coronavirus ("COVID-19") pandemic the company has taken goodwill impairment charge of our Latin America operations where we closed one delivery center. The$15,820, $4,332 and $2,556, was recorded for India, South Africa and Australia reporting units respectively due to the business outlook.

Acquisition related cost of $6,257

Acquisition related cost for the three-monthprevious period ended March 31, 2018 relates primarily to the acquisitionconsist of Aegis by Capital Square Partners.


professional and advisory fees.


Interest expense, net


Interest and other costexpense, net totaled $3,506 for the current period as compared to $4,465 for the three-month period ended March 31, 2019, compared to $4,129 for the three-month period ended March 31, 2018.previous period. The interest expense is on our term debt and revolving line of credit facilities.


Income tax expense

Income tax expense for the three-monthcurrent period ended March 31, 2019 was $385,$2,876 compared to $332$385 for the three-month period ended March 31, 2018.previous period. The movement in interest cost and the implied effective tax rate was primarily due to shifts in earnings among the various jurisdictions in which we operate. Additionally, movement of funds between various geographies primarily to service our debt facilities also attract withholding taxes.

24

Table of Contents


LIQUIDITY AND CAPITAL RESOURCES


Our primary sources of liquidity are cash flows generated by operating activities, our working capital facilities, and term debt.  We have historically utilized these resources to finance our operations and make capital expenditures associated with capacity expansion, upgrades of information technologies and service offerings, and business acquisitions. Due to the timing of our collections of receivables due from our major customers, we have historically needed to draw on our working capital facilities periodically for ongoing working capital needs.


The Company expects to meet all its debt obligations in a timely manner.

Cash and cash equivalents and restricted cash


Cash and

As of March 31, 2020, cash, cash equivalents and restricted cash held by the Company and all its foreign subsidiaries was $25,688 and $22,919increased by $7,031 to $39,657 as at March 31, 2019 andcompared to $32,626 on December 31, 2018, respectively.2019. Under current tax laws and regulations, if cash and cash equivalents held outside the United States are distributed to the United States in the form of dividends or otherwise, we may be subject to additional U.S. income taxes and foreign withholding taxes.

The restricted cash balance as of March 31, 2020 stood at $11,862 as compared to $12,162 as at December 31, 2019. The restricted cash pertains to debt service reserve account that we have to maintain in accordance with the Senior Term Agreement and also for certain term deposits that need to be maintained in accordance with some of our lease and client agreements.

Cash flows from operating activities


For the three-month periodthree months ended March 31, 20192020, and 2018March 31, 2019, we reported net cash flows generated from operating activities of $(377)$10,168 and $3,758$(377) respectively. The decrease$10,545 increase in net cash flows from operating activities was driven primarily bydue to a decreasenet increase of $8,065 in cash flows related to net changes in operatingfrom assets and liabilities.

liabilities, a $25,304 increase in non-cash reconciling items such as goodwill impairment, deferred tax expense, depreciation and amortization and warrant contra revenue, and an decrease of $(22,824) in net income.

Cash flows used in investing activities


For the three-month periodthree months ended March 31, 20192020, and 2018March 31, 2019, we reported net cash used in investing activities of $3,495$2,884 and $2,897$3,495 respectively. Net cash used in investing activities duringfor both the three-month period ended 2019periods primarily consisted of capital expenditures.

Cash flows generated from financing activities


For the three-month periodthree months ended March 31, 20192020 and 2018March 31, 2019 we reported net cash flows generated from financing activities of $5,217$799 and $488$5,217 respectively. During the three-month periodquarter ended March 31, 20192020 our net borrowings increased by $4,702$756 across our various borrowing arrangements.


arrangements and we collected $43 from the issuance of common stock.

Debt


For more information, refer to Note 10,9, "Debt," and Note 14 "Subsequent events" to our unaudited condensed consolidated financial statements included in Item 1, "Financial Statements."

25



CONTRACTUAL OBLIGATIONS

There were no material changes in our contractual obligations during

Smaller reporting companies are not required to provide the three months ended March 31, 2019.


information required by this item.

OFF-BALANCE SHEET ARRANGEMENTS


We

Apart from certain non-recourse receivables factoring as mentioned in the note 9 of the notes to the consolidated financial statements, we have no other material off-balance sheet transactions, unconditional purchase obligations or similar instruments, and we are not a guarantor of any other entities’ debt or other financial obligations.


obligations 

.

VARIABILITY OF OPERATING RESULTS

We have experienced and expect to continue to experience some quarterly variations in revenue and operating results due to a variety of factors, many of which are outside our control, including: (i) timing and amount of costs incurred to expand capacity in order to provide for volume growth from existing and future clients; (ii) changes in the volume of services provided to clients; (iii) expiration or termination of client projects or contracts; (iv) timing of existing and future client product launches or service offerings; (v) seasonal nature of certain clients’ businesses; and (vi) variability in demand for our services by our clients depending on demand for their products or services, and/or depending on our performance.


performance; (vii) Due to COVID- 19 pandemic. 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In preparing our consolidated financial statements in conformity with GAAP,US-GAAP, management must undertake decisions that impact the reported amounts and related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and assumptions upon which accounting estimates are based. Management applies its best judgment based on its understanding and analysis of the relevant circumstances to reach these decisions. By their nature, these judgments are subject to an inherent degree of uncertainty. Accordingly, actual results may vary significantly from the estimates we have applied.


Please refer to Note 12 of the Notes to the Consolidated Financial Statements in our Form 10-KT10-K for the year ended December 31, 20182019 for a complete description of our critical accounting policies and estimates.



ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As Startek has now qualified for Smaller Reporting Company status, this disclosure is not required.



ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.

As of March 31, 2019,2020, we carried out an evaluation, under the supervision and with the participation of our management, including ourthe Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of ourthe disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).  BasedAt 31 December 2019, the management identified a material weakness relating to certain information technology general control, that resulted in management’s assessment of internal controls over financial reporting as “ineffective”.  In view of the existence of the said material weakness and based on such evaluation, ourthe assessment at the quarter-end, the Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2019,2020, our disclosure controls and procedures were effective and were designed to ensure that all information required to be disclosed by us in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.


Changes in internal controls over financial reporting.On July 20, 2018, we completed Aegis transaction. In connection with this, our internal controls over financial reporting are being integrated to incorporate the internal controls over financial reporting framework of Aegis. Such integration has resulted in changes in our financial reporting (as described in Rule 13a - 15(f) under the Exchange Act) that have materially affected our internal controls over financial reporting specifically in relation to accounting period end closure process and consolidation process. As a result of the remediation plan toineffective. 

To address the material weakness raised by Plante Moran, PLCC in relation to SEC Financial Reportingmatter, management has already carried out remediation for access clean up during the quarter and has also designed the process accounting for significantidentifying and unusual transactions andregular monitoring of direct database changes through logs, post the consolidation process,  there are changes in our internal controls over financial reporting.


Other than the remediation plan to mitigatequarter-end. 

Notwithstanding the material weaknesses identified by Plante Moran, PLLC, additionsweakness matter, as mentioned above, the management, including Chief Executive Officer and modifications to policies and controls over implementation of new lease standard, there has been no change in our internal controls overChief Financial Officer, have concluded that the consolidated financial reporting (as described in Rule 13a - 15(f) under the Exchange Act) duringstatements for the quarter ended March 31, 2019 that has materially affected or is reasonably likely to have2020 presented fairly, in all material affectrespects, our internal controls.financial position, results of operations and cash flows for the quarters presented in conformity with accounting principles generally accepted in the United States.




PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDING

None.


ITEM 1A.  RISK FACTORS

None.

There have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, except for the following

The recent Coronavirus or COVID-19 outbreak continues to expand and may adversely affect our financial condition and results of operations for 2020.

The recent government-imposed restrictions around the world have significantly impacted businesses and their workforces. Most of the geographies in which we operate have been affected by local lockdowns or restrictions on facilities access. Other geographies may be impacted as the coronavirus/COVID-19 spreads and/or existing restrictions may be extended/strengthened. At this point, it is impossible to predict the degree to which supply and demand for our outsourcing services will be affected, as well as the duration of such impact. This uncertainty makes it challenging for management to estimate the future performance of our businesses. However, the impact of COVID-19 will have an adverse impact on our results of operations over the near to medium term.

Given the overall uncertainty and fluidity of the current global pandemic response, coupled with how various government-imposed limitations may translate into client service delivery constraints, the Company may identify additional risk factors going forward which will be provided in the Quarterly Report.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4. MINE SAFETY DISCLOURE

DISCLOSURE

Not applicable.


ITEM 5. OTHER INFORMATION

None.

27


Submission


1.Election of Directors

NameNumber of Shares Voted ForNumber of Shares Voted AgainstAbstain
Aparup Sengupta27,285,0822,156,4251,547
Sanjay Chakrabarty27,306,7482,134,7661,540
Mukesh Sharda27,285,0822,156,4251,547
Bharat Rao27,909,2371,532,2701,547
Lance Rosenzweig27,917,4051,524,4481,201
Albert Aboody29,316,010125,4971,547
Julie Schoenfeld29,313,302128,5441,208
Jerry Schafer29,317,656124,1971,201

There were 5,359,087 broker non-votes on the proposal for election of directors.

2.Ratification of Appointment Independent Registered Public Accounting Firm

Number of Shares Voted ForNumber of Shares Voted AgainstAbstain
34,773,35025,8682,923



There were no broker non-votes on this matter.

3.Approval by Non-binding Vote, the Compensation of our Named Executive Officers

Number of Shares Voted ForNumber of Shares Voted AgainstAbstain
29,356,20445,28541,565

There were 5,359,087 broker non-votes on this matter.

4.Approval of the Amendment of our 2008 Equity Incentive Plan

Number of Shares Voted ForNumber of Shares Voted AgainstAbstain
29,290,434104,52748,093

There were 5,359,087 broker non-votes on this matter.

5.Approval of the Amendment of our Employee Stock Purchase Plan

Number of Shares Voted ForNumber of Shares Voted AgainstAbstain
29,371,69123,15748,206

There were 5,359,087 broker non-votes on this matter.

ITEM 6.  EXHIBITS

INDEX OF EXHIBITS

 
           

Exhibit

 

 

 

  

Incorporated Herein by Reference

No.

 

   

Exhibit Description

 

Exhibit

 

Filing Date

10.1 Letter Agreement with Rajiv Ahuja dated March 25,2020  8-K 10.1 March 31,2020

31.1*

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

31.2*

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

32.1*

 

Written Statement of the Chief Executive Officer and Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

  

 

 

 

 

 

101*

 

The following materials are formatted in Extensible Business Reporting Language (iXBRL): (i) Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, 2020 and 2019 (Unaudited), (ii) Consolidated Balance Sheets as of March 31, 2020 (Unaudited) and December 31, 2019, (iii) Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 (Unaudited) and (iv) Notes to Consolidated Financial Statements (Unaudited)

 

  

 

 

 

 

 

104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)        

*

Filed with this Form 10-Q.

ExhibitIncorporated Herein by Reference
No.Exhibit DescriptionFormExhibitFiling Date
31.1*
31.2*
32.1*
101*The following materials are formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, 2019 and 2018 (Unaudited), (ii) Consolidated Balance Sheets as of March 31, 2019 (Unaudited) and March 31, 2018, (iii) Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018 (Unaudited) and (iv) Notes to Consolidated Financial Statements
*Filed with this Form 10-Q.



SIGNATURES

Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

STARTEK, INC.
   

STARTEK, INC.

By:

/s/ Lance Rosenzweig

Date: May 9, 2019

Lance Rosenzweig

By:

President and Global CEO

/s/ Aparup Sengupta

Date: June 10, 2020

Aparup Sengupta

Global CEO

(principal executive officer)

By:

/s/ Ramesh Kamath

Date: May 9, 2019June 10, 2020

Ramesh Kamath

Chief Financial Officer

(principal financial and accounting officer)





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